Neil Armstrong notes that the CRA believes that WIP under contingent fee arrangements is not income for the purposes of the Income Tax Act until the client receives amounts under a settlement or court order (when the liability of the client for fees is actually triggered).
Mr Armstrong writes:
There can be arrangements under which the fees of professionals respecting an acquisition or sale, financing, or reorganization contingent on lenders’ or shareholders’ approval, cannot be rendered until the closing, with an indeterminate “haircut” to be negotiated for a failed transaction. These may be contingent-fee arrangements.
