Construction Bookkeeping in Canada: Holdbacks, Subs and GST/HST

What is a construction holdback, and how much is it in Ontario, BC and Alberta?

A holdback is a share of each payment on a job that the payer keeps until the time to register a lien (a legal claim against the property for unpaid work) has passed. A provincial lien Act sets the rate and the release date, so the answer depends on the province where the job is. Ontario, British Columbia and Alberta each require one.

After a certificate of substantial performance, Ontario (s. 22(2)) and Alberta (s. 23) also require a separate holdback on the work finished afterwards. In another province, the accounts, GST/HST timing and job costing below work the same way; only the holdback rate and release dates come from that province's lien Act, so read it for each job. Quebec is covered below.

A job is not simple when:

• you work in more than one province, so each job needs its own check.
• an Ontario contract was signed under an earlier version of the Act, which can still apply (s. 87.3).
• a lien notice has arrived or a lien is registered.
• the CRA, a lender or an owner is asking about holdbacks or subcontractor invoices, or a filing for subcontractor payments is coming due (T4A and T5018).
• you billed or claimed GST/HST on past draws without checking when the tax on the holdback was payable.
• you are both the owner's contractor and your subs' payer on one job, so you carry a receivable and a payable.
• money from one job has paid overhead or another job's costs while subs on the first are unpaid (see the trust rule below).

Gather the signed contract and change orders, the job address, each draw invoice, any certificate and its date, each subcontract and subcontractor invoice, and any lien notice or CRA letter.

How do I do holdback accounting: receivable from owners, payable to subcontractors?

Record the part an owner keeps back as holdback receivable, an asset, and the part you keep back from a subcontractor as holdback payable, a liability. Keep both apart from accounts receivable and payable, and tag each to its job.

Holdback receivable and holdback payable include the tax on the held-back part, so each entry balances and the account equals what will be paid. The two "not yet" accounts are tracking accounts, not CRA categories; they keep your main GST/HST accounts equal to the return. The standard accounts are in GST/HST in your books.

Keep a holdback schedule for every job: the party, contract date, certificate date, end of the holdback period, amount and tax kept, expected release date, and whether a lien is registered.

Money you receive on a job, holdback included, is also held in trust for the subcontractors and suppliers you owe on that job: Ontario s. 8 (covering holdback still owed to you too), British Columbia s. 10, and Alberta s. 22 for payments after a certificate of substantial performance. Spending it on overhead or another job before they are paid is a breach of trust. Ontario requires a bank account in your name and written records for each trust (s. 8.1), and holds a director or officer who goes along with a breach they know of, or should know of, liable for it (s. 13). In British Columbia a director or officer who knowingly goes along with one commits an offence (s. 11).

In British Columbia, for a job of $100,000 or more, the owner must pay the holdback into a holdback account at a savings institution, run together with the contractor, unless the owner is the government or a designated public body or a mortgagee retains the holdback instead (Builders Lien Act, s. 5). Your receivable then sits in that account.

When is the holdback released, and what starts the clock?

A holdback is released once the lien period ends with no lien outstanding. What starts that period, and how long it runs, differs by province (sections cited below are from each province's Act).

Ontario adds an annual release, in force since January 1, 2026. After each anniversary of the contract date, the owner must publish a notice within 14 days, then pay the accrued holdback for the prior year at least 60 and not more than 74 days later, unless a lien has been preserved or perfected (Construction Act, s. 26). The contractor then has 14 days to pay each sub its share. For a contract made before January 1, 2026, the first annual release comes on its second anniversary after that date and covers all holdback accrued to then (s. 87.4(4)). Alberta requires early payment only where the contract itself provides for annual or phased payment and its price is above a prescribed amount (s. 24.1).

In British Columbia, ask the payment certifier, usually the person your contract names to certify payment, in writing for a certificate of completion for your subcontract. The certifier must decide within 10 days of the request (s. 7).

