When one parent receives income that is not subject to tax — workers' compensation benefits, long-term disability insurance, social assistance, or on-reserve employment income — a fairness problem arises. That parent keeps every dollar they receive, while a parent earning the same amount in taxable employment income keeps only 60 to 75 cents after taxes. If child support were calculated on the raw dollar amounts, the parent with non-taxable income would appear to earn less than they actually have available to spend.

"Grossing up" solves this problem by converting non-taxable income to its pre-tax equivalent — the amount of taxable income that would produce the same after-tax spending power. Grossing up is discretionary: the Guidelines let a court impute income, they do not prescribe a gross-up formula. This article explains the formula courts and practitioners use, which income types are usually grossed up, the legal basis for doing so, and why the choice of tax rate matters.

The Formula

The basic gross-up formula is:

For example, if a parent receives $40,000 in non-taxable workers' compensation benefits and their effective tax rate would be 30%, the grossed-up income is $40,000 ÷ (1 − 0.30) = $57,143. This means the parent's WCB income has the same spending power as $57,143 in taxable employment income. The child support table lookup would use $57,143 rather than $40,000.

Which Income Types Are Usually Grossed Up

The legal hook is section 19(1) of the Federal Child Support Guidelines (SOR/97-175), which lets a court impute income where it considers it appropriate — including where a spouse is exempt from paying income tax (s.19(1)(b)) or derives a significant portion of income from sources taxed at a lower rate (s.19(1)(h)). Schedule III, which adjusts guideline income for items like union dues, capital gains and corporate income, contains no non-taxable-income provision. Because imputing is discretionary, the gross-up is a matter of judicial judgment informed by expert practice, not a formula the Guidelines require. Income types courts commonly gross up include:

The Tax Rate Question

The formula requires an "effective tax rate," but the Guidelines do not prescribe which rate to use. This is one of the most debated technical questions in family law income determination. The three common approaches are:

Grossing Up and the SSAG

For spousal support under the SSAG, the gross-up affects the guideline income used in both the without-child formula (percentage of income difference) and the with-child formula (INDI targeting). In the without-child formula, a higher grossed-up income increases the income difference and therefore the support amount. In the with-child formula, the grossed-up income flows into the INDI calculation, which also recalculates taxes and benefits — producing a compounding effect.

The SSAG also note a special consideration for payors with non-taxable income: because spousal support is normally tax-deductible, a payor whose income is entirely non-taxable receives no tax benefit from the deduction. This can make the real after-tax cost of spousal support higher for non-taxable income earners, and the SSAG suggest that courts may need to adjust the range accordingly.