(a) When is “qualifying revenue” recognized where the eligible entity recognizes revenue under the “percentage of completion” method, i.e., based on costs incurred with respect to a particular project during the particular period (i.e. calendar month) and adding to that the anticipated profit margin on the particular contract? CRA responded:
“[R]evenue” under normal accounting practices generally requires the satisfaction of certain performance obligations, such as the sale of goods or the performance of services that would typically result in a corresponding inflow of cash, accounts receivables or other consideration.
… [U]nder normal accounting practices, “percentage of completion” is a method that reports revenue of a service contract over a period of time (i.e., performance obligations under the contract have been satisfied on an ongoing basis by the entity). Moreover, the services performed under the contract by an entity typically give rise to an inflow of cash, receivables or other consideration over the term of the service contract. Accordingly … the revenue reported by the entity under the percentage of completion method would generally be considered “qualifying revenue” … .
(b) Can whether investment and brokerage firms who use mark-to-market accounting qualify for CEWS on the basis that the value of their portfolio of investments dropped by more than 30% into March and April, 2020? CRA responded:
[T]he mark-to-market valuation adjustment to the carrying value of the investment does not give rise to an “inflow of cash, receivables or other consideration”. Accordingly … the unrealized gains/losses reflected in an entity’s financial statements arising from mark-to-market adjustments to the carrying value of an investment … are not considered qualifying revenue … .