Professional firms may only be required to recognize the payroll costs (not the dockets) of salaried professional staff and not partners’ time in their WIP

Most professionals subject to the new 2017 Budget rule will choose to value their work-in-progress at the lower of cost and fair market value. In the December 18, 1981 Notes of the Department of Finance dealing with the similar proposal in the 1981 Budget, it stated that the cost of WIP would not include: fixed or indirect overhead costs, such as rental, secretarial, and general office expenses; and the cost of the time of partners or proprietors.

A longer transitional period than two years may be warranted given that many of the primary beneficiaries of the WIP deferral may no longer be with the firm and so that the current partners, who may have had limited benefit from the deferral, will bear the entire cost of unwinding the deferral.

Given that s. 10(4)(a) would appear to contemplate that the valuation of WIP should be determined based on what the professional can reasonably expect will be collected under a fee arrangement in a subsequent year, rather than on what is collectible at year end, the legal basis for the CRA position for not requiring the recognition of WIP associated with contingent fee arrangements is unclear.

Neal Armstrong. Summaries of 31 May 2017 Submission of the Joint Committee on Professionals’ Work in Progress under s. 10(5)(a) and s. 34.