10 October 2002 External T.I. 2002-0158335 - INCOME OF A CONTRACTOR

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether a contractor who chooses to report income for tax purposes by including therein all amounts that have been billed (even though not approved for payment by the purchaser's architect or engineer, or in respect of which a mechanic's lien period has not expired) must do so for all of its contracts or is it acceptable to choose, on a contract-by-contract basis, which holdbacks to include in income.

Position:

Must include in income the holdbacks for all contracts.

Reasons:

See below.

XXXXXXXXXX 2002-015833

Randy Hewlett, B.Comm.

October 10, 2002

Dear XXXXXXXXXX:

Re: Technical Interpretation - Income of Contractors

We are writing in response to your letter dated August 16, 2002, wherein you requested our opinion with respect to the above-noted issue.

With reference to Paragraph 3 of Interpretation Bulletin IT-92R2, Income of Contractors, you inquired whether a contractor who chooses to report income for tax purposes by including therein all amounts that have been billed (even though not approved for payment by the purchaser's architect or engineer, or in respect of which a mechanic's lien period has not expired) must do so for all of its contracts or whether it is acceptable to choose, on a contract-by-contract basis, which holdbacks to include in income.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (TSO). However, we offer the following comments.

While it is acceptable for a contractor to report income for tax purposes by including all amounts that have been billed to the purchaser, which includes the holdbacks that are not receivable, it is our view that a contractor must report the income on this basis consistently from year to year. This means that for all contracts, the holdbacks that are billed must be included in income so that a contractor may not choose, on a contract-by-contract basis, which holdbacks to include in income under this method.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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