Partner Time Has No Cost

A professional firm's practice management system knows exactly what unbilled work is worth, because it multiplies recorded hours by charge-out rates. That figure is the one most firms hand to their accountant at year end. It is not the figure the legislation asks for, and the gap between them is large.

A Note On Currency

Everything here is stated as verified in August 2026 and requires confirmation before reliance.

We have not read any statutory provision, and section references are as commentary cites them. The CRA position on partner time that this article turns on is reported by a commentary service summarising a CRA statement, and we did not obtain the underlying document[1]. Given how much rests on it, a firm should have it confirmed against the primary source before relying on it.

Several sources relied on date from 2017 and 2018, when the measure was proposed or newly enacted, and one describes the transitional period differently from the others; we address that conflict in its own section.

This is not tax or accounting advice. The valuation of work in progress is a judgment made annually on a firm's own facts and should be made with an advisor.

The Six Professions

The population, which is defined by a closed list.

Commentary identifies the designated professions as accountant, dentist, lawyer, medical doctor, veterinarian and chiropractor[2], and other sources give the same six[3][4][5].

Two observations, ours.

The list is enumerated rather than descriptive. It is not a general rule for professionals; it names six. Other professional practices, including engineers, architects, consultants, physiotherapists and optometrists, were never within paragraph 34(a) and so had nothing to lose.

That matters for how a firm should read commentary in this area, because a great deal of it is written as though it applies to professionals generally.

And the list covers both practices that bill by time and practices that bill by procedure. A litigation practice accumulating hundreds of unbilled hours and a dental practice with treatment in progress at year end are in the same provision, and their work in progress looks nothing alike.

The valuation questions discussed below are correspondingly different in each, which is part of why this area has proved so difficult.

What Was Lost

The old election, and why it was worth having.

Commentary describes paragraph 34(a) as enabling the designated professions to elect to exclude their year-end work in progress from income, so that income was recognised when the work was billed[2].

The mechanism by which it produced a deferral is stated precisely: it permitted the costs associated with work in progress to be expensed without the matching inclusion of the associated revenues[3][5].

Another describes the effect as removing the revenue and embedded profit which had not yet been billed from taxation until the following year, while allowing the related costs to be deducted currently[4].

That is a genuine mismatch and this is our own analysis of its size.

A professional firm's principal cost is labour, and labour is incurred as the work is performed. Under the election, that cost was deducted when incurred while the corresponding revenue waited for a bill.

For a firm with a stable book of unbilled work, the deferral was permanent in practice. The balance rolled forward year after year, and only a firm that was shrinking, or winding down, ever paid the tax.

That is what was repealed, and it is why the change mattered so much to firms that had never thought about work in progress as a tax item at all.

The Repeal And Its Phase-In

The change and its timing.

Commentary records that Budget 2017, released on 22 March 2017, proposed to eliminate the ability of designated professionals to elect billed-basis accounting, applying to taxation years beginning on or after Budget Day[3].

On the phase-in, commentary describes a general phase-in under subsection 10(14.1) so that unbilled work in progress is brought into income over a five-year transitional period: 20 percent taxable at the end of the first year, 40 percent at the end of the second, 60 percent at the third, and so on[6].

Other sources describe the same schedule, with 20 percent in the first year, 40 percent in the second, and the full amount by the fifth[7][8].

The practical significance today, and this is our own observation, is that the transition is over.

For a firm with a calendar year end, taxation years beginning on or after 22 March 2017 means the first affected year was 2018, and a five-year phase-in completed with the 2022 year.

So the inclusion is now at 100 percent and has been for several years. This is no longer a transitional adjustment that an accountant handles once; it is a recurring annual valuation, which is the point developed later in this article.

A Conflict In The Sources

A disagreement we encountered, reported rather than resolved.

One source states that transitional rules have been introduced to implement the change over two years[9], which conflicts with the five-year phase-in described by four other sources[6][7][8][2].

We have not established the reason for the difference and do not assert one.

