Self-employed parents and child support

Not necessarily. Line 15000 might not accurately reflect a self-employed parent's income for the purposes of the federal child support guidelines.

For people who are self-employed, line 15000 is their gross income (all the income they received) minus their business expenses. But deductions that are acceptable for income tax purposes might not be considered acceptable for calculating child support.

For example, cell phone expenses or home office expenses might not be an appropriate deduction for child support purposes because the parent personally benefits from the cell phone and the home office. This means they're also ordinary living expenses, so some of those expenses could be added back to the parent's income.

The court uses a common-sense approach to decide which expenses should be added back into the parent's income to calculate child support.

The parent claiming business expenses must show that they're reasonable deductions for the purpose of calculating child support. They might need to provide documentation to prove this.

The parent claiming business expenses must show that they're reasonable deductions for the purpose of calculating child support. They might need to provide documentation to prove this.

For income:

• Total income: Line 15000 shows a person’s total income. For self-employed people, this is their gross income minus business expenses, before taxes are deducted. For regular employment income, it's gross income before tax deductions. (Gross income means all the income received, before any deductions or credits are made.)
• Income broken down into types/sources: Types of income are listed in lines 10100 – 14700. This includes all types of income or benefits the person received. For example, employment income, rental income, and pension income.
• Self-employment income: Lines 13499 – 14300 list gross and net self-employment income.
  • Line 13499 is the gross income. This figure is the total income that was brought in by the business. Expenses and costs have not been deducted from this figure.
  • Line 13500 is the net income. Expenses and costs have been deducted from this figure.

For business expenses:

Look at the form called "Statement of Business or Professional Activities, (T2125)," which forms part of the complete tax return. It shows income, GST and other taxes collected, deductions, and business expenses.

• Deductions: Line 8519 deducts the cost of goods that were purchased for the business and subcontractors (for example, inventory or goods that were bought to sell).
• Business expenses: Lines 8521 – 9270 break down the claimed business expenses.

• Personal expenses must be "reasonable and for legitimate business purposes." For example, some or all of the following expenses listed on the Statement of Business or Professional Activities might be added back to the parent's income if they include a personal expense component:
  • meals and entertainment (line 8523)
  • home office expenses (line 8810)
  • travel expenses (line 9200)
  • motor vehicle expenses, and fuel costs (line 9281)
• Capital cost allowances on real property (line 9936) are deductions made on real property, such as depreciation on buildings. "Real property" is land and what is permanently attached to the land, such as buildings. Deductions for capital cost allowances on real property are sometimes added back into a parent's income because real property doesn't typically depreciate the way personal property, such as a vehicle, does.
• A terminal loss (line 9948) is when an asset is sold for less than its undepreciated value. A recapture is when an asset is sold for more than its undepreciated value. These one-time gains or losses can make a self-employed person's income seem higher or lower than it really is, and are sometimes added back in.

Ask the other parent to explain what the expenses were for. The parent who wants to deduct business expenses must explain the reasons for the expenses and how they were calculated. They must also provide documentation of the expenses if asked.

Try to negotiate these expenses and agree on an appropriate amount to put back into the line 15000 income for the purposes of calculating child support.

If you can't agree yourselves, try to work it out with a mediator or get help from a lawyer. If you still can't agree, you might have to ask a judge to decide for you. Remember that a judge can impute (estimate) a parent's income if the parent has unreasonably deducted unreasonable expenses from their income.

Working all this out can feel overwhelming and tedious, but children have the right to support according to their parents' incomes.

Sometimes the self-employed parent simply agrees to add a percentage to their line 15000 every year, to account for the extra deductions, and the parents decide what that percentage will be. Others will agree that certain deductions won't be included (for example, a home office expense). Others work it out every year.