II Summary of the 1990s Canadian Research

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In 1990, the Federal, Provincial and Territorial Deputy Ministers of Justice gave the Federal/Provincial/Territorial Family Law Committee (FLC) a mandate to examine child support in Canada. A key outcome of this mandate was the completion of research by the Department of Justice Canada.

This research addressed the fundamental questions that underpin child support guideline construction. The results are summarized in various research reports.17 Using the framework outlined in Chapter I, this section briefly summarizes the research completed to develop the Federal Child Support Guidelines.

A. Rationale for the Legal Framework

The 1990 mandate to the FLC to study the issue of child support upon family breakdown came as a result of a number of factors. These factors were outlined in a public discussion paper published by the FLC in June 1991. This paper noted that “The present Canadian system of determining child support, which relies heavily upon judicial discretion, is being seriously criticized by commenters and organizations, and a review of the system is highly recommended.”18

The major problem relating to the child support system at that time was “the inconsistency of child support awards, the inadequacy of these awards, and the inequity of the system”.19 One of the root causes of these problems was the lack of a consistent approach used by parents and the legal system to determine child support amounts.20

The method used prior to the introduction of the Federal Child Support Guidelines (Federal Guidelines) was derived from a 1971 court case: Paras v. Paras21. It involved calculating the proportion of the paying parent’s income (usually gross) relative to the two parents’ combined incomes, and applying that proportion to an amount of expenditures on the child (either agreed to by the parents or decided by the court). The child support amount was calculated using this approach on a case-by-case basis.

The FLC research reports identified several problems with this approach to determine child support amounts. They were as follows:

• The child support amounts generated using Paras v. Paras were inconsistent in similar family situations. While there may have been consistency in a particular judge’s decisions over time, there was considerable inconsistency in child support amounts both within a jurisdiction and certainly between jurisdictions.
• How parents estimated the expenditures on their children varied significantly both between parents and between cases of similar circumstances. Furthermore, the receiving parent bore most of the responsibility for identifying and validating the expenditures – often resulting in controversial and difficult discussions between parents. There was “...growing concern that the costs of children are seriously underestimated by the judges, lawyers and by the parties themselves”.22 This process often would lead to many different levels of expenditures being proposed.
• How expenditures were apportioned between the parents was also problematic. Using the Paras vs. Paras approach, costs were divided in proportion to the parents’ incomes. The overall conclusion of FLC was that the Paras v. Paras approach to determining child support amounts was not meeting the needs of children. In short, the system was producing inadequate amounts, there was inconsistency between similar fact cases and there were inequities in the system.23

In the early 1990s, the FLC conducted public consultations24 and worked with the Department of Justice Canada on research to examine alternatives to the existing child support system. At the same time, several other countries and American states also were either studying the issue of child support25 and/or implementing new child support models. The FLC considered these proposed approaches that included a type of formula (e.g., income shares or percentage of income and their variants) in its own research. The work culminated in a report to the Ministers of Justice.26

B. Summary of the Research that Led to the Creation of the Federal Child Support Guidelines Formula

Several authors have commented on the complexity underpinning the creation of any child support formula.27 This complexity is due to the number of conceptual issues that need to be addressed and decided upon in such an undertaking. This section provides a summary of the research that led to the formula used in the Federal Child Support Guidelines.

As stated earlier, a formula typically is comprised of two elements:

• An approach to develop a reasonable estimate of the amount of expenditures on the child that the two parents will share.
• An approach to apportion that amount between the two parents.

1. An approach to determining a reasonable estimate of the expenditures on children that the two parents will share

One of the first issues that was examined was how to determine the actual expenditures on children in Canada. It was identified early on that although the economic literature in this area was extensive, there was no consensus on the best approach to estimating these expenditures.28 Three leading economists (Martin Browning, Shelley Phipps and Joanne Fedyk)29 were retained by the Department of Justice Canada to provide their expert opinions on the best method of estimating expenditures on children. The proposed methods focused on answering two questions. The first was “How much do parents actually spend on their children?” The answer involved finding sources of data that captured actual expenditures on children. The second question was “How much extra income is needed by a family with children in order for it to have the same standard of living as a family with no children?” The answer to this question involved finding sources of data that captured spending patterns of families. Together, the answers to these two questions resulted in the development of four economic models.30

