13 July 2009 External T.I. 2009-0311151E5 - Definition of "accountant"

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1. What is the definition of the term "accountant" as it pertains to the section 34 WIP election?

2. Would a lawyer for bankruptcy qualify for the section 34 WIP election?

Position: 1. In the context of section 34 the term "a business that is a profession" refers to the type of business carried on by individuals who are members of organizations or associations that are governed by statute, that have the power to regulate certification, the issuance of licences to practice the profession, to examine candidates for membership and the right to practice, to establish standards of professional conduct, and to discipline members for infractions of the established standards.

2. It is a question of fact.

Reasons: 1. The term "accountant" is not defined in the Income Tax Act. For CRA purposes an accountant is a professional carrying on a professional business or professional practice.

2. The fact alone that a lawyer is performing certain work, such as a real estate agent or a trustee, is insufficient to determine whether such work constitutes a business that is the professional practice of a lawyer.

								2009-031115
XXXXXXXXXX 							Brenda White
								519-645-5454
July 13, 2009

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - definition of "Accountant"

This is in response to your letter of February 17, 2009 wherein you requested our comments regarding the definition of the term "accountant" as it pertains to section 34 of the Income Tax Act (the "ITA"). In addition, you asked whether a lawyer for bankruptcy would qualify for the section 34 election.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Section 34 of the ITA provides special rules for computing the income of a taxpayer for a taxation year from a business that is the professional practice of an accountant, a dentist, a lawyer (including a notary in Quebec), a medical doctor, a chiropractor, or a veterinarian. This rule permits these taxpayers to elect to exclude amounts in respect of work-in-progress at the end of the taxation year from business income for that year.

It is the CRA's view that a professional practice is one carried on by one or more persons who are members of organizations which are usually governed by statute and which have the power to regulate certification and the issuance of licenses to practice the profession, to examine candidates for membership and the right to practice, to establish standards of professional conduct and to discipline members for infractions of them. In the context of a professional practice of an accountant, this would generally refer to individuals who have attained the designation of Chartered Accountant, Certified General Accountant or Certified Management Accountant and are carrying on a business the practice of which requires such a designation.

You have asked whether membership in certain organizations or associations is sufficient to conclude that the individuals are engaged in a business that is a professional practice of an accountant for purposes of section 34 of the ITA. As noted in the preceding discussion, the individual must be a member of and be licensed by the type of regulatory organization described above. The mere fact that an individual is performing bookkeeping functions and is a member of an association or organization of the type you describe is insufficient to make that individual eligible for the election in section 34 of the ITA.

We note that paragraph 3 of IT-457R, "Election by Professionals to Exclude Work in Progress from Income" recognizes that a person may carry on a professional business and derive a portion of income from sources other than the rendering of professional services. Where the income from those other sources is incidental to the main income from carrying on the profession, the CRA considers that all of the taxpayer's work in progress would qualify for the election under paragraph 34(a) of the ITA.

It is also recognized that a taxpayer may carry on more than one business, and where that is the case, an election under paragraph 34(a) of the ITA may be made only with respect to those businesses that are designated professional businesses referred to in the legislation. The determination of eligibility must be made by examining both the nature of the business and the credentials of the individual. For example, the mere fact that it is a lawyer who is carrying on business as a real estate agent or a trustee in bankruptcy is insufficient to conclude that such work constitutes a business that is the professional practice of a lawyer. Where a taxpayer is not carrying on a professional practice of one of the listed categories as his or her primary income earning activity, the election under paragraph 34(a) of the ITA would not be available.

We trust the above general comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch