Message from the President – Billed-basis accounting update

  • June 01, 2017

To our members:

The CBA continues to express its serious concerns over the proposal in the 2017 federal budget to end billed-basis accounting.

On June 1, I wrote to Finance Minister Bill Morneau underscoring the impact the proposed measure may have on access to justice – which already faces significant challenges. I explained the difficulties of paying tax on income that might not be realized for several years, if at all. The amount of income can be impossible to quantify until the case has been resolved, as more time and effort might be logged on a file than could ever possibly be billed. Having to pay tax on possible future income will have a crippling effect on a lawyer’s ability to accept cases on a deferred-payment basis. CRA’s confirmation that the Budget 2017 proposal will not affect contingency fee arrangements is a good start, but more clarity is needed.

I made the point that, given the distinct nature of the lawyer and client relationship, the legal profession has unique challenges in valuing WIP because the amount that might ultimately be billed by a lawyer often depends on future events and multiple factors outside of the lawyer’s control.

I also noted that our members are concerned that the implementation period for this proposed measure, two years, is too short – that the legal profession will face potential unanticipated tax consequences and significant implementation costs resulting from the short implementation period.

We made a number of recommendations to the Minister, based on discussions among experts in the CBA:

  • That the government clarify that three payment arrangements – classic contingency fees, de facto contingency fees and deferred payments – will not be affected by the billed-basis accounting proposal
  • That the Income Tax Act clarify the principles relevant to determining the cost of WIP
  • That the proposal be implemented over five to seven years
  • That a de minimis exception for smaller legal practices be crafted as a practical way to exclude situations where the required compliance and administrative costs are disproportionate to the anticipated impact.

The Joint Committee on Taxation of the CBA and CPA Canada also made a submission that addresses the proposal from a technical perspective.

We hope to meet again soon with Finance officials to discuss the submission, and will keep you informed of our progress. I extend my thanks to all CBA members who have shared their stories about the impact of the proposal on their clients and their practices. 

René Basque, Q.C.

[2] Comments

CBA members may sign in to comment.

  • From: CBA
  • June 06, 2017
  • 1:55 PM
Thank you for your comment. We recognize that many types of practices could be affected by this proposal, including commercial and real property practices. While we may have highlighted certain areas, we were very careful to ensure that the overall approach of the CBA submission included all practices where the lawyer accumulates a significant amount of work in progress and the lawyer’s potential income is deferred.
  • From: Alan David Direnfeld
  • June 06, 2017
  • 7:01 AM
The President's comments focus on litigation counsels' issues with BBA but seem to ignore the plight of the commercial, real property and estates sections of our Bar. We front disbursements and carry files just like the litigators. In those circumstances, cash is often in short supply. Typically, commercial practitioners operate with lines of credit to underwrite those disbursements and to pay stay staff on these labour intensive files before any invoices can be issued. The thought of paying taxes up front on files yet to be billed is very frightening. For many commercial lawyers, the largest income earning year will be their last...when costs finally come down and the receivables are ultimately collected against lower overhead. Why is the CBA not saying anything in support of the commercial Bar? We seem to be standing alone out there.