Self-employed individuals face different treatment under tax law than a typical T4 employee. However, many are surprised to find out just how much one’s employment status can also impact their family law experience. The reality in Canada is that tax and family law are heavily intertwined, and more than just income needs to be considered when an individual is facing a relationship breakdown.
Separating and divorcing individuals need to work closely with their accountants and family lawyers, whether they are the self-employed party, or simply the former spouse of a self-employed individual.
Andrew Feldstein will be discussing the implications of self-employment in the context of separation and divorce.
For example, when drafting a separation agreement, parties should be conscious of attribution issues with regards to the selling of real estate, capital gains and losses, money left behind in their company and double dipping in retirement accounts. These can all impact how support payments are calculated. By ensuring that both parties understand how these values will be accounted for over time, conflict can be avoided down the road.
Additionally, the calculation of income for support purposes may be impacted by cash income, business expenses, and pre-corporate tax income. These are all potential sources of income that the court can consider when imputing income to a self-employed individual. As such, both parties should be aware of how these sources of income should be incorporated into private negotiations.
Mr. Feldstein will also discuss strategic business management, including the importance of timing when withdrawing money from a business as it relates to support calculations.
Looking to the future, Mr. Feldstein will provide some commentary on the implications of potential legislative changes on income for support purposes. The Liberal government has changed the law requiring professionals to be taxed on ‘work in progress;’ effectively money that business owners expect to collect at some point but have not yet received or even billed. The consequences to business owners who are also support payers may be punitive, and Mr. Feldstein will break down the potential results such change would yield.