Professionals Disagree with Work in Progress Rule Changes

It’s safe to say that the professional financial community doesn’t agree with the 2017 federal budget proposal to wipe out the Work in Progress rules: 76% to 24% in fact.

Work in Progress (WIP) billing refers to the amount of costs related to a production process that is partially completed. It’s predominately used in manufacturing industries, and includes raw materials, labour and overhead costs. WIP is an inventory account on the balance sheet which is adjusted when financial statements are prepared and therefore does not affect the net income. Once the process is completed, the costs in WIP are transferred to an expense and an invoice is prepared relating to those costs. This helps to align expenses and income for those processes in the same reporting period.
(Source: EverGreen Explanatory Notes)

We asked some respondents to our April poll to share their opinion, and here’s what they had to say:

No! Absolutely not. It isn’t fair (nor legal). Maria

Unless they are on some form of value billing system with regular predetermined invoice amounts, service businesses such as accounting or legal practices need to track billable hours. Those hours that are not yet invoiced are work in progress and should be shown as such at the end of an accounting period. Just because it didn’t have to be shown in the past for tax purposes doesn’t mean it is not proper accounting procedure. Other business need to show it, so why not accountants? David

Seems [the] CRA wants to switch to cash accounting; if so, it allows taxable income to be manipulated to suit the taxpayer. Bill Dec 31 or Jan 1, whichever is most beneficial tax wise. Really a weird proposal to bypass GAAP. Something is hidden in the closet, and this is prep work to the real legislation. Ken

Since the costs involved in order to create the unbilled WIP amounts are expensed in the current year, the deferral of WIP creates a situation where costs are deducted and matching income is not recognized. Can’t have it both ways. If the billing doesn’t happen in the future, that’s a bad debt. Alan

I think the government is making changes that are not according to accounting standards, which must be followed. There are many situations where the work is not finished at the end of the year, and this would need to be the business decision to claim the income or move it forward, because the claim may not make payment in this fiscal year. Ina

Work in Progress is just that. Unless a progress bill has been done or the job is complete and billed out, it should not be taxable. As well, there are too many factors that can occur during work on a file that can impact the end result and the ultimate invoice. Chad

We’d like to thank you for your input and ask you to participate again in this month’s poll. Here is the question: Top marginal tax rates (federal and provincial) are close to or over 50% in many provinces. Do you think that’s fair?

©2017 Knowledge Bureau Inc. All Rights Reserved.

Refer a Friend	Research	Calculators	Course Trials