What we can say is that the five-year description is the majority position among the sources we found, that one of those cites a specific provision for it[6], and that the source describing two years also describes the measure as proposed rather than enacted[9].

The practical point is narrow and it matters mainly for historical years, which is our own view.

A firm reviewing a prior year, or reconstructing why a particular inclusion was made, needs the correct schedule for that year. A firm computing a current year does not, because on either account the phase-in has finished and the inclusion is at 100 percent.

We flag it chiefly as a caution about the commentary in this area. A measure proposed in one form and enacted in another generates a durable body of writing describing the proposal, and several sources we found were written while the outcome was still uncertain.

Work In Progress Is Inventory

The structural provision that governs everything else.

Commentary states that subsection 10(5) of the Act mandates that the parts or supplies or work in progress of a business that is a profession must be included in inventory, and adds that this overrides accounting principles, and section 9 of the Act which includes the profit from a business in income, which without that subsection may or may not arrive at the same determination depending on the circumstances[2].

Another describes work in progress as now deemed to be inventory as required by that provision[7], and a third states simply that work in progress is considered inventory for tax purposes[6].

That deeming does the crucial work and this is our own analysis of why.

If professional work in progress were governed by ordinary profit computation, the answer would follow the firm's accounting, which for most firms means either not recognising it at all or recognising it at expected billing value.

Because it is deemed to be inventory, it is instead governed by the inventory valuation rules, which have their own methods and their own definition of value.

The commentary's observation that the provision overrides accounting principles[2] is therefore the beginning of the analysis rather than a technicality.

Whatever a firm's financial statements say about unbilled work, the tax figure is arrived at separately, by a route the financial statements do not follow.

Two Valuation Methods

The choice available, and it is a choice.

Commentary states that the valuation of inventory is governed by subsection 10(1) and section 1801 of the Income Tax Regulations, which requires one of two methodologies: lower of cost or fair market value, or simply fair market value[2].

Another states that work in progress can be valued at either fair market value or the lower of cost and fair market value[8].

Two points, ours.

A firm electing to value at fair market value alone has given up the ability to use a lower cost figure. Given what follows about cost, that is a consequential choice.

And the lower-of method is exactly what it says. A firm using it takes whichever of the two is smaller, which means both have to be computed, or at least enough of each to establish which is lower.

Commentary elsewhere notes that once fully implemented, work in progress valued at the lower of cost or fair market value needs to be included in income each year[9].

The next two sections address what each of those two numbers actually is, and they are not what most firms assume.

What Fair Market Value Means Here

A deeming rule that removes the ordinary meaning of the term.

Commentary states that fair market value, which for a professional's work in progress is deemed by paragraph 10(4)(a) of the Act to be the amount reasonably expected to become receivable after the end of the year[2].

Note what that does, and this is our own emphasis.

Fair market value ordinarily means what a willing buyer would pay a willing seller. Nobody buys a law firm's half-finished file, so that concept has no natural application here.

The deeming supplies a workable substitute: what do you reasonably expect to collect.

That is a forward-looking estimate about recovery, and it is not the same as the value in a practice management system either.

A system figure at charge-out rates records what the work would be worth if every hour were billed and every bill were paid. The deemed figure asks what will actually become receivable, which is lower wherever a firm writes down time, discounts, absorbs non-chargeable work, or has files that will not be collected.

So even a firm valuing at fair market value should not be reporting its raw system total. The section on the guess-work problem below explains why arriving at the right figure is nonetheless difficult.

The CRA Position On Cost

The other half of the lower-of test, and the most consequential material in this article.

A commentary service reports CRA confirming the following on the cost of professional work in progress.

That these professionals will maximize their deferrals if they choose to follow the direct cost method rather than the absorption cost method in determining the cost of their work in progress, so that they will not be required to include the costs of fixed overheads such as rent[1].

That the cost of their work in progress will include payroll costs including benefits but will not include any value of partner time[1].

And that for most professionals, the lower of cost and fair market value will be cost determined on this basis[1].

