Foreign Income

My ex moved abroad where the currency is worth more than Canada, but considers it at par because of the “high cost of living”. I think it’s just an excuse. Help!

(1) The Legal Test

A general misconception is that family law provides answers to questions. It usually doesn’t. The law provides legal tests – frameworks – to assess the merit of an argument. The test is either detailed in the legislated law, or created by a judge facing the same argument. Then, the test may be adopted by other judges in subsequent similar disputes. 

For this issue the legal test is:

  1. Start with the premise that where a party is a non-resident of Canada, the party’s annual income is determined as though he or she were a resident of Canada.
  2. Convert his or her gross foreign income to Canadian dollars at a fair exchange rate.
  3. Where the party resides in a country that has effective rates of income tax that are significantly higher than those applicable in the province in which the other party ordinarily resides, the party’s annual income is the amount that the court determines to be appropriate taking those rates into consideration (i.e. to yield the same net income at Canadian tax rates.)
  4. Where the party lives in a country that has effective rates of income tax that are significantly lower than those in Canada, the court may impute such amount of income to a party as it considers appropriate in the circumstances. (i.e. to yield the same net income at Canadian tax rates.)
  5. Finally, it may be necessary to examine the “bundle of services” that both governments provide in exchange for the tax dollars paid. These matters are often the subject of expert evidence.

(2) Full Disclosure

Now that you see the test, you can start to compile documents to support your claim:

  • Any Canadian tax returns and Notices of Assessment
  • Any foreign tax returns, or equivalent information of income earned and tax paid
  • Currency Exchange: Reliable information about applicable annual currency exchange rates, for example, from the Bank of Canada website.
  • Tax Rate differential (higher/lower): Expert evidence to describe

– the general tax rates of each country on the party’s particular income

– the basis for the difference in rates (e.g. if different forms of income are taxed at different rates)

– Any applicable tax treaties between countries

– Explanation of the Methodology of calculating the differential of rates

– Calculation of the differential

  • Cost of Living: Expert evidence to describe:

– A basis for comparing relative cost of living

– Factual evidence for the actual costs in each jurisdiction

– Explanation of the Methodology of calculating the differential

– Calculation of the differential

(3) Source

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