Spousal Support Advisory Guidelines: The Revised User's Guide
20 Retroactive Spousal Support
(a) General principles
The law of retroactive spousal support was revised and restated in Kerr v. Baranow, 2011 SCC 10, after the release of the SSAG. The Supreme Court of Canada ruled that the retroactive child support analysis of D.B.S. v. S.R.G., 2006 SCC 37, with some modifications, should be applied to the determination of retroactive spousal support. The D.B.S. factors are:
- the reasonable excuse for any delay in seeking support by the recipient;
- the presence or absence of blameworthy conduct by the payor;
- the circumstances of the support recipient; and
- any hardship to the payor occasioned by a retroactive award.
As Cromwell J. said, “similar considerations” should apply to retroactive spousal support. Because spousal support is different, involving claims between adults, “concerns about notice, delay and misconduct generally carry more weight in relation to claims for spousal support” (para 208). The date of effective notice plays an important role. The failure of the recipient to bring an interim application is not necessarily indicative of delay, ruled Justice Cromwell, provided the recipient commences proceedings promptly after separation and pursues those proceedings to trial with diligence (para 216). In Kerr, the wife’s spousal support was determined using the SSAG and the award was made retroactive by the trial judge to the commencement of the proceedings. That retroactive award had been reversed by the B.C. Court of Appeal, but the Supreme Court of Canada restored the trial judge’s decision.
Prior to Kerr, there had been an increase in retroactive spousal support claims, but they took a real jump after Kerr. The Spousal Support Advisory Guidelines also proved to be a factor in the increases, as the SSAG made it easier to quantify retroactive claims. It is now common for prospective support claims to be accompanied by retroactive claims. There are now more than one hundred retroactive spousal support decisions every year.
There has been some debate about the use of the word “retroactive” for these claims. The term itself is often used loosely, to mean simply any award of support for a period before the hearing or resolution of support issues, rather than its more technical meaning, i.e. an award of support for a period prior to the filing of an application or petition to the court. In this context, we will use the term here in its loose, colloquial sense.
There are two settings where “retroactive” spousal support is raised most frequently: (i) at the time of the initial order or agreement, where it may be necessary to revisit the amount and duration of interim spousal support; and (ii) on an application to vary spousal support, with a claim for retroactive support accompanying the claim for varied prospective support. Quite often, claims for retroactive spousal support are made at the same time as claims for retroactive child support, which further complicates the analysis.
(b) Use of the SSAG
In calculating retroactive spousal support, once retroactive entitlement has been found under the Kerr analysis, the SSAG are invaluable in working out the amount of support back to whatever commencement date is determined. Further, the retroactive calculation has the huge advantage of using actual, known incomes.
For some post-Kerr appellate decisions using the SSAG to calculate retroactive spousal support, see Frank v. Linn, 2014 SKCA 87; Remillard v. Remillard, 2014 MBCA 101; and MacQuarrie v. MacQuarrie, 2012 PECA 3.
(c) Tax issues
Retroactive spousal support is paid in the form of a lump sum. Ordinarily, lump sum spousal support is neither deductible to the payor, nor taxable in the hands of the recipient. This means that any calculation of periodic spousal support, or increased support, must be discounted or netted down to arrive at an after-tax amount.
For cases where this discounting is discussed, see Hume v. Tomlinson, 2015 ONSC 843; Samoilova v Mahnic, 2014 ABCA 65 (retroactive lump sum support 2004-08 calculated using mid-point SSAG, initially no adjustment for tax, subsequently discounted by 30%; appeal dismissed; the discount rate the judge chose was an average of the parties' respective marginal tax rates and was reasonable, based on the evidence); Robinson v. Robinson, 2012 BCCA 497; and Patton‐Casse v. Casse, 2011 ONSC 6182 (supplementary reasons to 2011 ONSC 4424) (balance between respective tax positions of parties necessary). See also the discussion of discounting lump sums arrived at in restructuring prospective support under “Restructuring”, above.
There is now an additional method of resolving these tax issues in the case of retroactive support. In 2013, the Tax Court ruled in James v. Canada, 2013 TCC 164, that a large lump sum retroactive top-up payment ordered by the B.C. Court of Appeal could be deducted by the husband. The Canada Revenue Agency has now accepted the policy underlying this decision, in its Income Tax Folio S1-F3-C3, which was updated effective March 5, 2015 (these Folios replace the older Interpretation Bulletins, in this case IT-530R). The payor is permitted to deduct the lump sum payment where it can be identified that:
- the lump sum payment represents amounts payable periodically that were due after the date of the order or written agreement that had fallen into arrears, or
- the lump sum amount is paid pursuant to a court order that establishes a clear obligation to pay retroactive periodic maintenance for a specified period prior to the date of the court order.
In these cases, the recipient who must pay tax can complete Form T1198 (Statement of Qualifying Retroactive Lump-Sum Payment) and CRA will adjust the recipient’s relevant prior year taxes, to reduce the impact of the one-time payment. At the time of any settlement or order, it will be necessary to make an estimate of the tax implications for both parties, if this option is chosen. For a judicial reference to this tax method, see Frank v. Linn, 2014 SKCA 87.
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