All of these models had different assumptions and required access to different data sources, which yielded quite different estimates of expenditures on children. Nonetheless, some common patterns emerged31:

• Family income determines the level of spending on children – the higher the family income, the more the family spends on their children, although not necessarily proportional to the income.
• Expenditures increase with the number of children – the more children families have, the more total income they spend on their children, although there are economies of scale realized in having larger families. Subsequent children are not as costly as the first child.
• Once variations in family income or number of children were taken into account, there were no regional differences on expenditures on children. Families tend to spend the same regardless of where they live.

Following extensive consultation with various economists, a consensus emerged that there was no approach that yielded the most accurate expenditures on children.32 Furthermore, regardless of the economic model used, the national expenditure data collected by Statistics Canada (Survey of Family Expenditures) was the best available source33 for deriving reliable estimates of spending on children in Canada. This expenditure data was then used in the development of the economic models noted above for consideration by the FLC.

As the Department of Justice Canada was in the process of conducting the research, it also looked at what factors other jurisdictions were considering in the development of their child support models. These included:

• How child support amounts are treated by the tax system (e.g., whether the amount is counted as income and taxed; whether payment of it can be deducted by the paying parent and included as income by the receiving parent).
• The impact of a self-support reserve or a “floor” below which the paying parent would not be financially liable to pay the child support amount; and
• The different approaches to determining income for the purposes of the calculation of child support. For example, what types of income (e.g., pension, self-employment, capital income) are to be included, and whether net or gross income are used in the calculations.

In addition to the above noted factors, the FLC also requested research on the following issues.

a) Impact on standards of living

Of particular interest was the impact of either paying or receiving child support on the standard of living of each household following a divorce or separation. The research included the analysis of various approaches to adjust the models to take into consideration, for example, low-income families and the threshold below which a paying parent would not have to pay child support.

b) Tax implications

The FLC also recognized the impact of the relevant Canadian tax treatment of the child support amount as it was taxed as income in the hands of the receiving parent and treated as a deduction in the hands of the paying parent. Considerable analysis was conducted on the effects of this tax treatment of child support on the resulting standards of living for the two households. It should be noted that the Income Tax Act34 was in fact changed so that child support was no longer treated as income (for the receiving parent), nor as a taxable deduction (for the paying parent).35

c) Method chosen to determine the amount that the parents will share36

Following extensive consultations37, the FLC recommended, as a result of “limited support for the proposed methods of determining expenditures on children”38, the selection of a method identified by Statistics Canada as the “40/30 equivalence scale.” Please see Department of Justice’s Formula For The Table Of Amounts Contained In The Federal Child Support Guidelines: A Technical Report (1997)39 for a description of how the scale works.

2. An approach for apportioning the amount between the two parents

The second element that was examined in the construction of child support guidelines was to determine how to apportion the amount between the two parents. The FLC examined research and consulted on apportioning methods that were based on one or more of the following five principles:

• The paying parent’s pre-separation/divorce level of contribution to the expenditures is maintained.
• The relative standard of living of both households following separation/divorce in proportion to their income is achieved.
• The standard of living in each household following the separation is equalized.
• The standard of living that the child experienced prior to the divorce/separation is maintained.
• The percentage of the paying parent’s income that would be allocated to child support needs to be based on their ability to pay that amount.

As outlined in its report to Deputy Ministers40, the FLC examined seven different approaches to apportioning the amount between the parents. All were based on a variation of the five principles noted above. The recommended principle, which underlies the apportioning approach used in the Federal Guidelines, was to try to maintain the standard of living of the child as much as possible to the level that the child experienced prior to the separation or divorce.

a) Creation of the formulas and a comparison to actual court data

Following a review of the various economic models to determine an amount that the two parents would jointly contribute as well as various ways to apportion that amount between the two parents, various formulas were created based on a combination of those two elements. In total, seven formulas were developed.41 One was the Revised Fixed Percentage Formula. This formula has the principal characteristics of a flat-percentage formula, where only the income of the non-custodial parent is used in the calculations and the child support award is determined by applying a fixed percentage amount to that income.42

