CRA confirms that partner time will not be included in professionals’ WIP

Accountants, dentists, lawyers, physicians, veterinarians and chiropractors are, on a phased in basis, being required to include the lower of the cost and fair market value of their work in progress in income. These professionals will maximize their deferrals if they choose to follow the direct cost method rather than the absorption cost method in determining the cost of their WIP (so that they will not be required to include the costs of fixed overheads such as rent). The cost of their WIP will include payroll costs including benefits but will not include any value of partner time.

For most professionals, the lower of cost and FMV will be cost determined on this basis. However, in the case of personal injury lawyers and others earning income on a contingency fee basis, their WIP will generally be valued under s. 10(4)(a) at “the amount that can reasonably be expected to become receivable in respect thereof after the end of the year,” i.e., nil.

Neal Armstrong. Summaries of 1 May 2018 letter to APFF, 2017-0709101E5 F under s. 10(5)(a) and s. 10(4)(a).