Yes. If a parent or spouse is a shareholder, director or officer of a corporation and their personal income does not fairly reflect all the money available to them, an Ontario court can count all or part of the corporation's pre-tax income for the most recent taxation year, including related corporations, or an amount that fairly pays for the services they provide to it (Child Support Guidelines, s. 18). Salaries and benefits paid to relatives through the company are added back unless shown to be reasonable.
How corporate income is brought into support, step by step
Business owners and incorporated professionals often decide how much of the company's profit they take as salary or dividends and how much stays in the company. Support law, introduced on our child and spousal support page, asks a narrower question: how much money is really available to support the family? Section 18 of the guidelines is the main tool. Ontario's O. Reg. 391/97 has the same rule for cases under the Family Law Act.
- Start with personal income. Salary, bonuses and dividends paid to the person appear on the T1. Dividends are counted at the actual amount received, not the grossed-up taxable amount (Schedule III, s. 5).
- Ask whether that fairly reflects what is available. Section 18(1) applies only where the court is of the opinion that personal income "does not fairly reflect all the money available" for support. A company that retains profits it does not need is the typical case.
- Choose a method. The court may include (a) all or part of the pre-tax income of the corporation, and of any related corporation, for the most recent taxation year, or (b) an amount commensurate with the services the person provides to the corporation, but not more than the corporation's pre-tax income (s. 18(1)).
- Add back non-arm's-length payments. In working out the corporation's pre-tax income, salaries, wages, management fees and other payments or benefits to people the corporation does not deal with at arm's length must be added back, unless the spouse shows they were reasonable (s. 18(2)).
- Look at more than one year where needed. Section 18(1) allows the court to "consider the situations described in section 17", so a three-year pattern, a fluctuation or a one-time amount can be taken into account.
- Get the documents. A spouse who controls a corporation must provide the financial statements of the corporation and its subsidiaries for the three most recent taxation years, and a breakdown of payments to non-arm's-length people by the corporation and every related corporation (s. 21(1)(f)).
The two section 18 methods compared
| Pre-tax income method, s. 18(1)(a) | Services method, s. 18(1)(b) | |
|---|---|---|
| What is counted | All or part of the corporation's pre-tax income, including related corporations | An amount commensurate with the services the person provides to the corporation |
| Which year | The most recent taxation year, with the s. 17 situations considered | Not tied to a year by the wording; capped by pre-tax income |
| Upper limit | The pre-tax income itself, after non-arm's-length add-backs | Cannot exceed the corporation's pre-tax income |
| Typical use | Owner controls the company and profit sits in it | Owner works in the company but profit depends on others or on capital |
| Evidence often used | Corporate financial statements, tax returns, accountant's report | Market rate for the person's role, hours, responsibilities |
What changes the answer
- Control. The disclosure duty in s. 21(1)(f) applies where the spouse controls the corporation. A minority shareholder who cannot decide whether profits are paid out is in a different position from an owner who can, and that bears on whether personal income fairly reflects what is available.
- A real business need to keep money. The section asks about money "available". Evidence that the company must keep earnings, for example to meet loan terms, buy equipment or carry seasonal costs, is relevant to how much, if any, of the pre-tax income is included. Bare assertions usually carry little weight.
- Related corporations. Holding companies and sister companies are included through the words "any corporation that is related to that corporation" (s. 18(1)(a)). Moving profit to a holding company does not take it outside the section.
- Family on the payroll. Payments to a new partner or relative are added back unless shown to be reasonable (s. 18(2)). For an unincorporated business, the matching rule is Schedule III, s. 9, discussed on our page about self-employed income for support.
- Tax-advantaged income. Where a person derives a significant part of income from dividends, capital gains or other sources taxed at a lower rate than employment or business income, the court can impute income (s. 19(1)(h)), which is how the tax difference is often addressed.
- The same company in the property case. Shares are property for equalization, and the company's retained earnings may already be reflected in the share value. Our page on a business owned by one spouse covers valuation. Raise the overlap early so the same money is not counted in a way that is unfair to either side.
- The online service is not an option. Ontario's Child Support Service cannot be used if the paying parent is a partner or majority shareholder of a business, among other exclusions (ontario.ca).
A worked example
For example, take Dr. Hana Lee, a dentist practising in North York through a professional corporation. This is a hypothetical. Last year the corporation's pre-tax income, after paying her nothing in salary, was $310,000. She paid herself $140,000 in dividends, and the corporation paid her new partner $55,000 as an "office administrator" for occasional bookkeeping.
- Personal income: $140,000 in actual dividends (Schedule III, s. 5).
- Non-arm's-length add-back: if a fair rate for the bookkeeping is $10,000, the other $45,000 is added to the corporation's pre-tax income (s. 18(2)), giving $355,000.
- Avoiding double counting: the $140,000 of dividends came out of that year's after-tax profit, so a careful calculation does not simply add the full $355,000 on top of the dividends without adjusting for corporate tax and the amount already paid out.
- Retained earnings: if the practice can show it needs about $60,000 for a new chair and imaging equipment, a court might leave that in the company and count the rest of what is available.
The figures are invented, and the tax adjustments are usually done by an accountant or income valuator. The point is the structure: personal income, plus available corporate income, with add-backs and without double counting.
Common mistakes with corporate income
- Showing only the T1. For an owner who controls a corporation, the personal return is the start of the picture, not the whole of it.
- Treating retained earnings as untouchable. Section 18 exists to look past the decision to leave money in the company.
- Assuming every dollar of retained earnings counts. The section is about money available. A real business need is relevant.
- Counting dividends twice. Dividends paid and the same year's corporate profit overlap. Get a proper calculation.
- Ignoring related companies. Holding and sister companies are within s. 18(1)(a).
- Late corporate disclosure. Missing financial statements invite imputed income and costs (ss. 19(1)(f), 22 and 23). Our page on what counts as income for support covers imputation generally.
What to do this week
- Gather three years of financial statements and corporate tax returns for every company you control, including holding companies.
- Prepare a list of every salary, fee or benefit paid to a relative or partner, with what they do.
- Ask your accountant for a short note on any money the company must keep for a real business purpose.
- Collect three years of your personal returns, notices of assessment and dividend slips.
- If you are the other parent, write down what you know about the companies: names, accountant, bank, vehicles, staff. If you fear money is being moved, read our page on preservation orders.
- Book a free consultation before income figures are exchanged, so the method and documents are right from the start.
Frequently asked questions
Does section 18 apply to spousal support as well as child support?
The Spousal Support Advisory Guidelines start from the Federal Child Support Guidelines definition of income, so the same approach to corporate income is the usual starting point (SSAG, chapter 6.1). Our page on spousal support at high incomes covers the next step.
What does "pre-tax income" mean here?
It is the corporation's income before corporate income tax, adjusted under s. 18(2) by adding back unreasonable payments to non-arm's-length people. The court can include all or part of it.
What if the corporation had a loss last year?
Section 18(1)(a) refers to pre-tax income for the most recent taxation year, and the services method is capped at pre-tax income. Where results swing, s. 17 lets the court consider a pattern over three years.
Can a court count income from my holding company?
It can, if it is related to the operating company: the section includes "any corporation that is related to that corporation".
What documents must I give if I own a company?
If you control it, three years of financial statements for the corporation and its subsidiaries, and a breakdown of payments to non-arm's-length people (s. 21(1)(f)), plus your personal returns. Our page on yearly income disclosure covers the continuing duty.
Is child support above $150,000 different?
Where corporate income lifts total income above $150,000, s. 4 can come into play. Our page on child support when a parent earns over $150,000 explains it.