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.
Dear Sirs:
Re: Completed Contract Method for Contractors
This is in response to your letter of March 27, 1991 and our subsequent telephone conversation on May 7. The factual situation you are concerned with may be summarized as follows.
A Canadian corporation carries on a contracting business of the type described in the first sentence of paragraph 1 of IT-92R2. It reports its income for tax purposes on the completed contract method.
The completed contract method is described in paragraphs 12 and 13 of IT-92R2. In accordance with this method the income or loss from a contract is normally reported when the final engineer's or architect's certificate is issued. Occasionally, a contract receives final certification in the current year but the lien period provided by provincial statute extends into the following year. You have noted that the 3rd paragraph of IT-92R2 indicates that the practice for holdbacks is to include the holdback in income on the day that is the later of,
- the day on which the engineer issues the final certificate, and
- the day of expiration of the lien as stipulated in the applicable provincial statute.
Would this practice be applicable to the completed contract method? If so, approved contracts would not be reported in the year unless the lien period expired.
The completed contract method requires the taxpayer to report contract income when the contract is in fact completed. The key matter is the completion of the contract. As a practical matter, the Department usually accepts the engineer or architects final approval as an indication that the work is completed. This practice does not apply to extend the completion date when the engineer's or architect's approval precedes the expiry date of the provincial lien period. Consequently, the taxpayer is required to report the contract income when such approval is obtained.
We trust these comments will be of assistance.
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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