The taxpayers, which carried on consulting businesses, computed their income for financial statement purposes by valuing the work in progress at the end of each year at fair market value (i.e., including a portion of the profit on uncompleted consulting contracts based on a percentage-of-completion method). The trial judge (2008 TCC 106) found that they were required to follow the same method for purposes of computing their income under the Act, given that a different conclusion would have made section 34 of the Act, which permitted certain professions to exclude income in respect of work in progress in computing their income, meaningless.
The Court of Appeal disagreed. Noël J.A. stated at para. 33 that s. 10(1), which requires that inventory be valued at the lesser of cost or fair market value, overrides any GAAP considerations. Noël J.A. also stated at para. 35:
With respect, it is incorrect to say that section 10 applies whenever section 34 applies. These two provisions operate differently. Taxpayers subject to section 10 must account for the value of their inventoried work in progress based on cost or FMV, depending on the circumstances; however, section 34 gives taxpayers the choice of excluding their inventoried work in progress in computing their income, in which case, section 10 does not apply.