Written on behalf of Shariff & Associates

Canada’s Federal Child Support Guidelines outline a framework to be used when calculating support payments when a spouse is a non-resident of Canada. A party’s annual income is determined as though the spouse were a resident of Canada, which means that income must be converted into Canadian dollars. This can raise unique challenges, though, as this involves the use of an exchange rate and it is not uncommon for currencies to fluctuate. If a particular currency is subject to a sudden increase or decrease in value, this can significantly impact the conversion to Canadian dollars.

Foreign Income Must be Converted into Canadian Dollars

Section 20(1) of the Federal Child Support Guidelines applies to parties who are non-residents of Canada. It states that “where a spouse is a non-resident of Canada, the spouse’s annual income is determined as though the spouse were a resident of Canada”. This requires that foreign income be converted into Canadian dollars to determine income and support obligations. The challenge is in applying an exchange rate, as courts have noted in the context of child support, the choice of an exchange rate can benefit either the child or the payor.

Furthermore, in Ward v. Ward, the judge explained that the “difficulty in determining an income expressed in Canadian funds is in fixing the correct approach to conversion because there can be wide and rapid fluctuations in currency exchange rates”. In that case, the Court found it was reasonable to use the average currency exchange rate over the preceding 12 months.

Change in Party’s Income Justifies Varying Spousal Support Award

In Tompkins v. Tompkins both parties agreed that the applicant had an ongoing entitlement to spousal support. While the respondent was paying support, he was a non-resident of Canada. Importantly, the parties entered into a separation agreement, and at that time both parties understood the respondent was earning the equivalent of $233,820 CAD. The agreement required the respondent to make an $8,500 CAD monthly spousal support payment, which could be varied if there was a material change in circumstances.

The respondent’s income increased since that time and expert evidence indicated that he earned more than that sum each year since the separation. One calculation found the respondent earned the equivalent of $338,930 CAD in 2019, which the judge noted was a 45% increase over his income codified in the agreement. It was evident that there had been a material change in the respondent’s income, which justified varying the spousal support that was payable.

Changes in Exchange Rate Impacts Payor’s Ability to Fulfill Support Obligation

Despite the post-separation increase in income, the respondent argued that there should not be any change to the quantum of support payable. This argument was based on using the same methodology the applicant’s expert used, as the respondent’s income, when calculated in U.S. dollars, was, in some years, lower than his $233,820 USD income in 2012. Overall, the respondent claimed that his income was not materially different from the time they entered into the separation agreement.

On this issue, the Court found that section 20(1) of the Child Support Guidelines was determinative, which required determining the respondent’s income as if he were a resident of Canada. However, the respondent focused on the impact of the exchange rate between the Canadian and U.S. currencies. His counsel noted that, when viewed in Canadian funds, it appeared the respondent’s income had increased, but the problem was that it failed to account for the fact that the respondent had to meet all of his expenses in U.S. dollars as he resided in the United States and not Canada.

Court Concludes that Exchange Rate Benefits Respondent; Varies Spousal Support Payment

The judge disagreed with that argument and found there was no evidence to suggest that his living expenses increased substantially over the years. Further, there was no indication that the rate of any increase in living expenses “surpassed the rate of the increase in his income caused by the exchange rate”. Moreover, his spousal support obligation in the agreement was expressed in Canadian dollars, and his “ability to fund that obligation in Canadian dollars has improved over the years because of the exchange rate”.

The cost of fulfilling his support obligation by purchasing Canadian funds actually decreased. In 2012, when the parties entered into the separation agreement, the two currencies were on par, and the respondent agreed to pay $8,500 USD. However, due to the subsequent exchange rate differential, he did not have to incur the same cost. The Court did find that unfairness could occur if the separation agreement expressed the obligation “to pay the Canadian equivalent of what costs him $8,500 USD per month”. Yet, since the agreement did not explicitly state this, the exchange rate benefited the respondent, and the material change did justify varying the spousal support payment.

Converted Income is Used to Determine the Support Obligations

Determining income and any support payment for a non-resident of Canada requires converting foreign income into Canadian currency using an exchange rate. This can add complexity to a support payment, as currency exchange rates fluctuate. Courts will usually rely on the average exchange rate over the preceding year to convert income, which will be the starting point to determine a support obligation.

The Family Lawyers at Shariff & Associates Assist Clients with Child and Spousal Support Matters

The compassionate separation and divorce lawyers at Shariff & Associates work with married and common-law clients to help them address child and spousal support issues of varying complexity. We help clients understand their options and navigate disputes over support payments by creating comprehensive domestic agreements. If your former partner or spouse is in arrears with respect to support, or circumstances change and an existing support order must be varied, we will work quickly to protect your interests and enforce your support award or agreement effectively.

From our office in Whitchurch-Stouffville, our law team serves clients across Markham, Richmond Hill, Zephyr, Uxbridge, Pickering, Ajax and Whitby. To schedule a confidential consultation with a member of our team, please reach out to us online or call us at 905-591-4545.