There are circumstances when it may be inappropriate to simply use income from the previous taxation year for child support calculations. These circumstances commonly arise when (1) a party's income tends to fluctuate from year to year; or (2) when a party has the ability to manipulate income such as by being self-employed in which case the court may utilize an averaging approach in conjunction with "imputing" income.
I will provide some excerpts from the case of Harras v. Lhotka, 2016 BCCA 246 (CanLII) which discuss the principle of averaging and when it would be appropriate to do so:
[Of note, the appellate court fixed the appellant's (applicant's) income at a higher amount. The takeaway is that some care ought to be taken before inviting the court to assess one's financial circumstances.]
 Peter Lhotka appeals an order made by a chambers judge calculating his 2014 income for child support purposes as the average of his three previous years’ income (Harras v. Lhotka (16 September 2014), Vancouver E130640 at para. 14 (B.C.S.C.)). A pre-existing separation agreement set his income at a five year average. Mr. Lhotka sought an order fixing his income without averaging at $67,000, effective July 1, 2014. The result of the chambers judge’s order was that Mr. Lhotka’s application to reduce his income resulted in a significant increase in his income for child support purposes.
 Mr. Lhotka is 53 years of age, and works in the film industry. His income is earned through two personal service corporations, and is partially derived through dividends.
 Accordingly, Mr. Lhotka’s income for child support purposes was set at $183,000. The chambers judge summarized his actual income between 2008 and 2013 as follows: [Emphasis added.]
 Section 15 of the Guidelines stipulates that a spouse’s annual income is to be determined in accordance with ss. 16-20. Accordingly, the starting point in the determination of income is s. 16, which reads as follows:
Subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “Total income” in the T1 General form issued by the Canada Revenue Agency and is adjusted in accordance with Schedule III.
 The Guidelines provide courts with the discretion to adjust income based on the preceding three years, in the event that annual income under s. 16 does not represent the “fairest” determination of income. Section 17(1) reads as follows:
If the court is of the opinion that the determination of a spouse’s annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.
 The test in s. 17(1) is what is “fair and reasonable”, having regard to the payor’s income in the preceding three years: Marquez v. Zapiola, 2013 BCCA 433 at para. 53.
 Section 19(1) provides the wide discretion to impute income to a spouse as it considers appropriate. Section 19 is not subject to the restrictions set out in ss. 16, 17 and 18: Oulette v. Oulette, 2012 BCCA 145 at para. 66.
 While s. 17 allows the court to examine income over the previous three years, there is nothing in the language of the section that requires the use of averaging in setting income. This makes sense; accepting that one of the goals of the Guidelines is the fair determination of the amount available to pay child support, fairness is unlikely to be achieved by the mechanical application of averaging. The remarks of the Alberta Court of Appeal in Ewing v. Ewing, 2009 ABCA 227 at paras. 37-38 on this point are apposite:
… But we would point out, for future cases, that section 17 does not suggest that the way to establish fair income is to average. It merely directs the court to set a fair and reasonable amount taking into consideration the past three years’ income and any patterns of income, fluctuations in income and non-recurring gains. The court has the discretion to elect the fairest method, and that could be done by averaging the three years prior to the gain, or a court could remove part, or all, of the non-recurring gains, or take whatever steps it determines are appropriate to arrive at an income figure that is fair for the purposes of support.
…although setting a fair income is highly discretionary, there should be a logical basis for the method chosen and averaging will not always be appropriate. [Emphasis added.]
 This raises the question of when averaging is considered appropriate.
 In some cases, averaging is considered appropriate (or “fair”) where the payor’s income has fluctuated substantially from year to year. For example, in Dornik v. Dornik, 1999 BCCA 627, this Court held that the chambers judge erred in determining Guideline income based on the respondent’s sworn statement as to his anticipated income, rather than averaging income from the preceding three years. The respondent was self-employed through a personal corporation, apparently in the construction industry. At paras. 18-19, the Court said the following:
On behalf of the respondent, Mr. Lecovin submitted that it was reasonable to take the respondent’s sworn statement as to his anticipated income for 1997 as the guideline income, because the most recent earnings are the best guide for payments that are to be made in the future. As a general proposition that submission may have force, but in this case, the tax forms and financial statements plainly show that the respondent’s source of income was fluctuating. Given the nature of the business the respondent is in, that is hardly surprising.
In light of the provisions in the Guidelines and the material before the chambers judge to which I have referred, I am of the view that the chambers judge erred in finding that the respondent had a guideline income of $31,500.
 Similarly, in Cornelissen v. Cornelissen, 2003 BCCA 666, this Court applied three year averaging where the preceding five years disclosed wide fluctuations in income, ranging from a low of $155,477 to a high of $943,822. At para. 31, Prowse J.A. said the following:
For the purposes of the application of s. 17, Mr. Cornelissen’s income over “the last three years” was $155,477 (1999), $468,300 (2000) and $943,822 (2001), inclusive of those amounts the trial judge found should have been added back into Mr. Cornelissen’s income. In my view, these three years present a fair picture of Mr. Cornelissen’s historical income in that they include a year in which his income was noticeably low (1999), and a year when his income was noticeably high (2001). In these circumstances, I conclude it would be fair and reasonable to apply s. 17 by using the average of these three years’ income as the basis for determining Mr. Cornelissen’s income for Guidelines purposes with respect to ongoing child support. [Emphasis added.]
