Saturday, 28 March 2015

Sheltering Income through a Corporation

Clients who own their own business may chose to keep income in the business or corporation. This ultimately affects their true income at tax time. Retaining earnings can become a cause for concern for the recipients of Child or Spousal Support. 

However, Section 18 of the Child Support Guidelines provides a mechanism by which the Court can include as part of a payer’s income the retained earnings in a corporation for which the payer is a shareholder, director or officer. The Court is more likely to do this where the payer is a sole shareholder or director. 

The Court can carry out a similar analysis for Spousal Support.  

The Court should not include in the payer’s income monies needed to maintain the value of the business as viable. 

From the payer’s perspective, if monies are retained by a corporation, there should be good reason and proper documentation for the retained earnings.  From the recipient’s perspective, it is important to look at the corporate finances as well as the payer’s personal income tax returns.  

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