The Budget contained a change of significance for some
professionals including lawyers. The Budget proposes to pull back a
long standing deferral that has existed with respect to work in
progress (commonly known as "WIP"). Currently
professionals are able to exclude WIP from their income.
Practically speaking they include the prior year WIP balance in
income and deduct the current year balance to arrive at taxable
income. So if WIP balances do not change significantly from year to
year it does not have much of an impact, it just means in the first
year of business there was a deferral. That deferral is now going
to be reversed over the next couple of years.
The concept of WIP and its tax treatment is not easily
understood, even by those that have been able to claim the annual
deduction. In practice there can be two types of WIP in a
professional environment: unbilled work and unbilled disbursements
and they are measured in different ways.
