Alberta Court of Appeal Sets New Test for Imputing Income for Support Purposes

The calculation of how much a parent is required to pay in child support is based on how much that parent earns. Normally, the court will determine what the parent’s income is by looking at their annual tax return, or the tax returns of any corporation that the parent operates.

However, determining a person’s income may be more complicated in situations where one parent believes the other parent is intentionally unemployed or earning less than they are capable of. In such situations, the Federal Child Support Guidelines allow courts to impute income to the under-employed parent – meaning that they can attribute an amount of income to the parent that is higher than what their tax return reflects, and calculate their support obligation based on the higher amount.

In the recent decision of Peters v Atchooay, 2022 ABCA 347, the Alberta Court of Appeal established a new test for deciding when a parent’s employment choices warrant imputation of income. The new test sets a lower threshold for imputation of income, and may make it more difficult for parents to avoid paying an amount of support that reflects their actual earning potential.

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The Previous Test for Imputing Income under Hunt v. Smolis-Hunt

Since the 2001 Alberta Court of Appeal decision in Hunt v. Smolis-Hunt, 2001 ABCA 229, the test for determining whether a parent was intentionally under-employed or unemployed required a finding of deliberate intent to evade or undermine his or her child support obligations. The test prioritized a parent’s freedom to choose their own career path.

The requirement of deliberate intent or bad faith was unique to Alberta and had been rejected by courts in other provinces. In all other provinces, a less demanding test of reasonableness is used in determining whether to impute income to a parent.

In Peters v. Atchooay, the Court reconsidered the test for imputing income established by Smolis-Hunt, and concluded that a change was required.

The Facts in Peters v. Atchooay

The mother appealed a decision that had retroactively reduced the father’s child support obligations for their two children. At the time of his application, the father had accumulated over $122,000 in child support arrears between 2014 and 2020. The father claimed that after a high of $111,351 in 2012, his income had steadily dropped to nil by 2019. Despite noting that the father had provided “no real evidence” as to what efforts he had made to find work, the special chambers judge recalculated the father’s arrears to reflect his reduced income.

The Court Decision in Peters v. Atchooay

The Court of Appeal allowed the mother’s appeal. In doing so, the Court held that the test set out in Smolis-Hunt should be reformulated, as it does not accord with the language of s. 19(1)(a) of the Guidelines or the Guidelines’ over-arching purpose. In the Court’s view, nothing in the Guidelines suggests that a deliberate intention to evade support obligations is required, and the application of a “deliberate evasion” test is impractical and unworkable.

Instead, a court’s discretion in imputing income should put the priority on the best interests of the child:

[71]  A parent’s personal goals and life-style choices do not take priority over their obligation to financially support their children. It is recognized that for many who work, it provides more than a livelihood; it provides a sense of identity, self-worth and well-being. However, […] parents have an obligation to support their children financially. […] [72]  Ensuring that children receive a level of support consistent with the relative abilities of those obliged to contribute will often require ameliorating the economic impact of a parent’s voluntary decision to be under-employed or unemployed through imputation of income.

The New Test for Imputing Income Arising from Peters v. Atchooay

As a result of Peters, the “deliberate evasion” test established in Smolis-Hunt has been replaced by a test of reasonableness.

The Court indicated that the phrase “intentionally under-employed or unemployed” in s. 19(1)(a) of the Guidelines should understood to mean that the parent’s employment situation results from a voluntary act, such as choosing to work reduced hours or taking a lower-paying job that does not utilize their training or skills, when there was no reason for them to do so. However, it will not be necessary to establish that the parent made that choice with the specific intention of avoiding their child support obligations.

As set out in Peters, when the issue of possible under-employment or unemployment and the imputation of income arises, the following analysis applies:

IS THE PARENT IN QUESTION INTENTIONALLY UNDER-EMPLOYED OR UNEMPLOYED?

There is a general duty for parents to seek employment where they are healthy and can work. A parent is intentionally under-employed where their income is less than they are capable of earning. However, imputation of income is not appropriate if the under-employment or unemployment arises involuntarily through circumstances beyond the control of the parent, such as being laid-off.

DO THE EXCEPTIONS TO IMPUTATION THAT ARE INDICATED IN S. 19(1)(A) OF THE FEDERAL CHILD SUPPORT GUIDELINES APPLY?

The Guidelines recognize that under-employment or unemployment may be required by the needs of the child or by the reasonable educational or health needs of the parent.

SHOULD JUDICIAL DISCRETION TO IMPUTE INCOME BE EXERCISED?

The question of whether to impute income remains discretionary, and requires the court to decide whether the voluntary under-employment or unemployment is reasonable in all of the circumstances. The court should not focus on the parent’s choice, but rather on the consequences to the child flowing from that choice. Reasonableness is informed by the parents’ parenting arrangements, the ages of the children, and the parent’s history of paying child support and providing financial disclosure.

Evaluating Whether a Parent is Under-employed Before Imputing Income

In most cases, the parent seeking to impute income to the other parent has the initial burden of establishing evidence that supports a finding of under-employment – for example, that the other parent has had a sustained drop in income, without any health problems or other reasons to explain why that has occurred. Evidence of the parent’s capacity to earn income, including age, education, experience, skills, and availability of work, may also be relevant.

The burden then shifts to the parent who opposes imputation to explain their reduced level of income.

Conclusion

With the release of Peters v. Atchooay, the Alberta Court of Appeal has brought Alberta in line with the rest of Canada with respect to the test for imputing income for child support purposes. The test is now based on reasonableness, having regard to all of the relevant circumstances. A finding of deliberate evasion or bad faith, as required by the previous test in Smolis-Hunt, is no longer a necessary condition for imputing income.

Family lawyers are equipped with the knowledge and experience to help parents navigate their family law proceedings and can assist in addressing the issues that may arise from a child support claim, including the financial disclosure required and the imputation of income, if appropriate.

If you need help with any aspect of separation or requesting child support from another parent, speak with one of the lawyers at Spectrum Family Law in Alberta. We can help you assess your options during an initial consultation.

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