We flag firmly that this is a commentary service's summary of a CRA statement and that we did not obtain the underlying document[1]. A firm relying on it should have it confirmed at source.

Taken as reported, those three statements together transform the computation, and the next four sections work through why.

Partner Time Has No Cost

The single most important consequence, and it follows from how a partnership pays its principals. This section is our own analysis of the reported position.

The reported CRA statement is that the cost of professional work in progress will not include any value of partner time[1].

The reason is structural. A partner is not paid a salary; a partner takes a share of profit. There is no payroll cost associated with a partner's hours, because the partnership does not incur one.

Cost, for inventory purposes, is what was actually incurred. If nothing was incurred for those hours, their cost is nil.

That produces a result which looks strange and is internally coherent.

An hour recorded by an articling student has a cost, being that student's payroll cost for the hour plus benefits. An hour recorded by the senior partner on the same file has a cost of zero.

The more senior the person doing the work, and the more the firm's output is produced by its principals rather than its employees, the lower the cost of its work in progress.

Which is the inverse of what the practice management system shows, since senior time carries the highest charge-out rate.

We would state the caution alongside it. This turns on how the practitioners are engaged and remunerated, and a professional corporation paying its principal a salary is in a different position from a partnership allocating profit. That distinction should be established for the specific firm.

Direct Cost Against Absorption Cost

The second element of the reported position, which is a choice a firm can make.

The reported statement is that professionals will maximise their deferrals by following the direct cost method rather than the absorption cost method, so that they will not be required to include the costs of fixed overheads such as rent[1].

The distinction between the two, and this is our own explanation of it, is about what gets attached to a unit of output.

Absorption costing spreads fixed overhead across production, so each hour of work carries a share of rent, insurance, software, administration and premises costs.

Direct costing attaches only the costs that vary with the work, which for a professional firm means the payroll of the people doing it.

Two consequences.

Direct costing produces a materially lower cost figure in a business whose fixed overhead is large relative to variable cost, which describes most professional firms. Premises, technology and administrative infrastructure are substantial and do not vary with the hours recorded on any file.

And the choice appears to be the firm's, subject to the ordinary requirement that a method be applied consistently, which a firm should confirm.

Combined with the partner time point, the effect is that the cost of a firm's work in progress consists of the payroll and benefits of the non-principal staff who worked on it, and nothing else.

For Most Professionals, Cost Is Lower

The third element, which tells a firm which side of the lower-of test it will land on.

The reported statement is that for most professionals, the lower of cost and fair market value will be cost determined on that basis[1].

That is a useful practical steer and this is our own reading of why it holds.

Fair market value is deemed to be the amount reasonably expected to become receivable[2], which is a figure that includes the firm's entire margin. It is what the client will pay.

Cost, on the reported position, is staff payroll only, with no partner time and no overhead.

A professional firm exists because the amount clients pay exceeds the cost of the people who do the work. So the expectation that cost is the lower figure is not a technicality; it is a description of a functioning practice.

The circumstances in which it would not hold are worth naming, and they are ours. A file expected to be substantially written off, a fixed-fee engagement that has run badly over, or a matter where recovery is genuinely doubtful could produce a fair market value below cost.

Those are exceptions rather than the norm, and a firm finding that fair market value is systematically lower than cost across its book has a business problem rather than a tax question.

What The Difference Looks Like

The magnitude, computed by us on a firm with $600,000 of work in progress at billing rates.

Where partners performed 30 percent of the work and staff cost is 40 percent of their charge-out rate, cost is roughly $168,000, being about 28 percent of the billed figure.

At a 50 percent partner share, cost is roughly $120,000, or about 20 percent.

At a 70 percent partner share, roughly $72,000, or about 12 percent.

At an 85 percent partner share, roughly $36,000, or about 6 percent.

Holding the partner share at 50 percent but raising staff cost to 55 percent of charge-out gives roughly $165,000, or about 28 percent.

Those figures apply assumed ratios to a hypothetical firm and are illustrative only, but the range is instructive.

