Words and Phrases - "progress method"

The taxpayer, which manufactured or purchased, and installed stainless steel equipment for general construction and major renovation contracts, used the progress method per IT-92R2, so that it deducted costs as incurred but recognized revenue as billed (less construction holdbacks) based on the percentage of the value of the equipment delivered in relation to the overall value of the contract, as approved by an architect or engineer of the general contractor's client. The TSO considered that the progress method was not available because the taxpayer was engaged in manufacturing and installing kitchen equipment, rather than in the construction of a building, road, dam, bridge or similar structure, as required in IT-92R2, para. 1.

The Directorate concluded:

[W]here the installation of such equipment is provided for in the plans and specifications for the construction of a building and the installation is carried out at various stages of the building's construction … it would be difficult to conclude, for this type of contract, that the Taxpayer is not a subcontractor engaged in the construction of a building since those activities are part of the building's construction process. On the other hand … the manufacture and installation of kitchen equipment in buildings already constructed or inside various means of transportation do not constitute activities relating to the construction of a building … .

… [T]he Taxpayer may avail itself of the progress method set out in Interpretation Bulletin IT-92R2, provided that title to the construction vests in the Taxpayer's client or in the owner of the building as the work progresses and, furthermore, that the manufacture and installation of the particular equipment are provided for in the plans and specifications for the construction of a building.

If the progress method was not available, the taxpayer would be required to deduct its costs in accordance with the matching principle.