The Liberal government’s second federal budget has several measures affecting the tax system, including proposed changes in how certain lawyers recognize income.
Currently, taxpayers in certain “designated professions,” including lawyers, may elect to exclude unbilled work in progress in computing their income for tax purposes. This permits those taxpayers to defer recognition of income (as compared to full accrual) while being able to deduct the related expenses in the year they are incurred.
“Subject to transitional provisions,” Adrienne Oliver, a tax lawyer at Norton Rose Fulbright Canada in Toronto, explains, “for taxation years beginning on or after Mar. 22, 2017, the budget proposes to eliminate the ability of such designated professionals to elect to use billed-basis accounting. This will affect law firms that do not use the full accrual method of determining their income.”