On these assumptions, cost sits somewhere between roughly 6 and 28 percent of the figure a practice management system would report.

To put a tax number on it: a firm including $600,000 rather than $120,000, at an assumed 12.2 percent small business rate, has overstated income by $480,000 and overpaid roughly $58,560, on our own calculation.

And because this is now an annual computation rather than a transitional one, that overpayment recurs.

The Sole Practitioner Case

The extreme case, which is also a very common one. This section is our own analysis.

Consider a sole practitioner who does all the chargeable work personally and employs only administrative support.

On the reported position, none of that work carries a payroll cost, because it was all done by the principal. Administrative staff time is not chargeable work in progress.

The cost of the firm's work in progress is therefore close to nil, whatever the practice management system shows.

Under the lower-of method, the inclusion follows the lower figure.

We state that carefully because it is a striking outcome, and three cautions belong with it.

It depends entirely on the reported CRA position on partner time, which we did not verify at source[1].

It depends on how the practitioner is engaged and remunerated. A practitioner drawing a salary from a professional corporation is in a materially different position from one taking profit, and that distinction has to be established rather than assumed.

And it does not mean the income is never taxed. It is taxed when the work is billed and collected, which is what happens in the ordinary course. What is at stake is the year in which it falls.

A sole practitioner who has been reporting system-generated work in progress since the repeal should have this looked at, because on these figures the amounts are not small.

The Number In Your System Is Not The Number

The practical conclusion, and the reason we think this article matters.

Commentary describes the position directly: many professionals either do not account for work in progress in their financial accounts, or account for it at its expected billing amount, using staff and partner billing rates rather than cost[9].

Read that against the reported CRA position and the mismatch is complete, which is our own analysis.

A billing-rate figure includes partner time, which the reported position excludes from cost entirely.

It includes the firm's margin on staff time, since charge-out rates are multiples of payroll cost.

And it implicitly includes overhead recovery, since charge-out rates are set to cover premises and infrastructure, which direct costing excludes.

So a firm reporting its system figure is reporting a number constructed from three components the cost calculation does not contain.

It is not even the right figure for the fair market value method, since that asks what is reasonably expected to become receivable rather than what the time was worth at standard rates.

The instruction is simple and specific: the work in progress figure for the tax return has to be computed, and it is not a report that can be run.

The Guess-Work Problem

The difficulty on the other side of the test, stated candidly by commentary.

It observes that one of the largest practical problems goes back to the premise of the provision: it is often difficult for accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors to correctly determine the fair market value of their work in progress. For professionals working on complex engagements, figuring out how much of the work in progress is ultimately recoverable is often guess-work[2].

Commentary elsewhere makes a related point, that ensuring the lowest defensible figure is reported requires a review of work in progress like the annual review of accounts receivable[3].

That comparison is the most useful practical framing in the area, and this is our own elaboration.

Every professional firm already performs an annual exercise of exactly this kind on its receivables: reviewing each balance, forming a view on recoverability, and providing against what will not be collected.

The work in progress exercise asks the same question one stage earlier, about work not yet billed.

Firms that treat it as a new and unfamiliar task are overlooking that they already have the skill, the file knowledge and the process. What they lack is the habit of applying it before the bill is raised rather than after.

Three practical points. The review should be by file rather than in aggregate. It should be documented at the time, since a recoverability judgment cannot be reconstructed. And it should be performed by people who know the files, which means the professionals rather than the bookkeeper.

What Happens If You Overstate

The asymmetry in getting the estimate wrong, and it runs against the taxpayer.

Commentary states that if the professional makes the wrong determination and over-estimates what is recoverable, it will result in an overstatement of taxable income for the year, and that the correction would not occur until the subsequent year as a bad debt expense under paragraphs 20(1)(l) or (p)[2].

Three consequences, ours.

The error is self-correcting but not costless. The amount comes back as a deduction later, so nothing is permanently lost, but tax is paid a year early and the cash is gone in the meantime.

The correction depends on a different provision with its own conditions. A firm assuming an over-estimate will simply reverse should establish that the bad debt provisions actually apply on its facts.