 Lower courts have often considered averaging more appropriate in cases where income fluctuates. For example, in de Bruijn v. de Bruijn, 2011 BCSC 1546, Fenlon J. (as she then was), refused to average income where the respondent’s income showed a pattern of decline over the preceding four years. At para. 35, she said the following:
With respect, I do not accept Ms. de Bruijn’s submission that Mr. de Bruijn’s income should be fixed at an average of his 2008, 2009 and 2010 earnings under s. 17(1) of the Guidelines. This is not a situation in which Mr. de Bruijn’s income regularly fluctuates up and down. For the past four years his income has been in decline. To ignore that reality and base his support obligations on a number greater than his current earnings would, in my view, be unjust. [Emphasis added.]
 This Court has likewise described the application of averaging to steadily increasing income as an error in principle: Jakob v. Jakob, 2010 BCCA 136 at para. 48. In Jakob, the payor’s income had increased from $15,276 to $35,333 over three years. The chambers judge had applied a three year average to determine his income for Guideline purposes. At paras. 46-48, the Court said the following:
The calculation of income for the payment of support is based on a payor’s capacity to pay; it is a payor’s income or earning capacity that determines the amount of support he or she will be required pay. Actual income may not always reflect a payor’s capacity to pay. Where income has fluctuated in previous years, in the sense that it has increased and decreased over a fixed period of time, and it is anticipated that it will continue to fluctuate in that manner, it may be appropriate to take an average of fluctuating income for a fixed number of years to calculate a payor’s income or earning capacity.
Those were not the respondent’s circumstances. Between 2005 and 2008, his income had steadily increased from $15,276 in 2005, to $22,454 in 2006, to $35,333 in 2007. Based on the new evidence, his actual income at the time of the application was about $35,000, or at least three times higher than his 2005 income. Therefore, his capacity to pay spousal support was materially greater than the $23,029 found by the chambers judge.
… In my view, the chambers judge erred in law by calculating the respondent’s income based on an average of his previous three years’ annual income, when his income was increasing over that period of time. Given the steady increase in the appellant’s income, his 2007 income (being the last year of the three-year period) more closely reflected his actual income or income capacity. … [Emphasis added.]
 In summary, the averaging approach to income determination under s. 17 is very fact specific. Generally speaking, averaging will be applied where income fluctuates, or where the payor has not demonstrated a lasting decline in earnings. Ultimately, it depends on fairly calculating the amount of income reasonably available to pay child support. Depending on the reasons for a pattern of fluctuating income (or, as in Grossi, declining income), averaging may be more or less appropriate. If, for example, a substantial increase in income in one of the three previous years is due to receipt of what might be fairly viewed as a non-recurring amount, averaging may be inappropriate. If, however, the nature of a payor’s employment or business is such that wide fluctuations in income are normal and expected, averaging may be more appropriate. As the Court stated in Jakob at para. 46, “[w]here income has fluctuated in previous years, in the sense that it has increased and decreased over a fixed period of time, and it is anticipated that it will continue to fluctuate in that manner, it may be appropriate to take an average of fluctuating income for a fixed number of years” to determine current income. [Emphasis added.]
 Outside the context of s. 17, in rarer cases, courts have upheld the use of averaging of income over a period of longer than three years. In Oulette, the payor spouse earned income through his involvement in a trucking and excavation business, as the owner of a holding company which operated in partnership with a company owned by his brother. In determining prospective child support, the trial judge noted that revenues were declining, but held that a five year average of the income available to the payor would be the fairest method of determining his Guideline income. The payor appealed on the basis that s. 17 does not permit averaging outside of a three year period. This Court upheld the five year average approach as an exercise of the broad discretion available under s. 19(1). At paras. 66-67, Tysoe J.A. (for the Court) wrote the following:
… Although the judge did not expressly state that he was imputing income to Mr. Ouellette in using the five-year average, it is my view that he was exercising the broad discretion under s. 19. …
In my opinion, the judge did not err in finding it appropriate in the circumstances to use a five-year average of the Partnership’s earnings in determining the amount of income to be attributed to Mr. Ouellette for support purposes. Mr. Ouellette testified that the two years prior to the trial had been financially hard for the business as a result of the economic downturn in 2009, and a three-year average would not have accurately reflected the potential earning capacity of Mr. Ouellette. In addition, the parties separated approximately three years prior to the trial, and Mr. Ouellette may have manipulated the revenues and expenses of the business during this period in order to minimize the amount available to him for support purposes. A five-year average was more representative.
 Thus, averaging over a five year period may be an appropriate exercise of the court’s discretion under s. 19 where it would more accurately reflect the income available to a payor spouse than a three year average would.
41] In my view, the fairest manner to assess Mr. Lhotka’s income for 2013 is to apply the same type of formula that the parties agreed to in the separation agreement; that is, a five year average, for the years 2009-2013. The result of that calculation is $196,604. This is not a case where there is evidence of a year-over-year decline in earnings that would justify the use of current-year income for support purposes. Indeed, Mr. Lhotka expressed optimism in his affidavit evidence that the film industry would improve in 2014 and he would find employment.
 I would allow the appeal and order that Mr. Lhotka’s income for the year 2014 be set at $196,604, based on the average of his income in the years 2009 to 2013 inclusive. [Emphasis added.]