Quick answer: A fabricator or small manufacturer carries three things at year end that a trades contractor does not: raw materials, work in progress and finished goods, each valued; and shop equipment that depreciates through CCA classes rather than being expensed. Because cost of goods sold is what the inventory count makes it, the year-end count is the single most consequential hour of the year for the tax bill. Pitt Meadows and Maple Ridge shops share this profile and the same treatment.
On this page
Three inventories, one count
Raw materials are valued at cost. Work in progress carries materials plus the labour and overhead put into it so far. Finished goods carry the full cost to make them. The count at year end sets the closing inventory, and closing inventory sets cost of goods sold — so an unfinished job left out of WIP, or scrap counted as stock, moves the profit line directly. A consistent method matters more than a sophisticated one; changing methods year to year is what draws questions.
Work in progress and when revenue is earned
Custom fabrication often spans a year end. Whether the job is recognized as revenue in progress or on completion depends on the contract and the method the corporation has adopted, and the choice has to be applied consistently. Deposits taken before the work is done are liabilities, not revenue, until earned. This is where a Maple Ridge shop’s books most often diverge from its bank balance.
Shop equipment and CCA
Presses, CNC machines, welders, compressors and the forklift sit in CCA classes with different rates, and manufacturing and processing equipment has at times had its own accelerated treatment. The class is set when the asset is added; leasehold improvements to a rented unit have their own class again. The CCA classes guide and the half-year rule cover the mechanics; the manufacturer accountant page covers how the schedule is kept.
PST on the shop floor
BC PST has exemptions for qualifying machinery and equipment used in manufacturing, and they are category-specific and documented at purchase. Paying PST that was exempt, or claiming an exemption on equipment that does not qualify, are both common; the purchase file should show which applies to each machine.
Related
Accountant for Maple Ridge manufacturers · Accountants in Maple Ridge BC · Year-end inventory count · BC PST guide
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Sources: CRA — T4012 T2 Guide · CRA — Capital cost allowance · Government of BC — PST exemptions. General information, not advice.
Frequently asked questions about manufacturers in Maple Ridge
Do I have to count inventory if the shop is small?+
Is a customer deposit income when I receive it?+
Does Pitt Meadows versus Maple Ridge change anything?+
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