25 November 1992 Income Tax Severed Letter 9224955 - Professionals - Work in Progress

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.

922495
J.D. Brooks
24(1) (613) 957-2103

Attention: 19(1)

November 25, 1992

Dear Sirs:

Re: Work in Progress of Professionals

This is in reply to your letter of August 20, 1992 in which you requested our opinion as to whether a corporation's business which is comprised of the provision of forensic accounting services and the services of trustee in bankruptcy would constitute a business that is a professional practice of an accountant within the meaning of section 34 of the Income Tax Act.

Our Comments

The election to deduct an amount under section 34 in respect of work in progress is available in computing the income of a taxpayer from a business that is the professional practice of an accountant. This

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deduction is available to a corporation where the business of the corporation is that of carrying on a professional accounting practice. It is apparent that forensic accounting is a specific type of accounting and that this type of work would therefore generally be considered to be part of an accountant's professional practice. However, where a taxpayer carries on an insolvency practice (rather than an accounting practice) as his primary practice, the election under paragraph 34(a) would not be available to him. Interpretation Bulletin IT-457R sets out our view that a person may carry on a designated 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 or accessory to the main income from carrying on the professional practice, or where the other sources are of an auxiliary nature to the main source of income, the Department considers that all of the taxpayer's work in progress would qualify for the election under paragraph 34(a) of the Act. 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) may be made only with respect to those businesses that are designated professional businesses. The fact that an accountant is performing certain work does not necessarily mean that such work constitutes a "business that is the professional practice of an accountant ...".

We also refer you to Interpretation Bulletin IT-189R2 concerning the incorporation of professional practices. In paragraph 1 of the bulletin, it is stated that "a corporation may be recognized as carrying on a professional practice unless provincial law or the regulatory body for the particular profession provides that only individuals may practice the profession." Thus, if a corporation was a distinct entity carrying on its own business, that business would not be the professional practice of an accountant if the relevant provincial law or regulatory body does not permit such a practice to be incorporated.

It is apparent that you may have a specific taxpayer in mind and we therefore emphasize that these comments represent an expression of opinion and, as stated in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

Yours truly,

E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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