CRA indicates that WIP under contingency fee arrangements may be required to be recognized before realized

In FAQ #5 on a CRA web page, CRA stated that in the case of professionals’ contingency fee arrangements, e.g., for personal injury lawyers, “no amount is receivable by the professional until the right to collect the amount is established” and that “for purposes of determining the value of the professional’s work in progress at the end of the year, no amount would normally be recognized.” However, 2017-0709101E5 F (and similarly in 2018-0743031E5) added a statement that “however, it has been brought to our attention that, in certain situations, it is possible, at the end of the year, to establish an amount that can reasonably be expected to be received after the end of the taxation year in respect of [the] work,” in which event, that higher amount will be used in valuing the WIP.

This qualifier was essentially also included in a discussion of professionals’ WIP at the STEP Roundtable, without any further elaboration on when the “certain circumstances” being referenced might arise.

Neal Armstrong. Summary of 7 June 2019 STEP CRA Roundtable, Q.8 under s. 10(4)(a).