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Imputation and corporate attribution: Finding the real income

Updated: Jun 8, 2020

By: Andrew P. Murphy, Associate Lawyer

Family Law Team


When couples separate, each party’s annual income is necessary to determine child or spousal support obligations. To calculate a party’s annual income can be difficult. Some people make money “under the table” and do not report income for tax purposes. Others may hold shares in a corporation which retains earnings within the corporation as opposed to paying the shareholder. Even more common is the personal use of corporate assets such as the company truck, fuel, and other perks. What is the real annual income for these people?


The guide for determining one’s annual income for the payment of child or spousal support is the Federal Child Support Guidelines (‘the Guidelines’). The Guidelines indicate that the starting point for determining annual income is the gross annual income listed at line 150 of the individual’s income tax return. However, line 150 or gross annual income does not tell the whole story for many people.


For example, say an individual owns a woodlot and does cash sales and reports only $25,000 a year in gross income on his or her annual income tax return. In the same calendar year, this individual buys three Harley Davidson motorcycles and goes to Cuba four times.


Section 19 of the Guidelines is designed to address the problem of understated income by giving the Court the authority to “impute” income. In this example, the court may consider evidence such as business records or even testimony concerning any unreported income of the woodlot owner, as well as evidence directed to the lifestyle of the woodlot owner. This inquiry is meant to determine a realistic annual income of the woodlot owner for purposes of support payments.


Another example: An individual is a shareholder and officer of a corporation. The corporation holds an excess of income from the fiscal year, more so than its business needs. The individual’s line 150 of their income tax return indicates a gross annual income of $50,000, but the individual is capable of drawing more funds from the corporation. They just choose not to do so in the tax year.


Section 18 of the Guidelines is designed to address “corporate attribution” by allowing the court to attribute income from the corporation to the individual. The court will hear evidence as to whether the pre-tax income of the corporation is more than that required by the corporation to meet its routine business needs. If so, the court may determine that the individual has more money available than their individual tax return indicates.


Arguments made by lawyers concerning “corporate attribution” often require the input of experts, such as accountants or tax professionals, to interpret the needs of the business and the level of corporate income which may be attributed to the individual in a tax year.


In summary, Section 18 and 19 of the Guidelines provide tools to the Court to ensure that one’s annual income is a genuine measure of their financial capabilities, and that one should not escape their financial obligations to their dependents through understated income or complex corporate vehicles.

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