And the incentive it creates is worth naming. Because over-estimating costs money and under-estimating is corrected by a later inclusion when the work is billed, the risk profile is not symmetrical.

We are not suggesting a firm should under-estimate. We are observing that a genuine, documented, file-by-file recoverability review is more likely to produce a defensible lower figure than a cautious round-up, and that the cautious round-up is not the safe option it appears to be.

Contingency Fees

An exception with real significance for one part of the affected population.

Commentary states that there are exceptions to the change for unbilled work where billing is contingent upon an outcome, giving the typical example of a personal injury lawyer who can only bill a client if the case is successful. In those situations, the taxation of work in progress could effectively be deferred to a subsequent period when the case is settled[6].

A professional association's material likewise directs practitioners to CRA guidance on billed-basis accounting, especially its question five on contingency fees[10].

We report the exception as commentary describes it, did not obtain the CRA guidance referred to, and note that a firm relying on it must work from that guidance rather than from this description.

The underlying logic, which is ours, connects to the deeming rule discussed earlier.

Fair market value is the amount reasonably expected to become receivable. Where a fee is payable only on a successful outcome that has not occurred, the amount reasonably expected to become receivable at the year end is genuinely uncertain and may be nil.

That is a different situation from ordinary unbilled time, where the entitlement to bill exists and only the invoice is outstanding.

The practical point is that a practice with a meaningful contingency book should identify those files separately, because they raise a distinct question and the answer may differ from the rest of the practice.

Firms That Never Tracked It

A population the repeal caught particularly hard.

Commentary observes that many professional firms and businesses did not even account for work in progress, instead relying on these provisions to have the work in progress and its deduction for tax purposes effectively cancel each other out[4].

That is worth stating plainly, and this is our own analysis.

Under the old election, a firm that did not measure its work in progress suffered no disadvantage. The election excluded it, so its size did not matter.

Whole categories of practice therefore operated without any measurement discipline: smaller medical, dental, veterinary and chiropractic practices in particular, where work in progress is real but no time-recording culture exists.

A dental practice with treatment plans partly completed at year end has work in progress. So does a veterinary practice mid-course-of-treatment. Neither is likely to have a system that quantifies it.

Three consequences for such a practice.

It has to build a measurement where none existed, which is a different problem from adjusting an existing figure.

It has more room to establish an appropriate basis from the outset, because it is not anchored to a system figure computed for other purposes.

And it should resist the temptation to adopt a billing-rate proxy simply because that is the number available, since on the analysis above that is the wrong number.

This Is Now An Annual Computation

The framing that should govern how a firm handles this going forward. This section is our own analysis.

Most commentary in this area was written during the transition and treats the change as an event: a phase-in to be managed, a one-time adjustment to absorb.

That period is over. The inclusion is at 100 percent and has been for several years.

What remains is a recurring annual valuation of an inventory balance, performed on the firm's own facts, using a chosen method, requiring documented judgments about cost and recoverability.

Three implications.

It belongs in the year-end process as a standing item, with an owner and a timetable, in the same way the receivables review does.

The method choice should be recorded and applied consistently, since inventory valuation methods generally are.

And the balance is a recurring difference between the financial statements and the tax return, which needs a reconciliation that persists rather than being reconstructed each year.

A firm that has been carrying a system-generated figure since 2018 without revisiting the basis has, on the analysis in this article, potentially been overstating income every year since. That is worth a conversation with an advisor about both the current year and the ones behind it.

What The Auditor Actually Examines

The enquiry in practice. This section is our own analysis.

The valuation method adopted, and whether it has been applied consistently between years.

The composition of the cost figure, tested for whether it contains partner or principal time and whether overhead has been included under an absorption approach.

How the fair market value figure was derived, and whether it reflects amounts reasonably expected to become receivable rather than standard rates.

The recoverability review, and whether it was performed by file and documented at the time.

Reconciliation between the financial statement figure and the tax figure, since they should differ and the difference should be explicable.

