Calculating Income for Support Purposes of Business Owner with Complex Corporate Structure
CHS was retained to calculate income for support purposes for a business owner whose holdings included interests in several operating companies held through holding companies and a family trust. Our mandate included review of reports prepared by the non-owning spouse’s expert.
The client’s reported income for the years under review consisted primarily of employment income and dividends earned from their business interests. Our calculations of income for support purposes focused on the attribution of pre-tax earnings from the various companies. This required a careful analysis of payments of dividends and management fees through various entities in the corporate structure, many with staggered fiscal year-ends to ensure that available pre-tax earnings were properly accounted for but not double-counted.
The analysis also involved numerous corporate reorganizations and changes in the share structure and number of shareholders during the period of our review. This required us to review and analyze corporate tax planning and reorganization memoranda, Canada Revenue Agency filings, director and shareholder resolutions, and purchase and sale agreements to ensure we properly reflected the impact of these changes into our calculations.
Our analysis of available corporate pre-tax earnings for the operating companies included a review of business plans, financial projections, existing financing agreements and correspondence with potential lenders. Our calculations were further complicated by the need to consider non-recurring income, ownerships being in trust for others, personal expenses and benefits, and potential double-dip income arising from subsequent realizations of our client’s corporate holdings.
This matter settled at mediation.