The Federal Budget tabled on March 22, 2017 proposed the elimination of a tax deduction related to professionals and work in progress.
Work in Progress Revenue for Certain Professionals
Generally speaking, unbilled work in progress (WIP) must be included in computing income for tax purposes. However, certain designated professionals (i.e. lawyers, dentists, medical doctors, chiropractors, veterinarians, and accountants) are allowed a deduction equal to the value of WIP and pay taxes on such amounts only when billed to clients.
The Federal Budget proposes to eliminate the currently available WIP deduction, resulting in an immediate WIP inclusion in the computation of taxable income. A transitional relief will be available over a two-year period to help mitigate the tax impact of this change.
In year one, the WIP deduction will be equal to 50% of the lesser of the cost and the Fair Market Value of the WIP. In year two, the previous year WIP deduction is brought in to income and no subsequent WIP deduction allowed. As most professionals have a calendar year-end, the WIP deduction will be available 100% in 2017, 50% in 2018, and 0% in 2019 taxation years and thereafter.
These rules will only affect taxation years commencing on or after March 22, 2017.
Contact us today for more information on how these proposed changes in the Federal Budget may affect you and your professional practice.