Contingency files, identified separately, with the basis for their treatment.

Consistency with the subsequent year's billings, since what was actually billed and collected after the year end is direct evidence about the estimate.

That last item deserves emphasis. A recoverability estimate is made at year end and tested by events afterwards, and an examination conducted a year or two later has the benefit of knowing what was actually collected.

What Records Survive

The work in progress computation itself, showing how the figure was built rather than only the result.

A statement of the valuation method chosen, with the date it was adopted.

The cost build-up, identifying whose time carries payroll cost and whose does not, and what was excluded under direct costing.

A file-by-file recoverability review, dated at year end, with the reasoning for material write-downs.

A separate schedule of contingency files with their treatment and its basis.

The reconciliation between accounting and tax figures, maintained year over year.

Subsequent billing data against the prior year's estimate, which both supports the estimate and improves the next one.

What To Do

Stop using the practice management system figure. It is at billing rates, which include partner time, margin on staff time and overhead recovery, none of which belong in cost.

Confirm the CRA position on partner time at source. This article turns on a commentary summary we did not verify, and the amounts involved justify checking it.

Establish how your principals are remunerated. Partner profit share and a salary from a professional corporation are different, and the cost analysis differs with them.

Consider the direct cost method deliberately. The reported position is that it excludes fixed overhead such as rent, and professional firms carry a lot of it.

Compute both sides of the lower-of test. You cannot take the lower without knowing both, and the reported position is that cost will usually be the lower.

Run the recoverability review like the receivables review. By file, documented at the time, by people who know the matters.

Identify contingency files separately. Commentary describes an exception for work billable only on outcome, and CRA guidance is said to address it specifically.

Do not round up out of caution. Over-estimating overstates income now and corrects only later through a different provision with its own conditions.

Treat it as a standing annual item. The phase-in is complete, so this is a recurring inventory valuation, not a transitional adjustment.

Look at the years behind you. A firm that has reported a system figure since the repeal may have overstated income in every one of them.

The Limits Of This Analysis

Several caveats matter, and one is central. This is not tax or accounting advice; valuing work in progress is an annual judgment on a firm's own facts. Everything is stated as verified in August 2026 and requires confirmation. The CRA position on partner time, direct costing and the lower-of outcome, on which much of this article rests, is reported by a commentary service summarising a CRA statement, and we did not obtain the underlying document; given how much turns on it, it should be confirmed at source before reliance. We have read no statutory provision and all section references are as commentary cites them. Sources conflict on the length of the transitional period, with one describing two years against four describing five, and we have not resolved that conflict. Several sources date from 2017 and 2018 and describe the measure as proposed rather than enacted. We did not obtain the CRA guidance on billed-basis accounting referred to by one source, including the material on contingency fees, and a firm relying on that exception must work from the guidance itself. We have not established whether the choice between direct and absorption costing is subject to conditions beyond consistency, nor the conditions attaching to the bad debt provisions referred to. All arithmetic is our own, applies assumed partner shares and cost ratios to a hypothetical firm at an assumed tax rate, and is illustrative only. The analysis of why cost will usually be lower, the sole practitioner case, the observation that the system figure contains three components cost does not, the receivables-review framing and the audit examination structure are our own. This article does not address partnerships and their allocation rules, the interaction with professional corporation structures, provincial variation, or the treatment of disbursements.

Related Reading

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Frequently Asked Questions

Which professions does this affect?

Six, named in the provision: accountant, dentist, lawyer, medical doctor, veterinarian and chiropractor. It is an enumerated list rather than a general rule for professionals, so engineers, architects, consultants and others were never within the election and lost nothing.

Can we still use the figure from our practice management system?

It is the wrong number. A system figure is at billing rates, which contain partner time, the firm's margin on staff time and overhead recovery. On the reported CRA position, cost contains none of those. It is not the right figure for fair market value either, since that asks what is reasonably expected to become receivable.

Does partner time really carry no cost?