To assist in assessing the seven formulas, the Department of Justice Canada collected data on the child support amounts contained in child support orders in family court cases from fifteen court districts in selected jurisdictions across Canada.43

b) Creation of the Federal Child Support Tables

Following an assessment of the results using the formulas and taking into consideration the overall objectives that the FLC believed should guide the development of child support guidelines, the FLC recommended the Revised Fixed Percentage Formula to the Deputy Ministers of Justice for their consideration.44

The Canadian child support formula and the Federal Guidelines came into effect on May 1, 1997.

C. Rules Used to Generate the Final Child Support Amount

In addition to the Federal Child Support Tables, the Federal Guidelines also include rules to determine the final child support amount. These rules are outlined below.

1. Determination of income

Accurate assessment of “parental means” – the incomes of the parents to be used to apportion the expenditures on the child – is critical to determining the appropriate child support amount. As noted earlier, establishing parental means was an issue that parents faced prior to the introduction of the Federal Guidelines.45

The chosen definition of “income” is comprehensive and is contained in the Federal Guidelines.46 

2. Impact of parenting/custody arrangements on child support amounts

Most divorce cases in the 1980s and 1990s resulted in the child residing for a majority of the time with one parent, i.e., sole custody47. Statistics from this era showed that either the mother (79.3%) or the father (6.6%) had “exclusive custody” of the children.48 How the issues of sole custody of the children and how the amount of time the children spend with either parent both affect the calculation of child support is outlined in two FLC reports: Child Support: Public Discussion Paper49and Report and Recommendations on Child Support50.

In addition to the consultations with parents and family law professionals on ways in which the child support guidelines should take into consideration the amount of time each parent spends with the child, the approach taken by other jurisdictions also was examined.51 Many jurisdictions52 allowed for a reduction of the child support amount to compensate parents for time spent with their child.53 In these jurisdictions, the guidelines allowed for deviations from the formula amount in cases where there were extended visitations (usually above 20%-30% parenting time with the child). In others, all of the expenditures on children were increased by 50% to account for “added” expenditures that were incurred in the non-custodial parent’s household. These increased expenditures were then shared between the parents based on the proportion of parenting time with the child.54

Under the Federal Guidelines, where shared custody/parenting time is defined as at least 40% of the time, the courts have discretion to determine a child support amount based on the child support tables, the increased costs of such arrangements and the means, needs and other circumstances of each spouse and of any child for whom support is sought. 55

3. Impact of special or extraordinary expenses56

Special or extraordinary expenses are characterized as expenditures for children that likely don’t apply to all children of separating or divorcing parents and thus are expenditures that are not covered by the Table amounts. The Federal Guidelines define “special or extraordinary expenses” as expenses that are:

• Necessary because they are in the child’s best interests.
• Reasonable given the means of the parents and the child and in light of the family’s spending patterns before the separation.

Special or extraordinary expenses are:

1. Childcare expenses incurred as a result of the custodial parent’s employment, illness, disability or education or training for employment.
2. The portions of medical and dental insurance premiums attributable to the child.
3. Health-related expenses that exceed insurance reimbursement by at least $100 annually, including orthodontic treatment; professional counselling provided by a psychologist, social worker, psychiatrist or any other person; physiotherapy; occupational therapy; speech therapy; and prescription drugs, hearing aids, glasses and contact lenses.
4. Extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child’s particular needs.
5. Expenses for post-secondary education.
6. Extraordinary expenses for extracurricular activities.

4. Concept of undue hardship57

The Federal Guidelines recognize that, in some cases, an amount of child support, combined with other circumstances, could create undue hardship for a parent or for a child. Courts have the flexibility to consider changes to the child support amount when a person claims undue hardship. One or both parents may bring a claim of undue hardship before the court to seek a change in the amount of child support.

5. Other circumstances that may result in a change to the table amount

The FLC also considered a number of circumstances that could lead to a change of an existing order. These are discussed fully in their Report and Recommendations on Child Support.58

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