Two years after the federal government announced changes to the way professionals can account for their work in progress for tax purposes, people are still seeking guidance on how to apply the new rules.
Under the previous billed-basis accounting rules, certain professionals, including lawyers, could choose to not include work in progress in their income for that taxation year, instead adding it only when the work is billed. Starting with fiscal years beginning or after March 22, 2017, all professionals now have to account for a value of work in progress for that year’s income.
In response to concerns raised by stakeholders, the rules were amended to phase in the changes over five years, instead of two as originally intended. The CRA also confirmed that the changes would not affect contingency fee arrangements – where the income only becomes known and billable at some later time.
While we recommend that you seek advice and assistance from tax professionals to determine how to value the amount of work in progress in your personal situation (e.g. dealing with partner and owner’s time) here are some background resources that may be helpful: