Principal Issues: How are payments received under construction contracts treated for purposes of Part I.3 tax? In particular, are they advances and should the amount included under paragraph 181.2(3)(b) be net of work in progress costs?
Position: Generally, the payments will be considered advances and will not be netted by construction work in progress costs for purposes of determining the amount of the advance to be included in capital under paragraph 181.2(3)(b).
Reasons: Legal meaning of advance determines whether an advance exists for purposes of Part I.3 tax. Payments under construction contracts are not generally reimbursement of expenses incurred by the contractor to date under the particular contract, but rather are payments made on account of the contract which is not yet complete.