That is the position reported by a commentary service summarising a CRA statement: cost includes payroll and benefits but no value of partner time. The logic is that a partner takes profit rather than salary, so no cost is incurred. We did not obtain the underlying document, and given the amounts involved it should be confirmed at source.

Which side of the lower-of test will we land on?

The reported CRA position is that for most professionals the lower of cost and fair market value will be cost. That follows from what each figure contains: fair market value includes the firm's whole margin, while cost on that basis is staff payroll only. A firm whose fair market value is systematically below cost has a business problem, not a tax question.

Is it safer to round the estimate up?

No. Commentary notes that over-estimating recoverability overstates taxable income for the year, with the correction coming only in a later year as a bad debt expense under separate provisions with their own conditions. A documented file-by-file review is both more defensible and more likely to produce the right figure than a cautious round-up.

The transition is over. Is there anything left to do?

Yes, every year. The phase-in finished, but what remains is a recurring inventory valuation requiring documented judgments on cost and recoverability. A firm that has carried a system-generated figure since the repeal may have overstated income in each year since, which is worth reviewing alongside the current one.

References

1. Tax Interpretations. (2018, May). CRA Confirms That Partner Time Will Not Be Included in Professionals' WIP, on accountants, dentists, lawyers, physicians, veterinarians and chiropractors being required on a phased-in basis to include the lower of the cost and fair market value of their work in progress in income; on those professionals maximising their deferrals by choosing the direct cost method rather than the absorption cost method in determining the cost of their work in progress, so that they are not required to include the costs of fixed overheads such as rent; on the cost of their work in progress including payroll costs and benefits but not including any value of partner time; and on the lower of cost and fair market value being, for most professionals, cost determined on that basis. Note: a commentary service summarising a CRA statement; we did not obtain the underlying document, and much of this article rests on this summary. taxinterpretations.com
2. Moodys Private Client. Whip That WIP: Canada's Proposed Tax Repeal of a Professional's WIP Exclusion Election, on subsection 10(5) mandating that the parts or supplies or work in progress of a business that is a profession must be included in inventory, and on that overriding accounting principles and section 9; on the valuation of inventory being governed by subsection 10(1) and section 1801 of the Income Tax Regulations, requiring either the lower of cost or fair market value, or simply fair market value; on a professional's work in progress being deemed by paragraph 10(4)(a) to have a fair market value equal to the amount reasonably expected to become receivable after the end of the year; on paragraph 34(a) enabling accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors to elect to exclude year-end work in progress from income; on the practical difficulty of determining fair market value, with recoverability on complex engagements often being guess-work; and on an over-estimate of recoverability resulting in an overstatement of taxable income for the year, corrected only in the subsequent year as a bad debt expense under paragraphs 20(1)(l) or (p). Note: a Canadian tax advisory publication written while the measure was described as proposed. moodysprivateclient.com
3. Fazzari + Partners LLP. Work in Progress (WIP): Why and How It Will Be Taxable, on members of certain designated professions being able to elect to exclude the value of work in progress in computing income, effectively allowing income to be recognised when the work is billed; on billed-basis accounting enabling taxpayers to defer tax by permitting the costs associated with work in progress to be expensed without the matching inclusion of the associated revenues; on Budget 2017, released 22 March 2017, proposing to eliminate that election for taxation years beginning on or after Budget Day; on the full amount of the lesser of cost and fair market value being taken into account for valuing inventory for the second and each successive taxation year beginning on or after Budget Day; and on a review of work in progress like the annual review of accounts receivable being required. Note: a professional accounting publication which notes at the time that there was no indication whether the proposed measures would be enacted. fazzaripartners.com
4. Manning Elliott LLP. New WIP Rules Mean Tax Adjustment for Professionals, on incorporated professionals including accountants, lawyers, dentists, medical doctors, veterinarians and chiropractors having been entitled, for taxation years beginning prior to 21 March 2017, to deduct their work in progress for income tax purposes, removing the revenue and embedded profit not yet billed from taxation until the following year while allowing related costs to be deducted currently; on section 34 having been revised to remove that ability for taxation years commencing after 21 March 2017; on there being a phase-in of the existing rules over a five year transitional period; and on many professional firms not having accounted for work in progress at all, instead relying on the provisions to have the work in progress and its deduction effectively cancel each other out. Note: a professional accounting publication. manningelliott.com
