Section 34

See Also

Brock v. MNR, 91 DTC 1079 (TCC)

Lamarre Proulx J. rejected a submission that under the laws of Ontario interim accounts rendered by a solicitor are not enforceable and, in any event, found that the statements of account rendered in connection with the taxpayer's law practice were not worded so as to constitute true interim bills of account.

Administrative Policy

26 March 2018 External T.I. 2017-0734381E5 F - Election paragraph 34(a)

a subsequently admitted partner benefits from a s. 34 WIP election made for a professional partnership’s 2017 year

A professional partnership (Partnership) with a calendar taxation year end makes the s. 34 election for the 2017 year. If a partner transfer’s a partnership interest to personal corporation (Partnerco) on December 31, 2017 or January 1, 2018, would that election apply to Partnerco? CRA responded:

The making of the section 34 election is not excluded by paragraph 96(1)(d) ….

[T]he election to exclude work in progress must be made for the taxation year that straddles March 22, 2017. All members of the Partnership during the year will be deemed to have made the election by virtue of subsection 96(3). Since Partnerco became a member of the Partnership on December 31, 2017, i.e., during the Partnership's taxation year in which the election was made, the election would be valid for Partnerco.

Should Partnerco become a member of the Partnership on January 1, 2018 …paragraph 34(b) would apply … [so that] Partnerco, as a member of the Partnership, would therefore be subject to an election made in the previous taxation year by the Partnership.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 10 - Subsection 10(14.1) transitional rule applies to assignee partner 68

28 May 2014 External T.I. 2014-0531461E5 - Paralegals and work in progress election

paralegals do not qualify

[T]he province of Ontario and the Law Society of Upper Canada have created a two tiered system: the practice of law by barristers and solicitors (and members of the Barreau du Québec) and the provision of legal services by paralegals. Accordingly, as paralegals in Ontario are not barristers or solicitors, they do not meet the definition of "lawyer" in the Act and may not make the work in progress election under section 34.

15 October 2013 Internal T.I. 2013-0491951I7 F - Travaux en cours au moment du retrait d'un associé

no new s. 34 election required if s. 98(6) or (5) applies/election can be made in income reconciliation

On June 30 of Year 1, individual partners of a Canadian professional partnership who have made the s. 34 election in accordance with s. 96(3) withdraw from the partnership and form a new partnership with a fiscal year end of July 11 of Year 1. The s. 249.1(4) rule applies. After adverting to the application of ss. 98(5) and (6) in the context of the redacted facts, CRA stated (TaxInterpretations translation):

In the case of a general partnership (société en nom collectif), if all of the former partners or some of them form a new partnership, they will normally be required to make a new election under paragraph 34(a), if they do not wish to include, in the income of the new corporation at the end of the first taxation year or a subsequent taxation year, amounts relating to work in progress.

The exception to this rule, however, is the case where all or some of the former partners of a Canadian partnership continue to carry on the designated professional business as a new Canadian corporation and the provisions of subsection 98(6) are satisfied, or where the designated professional services business that was previously operated by a Canadian partnership is now operated by one of the former partners as the sole owner and the provisions of subsection 98(5) are applicable ... in respect of the former partner carrying on the business of the former partnership.

Thus ... an election can be made by the partners forming [the new partnership] in order to exclude from their income for the fiscal year ending on July 11 of Year 1 the WIP which was allocated to them on their departure from the [former partnership].

Under paragraph 34(a), no particular form is prescribed for making the election. The taxpayer can make the election with respect to a particular professional partnership by attaching a letter to the taxpayer's return of income in which the election is specified with respect to the practice or by indicating clearly in the financial statements, or in a joint net income reconciliation, that the election is made.

13 August 2013 External T.I. 2012-0471401E5 F - FMV - partnership interest

FMV of partnership interest reduced re deferred income taxes on WIP subject to s. 34 election

CRA indicated that in determining the FMV of an interest in a professional partnership that had been transferred on a s. 85(1) rollover basis, normally the WIP that had been elected upon under s. 34 would be discounted for income taxes.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Other deferred tax liability re deferred (s. 34) partnership income recognition reduces partnership interest FMV 222
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(c) FMV of professional partnership interest would normally discount the value of s. 34-elected WIP for income taxes 126

25 August 1992 T.I. 921739 (April 1993 Access Letter, p. 136, ¶C20-1143; Tax Window, No. 23, p. 17, ¶2139)

The s. 34 election is not available to a taxpayer who carries on an insolvency practice as his primary practice, rather than as an incidental part of his accounting practice.

20 September 1991 T.I. (Tax Window, No. 9, p. 22, ¶1464)

No s. 34 election is available for the business of a patent agency even if the business is carried on by a partnership of which a lawyer is a partner.

19 September 89 T.I. (February 1990 Access Letter, ¶1104)

The total cost of professional labour including employee benefits will be work in progress, but fixed or indirect overhead costs such as rental, secretarial and general office expenses will not be included.

IT-471R "Merger of Partnerships" under "Work in Progress"

IT-457R "Election by Professionals to Exclude Work in Progress from Income"


Joint Committee, "Proposed Amendments to Taxation of Work in Progress ("WIP") for Professionals", Letter of 31 May 2017

deferral enjoyed by previous partners reversed in hands of current partners

A longer transitional period than two years may be warranted respecting the phasing out of the deferral under s. 34 given that many of the primary beneficiaries of the WIP deferral may no longer be with the firm, so that the current partners, who may have had limited benefit from the deferral, will bear the entire cost of unwinding the deferral.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 10 - Subsection 10(5) - Paragraph 10(5)(a) professional firms may only be required to recognize the payroll costs (not the dockets) of salaried professional staff and not partners’ time in their WIP 195