ARTICLE · 04 MAY 2017

The Elimination Of Billed-Basis Accounting For Professionals

Collins Barrow National Incorporated

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Work in progress (WIP), work performed but not yet billed, is a ubiquitous aspect of business for professionals. Under the Income Tax Act, WIP is deemed to be inventory.

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Work in progress (WIP), work performed but not yet billed, is a ubiquitous aspect of business for professionals. Under the Income Tax Act, WIP is deemed to be inventory. Since inventory is carried at the lesser of cost or fair market value (FMV), businesses typically carry WIP at cost on their balance sheets.

Professionals, such as accountants, dentists, doctors, veterinarians and others, can deduct the WIP in calculating their income for tax purposes. Budget 2017 proposes to change that.

Typically, professionals account for WIP on their balance sheets in two basic ways:

No recognition – WIP is not recognized on the year-end balance sheet of the professional.
Recognition at FMV – WIP is carried on a professional's balance sheet at FMV.

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