5. Andrews & Co. Professionals' Work in Progress Exclusion: Changes Are Coming, on taxpayers in certain designated professions, being accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors, having been able to elect to exclude the value of work in progress in computing income, enabling deferral by permitting costs to be expensed without including matching revenues; on the 2017 Federal Budget proposing to eliminate the election effective for the first tax year beginning after 22 March 2017; on transitional rules implementing the change over two years; on work in progress, once fully implemented, being valued at the lower of cost or fair market value and included in income each year; and on many professionals either not accounting for work in progress or accounting for it at its expected billing amount using staff and partner billing rates rather than cost. Note: a professional accounting publication; its description of a two-year transitional period conflicts with other sources and we have not resolved that conflict. andrews.ca
6. NG CPA PC. I Have a Professional Corporation — How Do Tax Changes to Work in Progress Affect Me?, on a general phase-in under subsection 10(14.1) so that unbilled work in progress is brought into income over a five-year transitional period, with 20 percent taxable at the end of the first year, 40 percent at the second, 60 percent at the third and so on; on exceptions for unbilled work where billing is contingent upon an outcome, with the example of a personal injury lawyer who can bill only if the case is successful, so that taxation could effectively be deferred to a subsequent period when the case is settled; and on work in progress being considered inventory for tax purposes. Note: a professional accounting publication. ngtax.ca
7. Lawyers Financial. Prepare for Changes to Accounting for WIP on Taxable Income, on the Act historically allowing designated professionals such as lawyers, doctors and qualified accountants to exclude the value of year-end work in progress, commonly referred to as billed-basis accounting because the amount was included in taxable income when the client was billed; on the federal government eliminating it in a phased-in manner for fiscal years beginning after 22 March 2017; on the transition permitting inclusion of 20 percent of work in progress in the first year, 40 percent in the second and 100 percent by the fifth; and on work in progress being deemed inventory as required by paragraph 10(5)(a). Note: a publication for the legal profession. lawyersfinancial.ca
8. KBLLP. Changes to WIP Rules Whip Up a Storm, on work in progress being work performed but not yet billed to clients, and the rules affecting accountants, dentists, lawyers, medical doctors, veterinarians and chiropractors; on taxpayers in those professions having been able to file an election to exclude the value of year-end work in progress, being taxed on an as-billed basis; on professionals previously qualifying for the election being required to include year-end work in progress in taxable income, with many potentially facing an unexpected tax bill on revenue not yet collected; on unbilled work in progress being progressively included at 20 percent each year so that the full amount is included by the fifth year; and on work in progress being valued at either fair market value or the lower of cost and fair market value. Note: a professional accounting publication written while the legislation was described as proposed. kbllp.ca
9. Andrews & Co. Professionals' Work in Progress Exclusion: Changes Are Coming, cited separately for its statement that many professionals either do not account for work in progress in their financial accounts or account for it at its expected billing amount, using staff and partner billing rates rather than cost, and for its description of a two-year transitional period. Note: as above; the transitional description conflicts with other sources. andrews.ca
10. Canadian Bar Association. Determining Work-in-Progress as Income — How's That Going?, on background resources including a Joint Tax Committee letter to Finance Canada of May 2017 and CRA guidance on billed-basis accounting, especially its question five on contingency fees. Note: a professional association publication; we did not obtain the CRA guidance referred to. cba.org

This article is provided for general informational purposes and is not tax or accounting advice. The CRA position on partner time and costing method on which much of this article rests is a commentary service's summary which the authors did not obtain at source, and it should be confirmed before reliance. No statutory provision was read; section references are as commentary cites them. Sources conflict on the length of the transitional period and that conflict is reported unresolved. All arithmetic is the authors' own and is illustrative only.