CRA releases its English and French-language interpretations on the valuation of professionals’ WIP

In early May, we published, translated and summarized a May 1, 2018 letter of the Rulings Directorate to the APFF respecting the measurement of the work-in-progress of the listed types of professionals, CRA indicated inter alia that:

• If the professionals choose to follow the direct cost rather than absorption costing method in determining the cost of their WIP, 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.

CRA has now released that APFF letter as well as an English version (also dated May 1, 2018) of what is essentially the same letter. We have retained our own translation of the APFF letter, as the English letter might also be a translation.

Neal Armstrong. Summaries of 1 May 2018 letter to APFF, 2017-0709101E5 F, essentially repeated in 1 May 2018 External T.I. 2018-0743031E5, under s. 10(5)(a) and s. 10(4)(a).