Each release, annual or final, is a payment of holdback, so the GST/HST on it follows the timing in the next section.

When do I charge GST/HST on a holdback and on progress draws?

Tax on a progress draw is payable on the earlier of the day you are paid and the day payment is due. Tax on a holdback kept under a lien Act or a written construction contract waits until the earlier of the day it is paid and the day it becomes payable (Excise Tax Act, s. 168).

A draw's due date comes from the contract. In Ontario and Alberta the lien Act also requires an owner to pay a proper invoice within 28 days of receiving it (Construction Act, s. 6.4, Alberta Act, s. 32.2), so keep the invoice date and the payment date of every draw. An owner can withhold a disputed amount by notice within 14 days, and a contractor must pay each sub its share within 7 days of receiving payment (Ontario ss. 6.4(2) and 6.5, Alberta ss. 32.2(2) and 32.3).

How the invoice is worded matters. The CRA's real property memorandum shows an invoice that takes the holdback off the price first and adds tax to what is left, with the rest of the tax due when the holdback is paid. Its other example adds tax to the full price and then takes the holdback off the total: the whole tax is remitted for the period of the invoice. It also says tax collected before it is payable goes on the return for the period you collected it (GST/HST Memorandum 19.1). A second CRA memorandum describes the deferral for holdbacks required by a law or a written agreement (time of liability). They read the day a holdback becomes payable differently: the first puts it at the end of the holdback period set by the Act or the contract, the second at the day the holdback is required to be paid out. In Ontario the lien period ends before the 14-day payment deadline, so the two days differ. Keep both dates on the holdback schedule and have the timing confirmed before you file on either. Both are old. The second says it has not been updated for later legislative changes, and the first carries a notice of change from 2002: where either differs from the Act, the Act governs.

Report the tax on the return for the period it becomes payable (filing guide). Deposits and unpaid invoices have their own guide, and PST on materials is in the PST guide.

When do I claim the input tax credit on a subcontractor invoice with a holdback?

Claim the credit on the return for the period in which the tax becomes payable by you or you pay it, whichever comes first (Excise Tax Act, s. 169). Tax on a holdback you keep back from a subcontractor follows s. 168(7) too, because you are the recipient: it is payable by you on the earlier of the day you pay the holdback and the day it becomes payable.

So the credit on the part you pay now goes on the current return, and the credit on the held-back part waits. Tax you pay early can be claimed in the period you paid it. Hold the supplier's invoice before you file the return that claims the credit. The usual deadline is the due date of the return for the last reporting period that ends within four years after the end of the period in which you could first claim the credit (CRA).

The credit is also limited to the share of the purchase acquired for use in commercial activities. That can change when you build, rent or keep homes rather than bill customers for taxable work: see GST/HST on residential property.

How do I set up bookkeeping for a construction company with job costing?

Open a job for every contract and tag every bill, card charge and payroll cost to it when you enter it. Job profit is revenue billed to the job less the costs tagged to it. Costs that serve the whole business stay outside any job.

Book recoverable GST/HST to the credit account, not to the job. Enter each change order as its own line so you can see what it added, and compare job profit with the estimate every month. Accounts that map to the tax forms are in chart of accounts for GIFI.

What do I need from each subcontractor so my input tax credits hold up?

You need an invoice that carries the details the CRA requires, from a supplier whose registration you have checked, plus the subcontract that shows the holdback terms. A small supplier does not have to register, so its invoice may show no GST/HST and no number, and then there is no tax for you to claim (CRA).

Keep them for 6 years from the end of the year they relate to (CRA). If a subcontractor gave no invoice, ask for one now and keep the payment record; the credit needs the invoice details in hand before you file the return that claims it. A missing detail is covered in receipt details for input tax credits. Whether the worker is really a subcontractor is a separate test: see employee or contractor.

Does Quebec work differently for subcontractors?

Partly. The federal GST/HST timing for a holdback kept under a written construction agreement applies to a Quebec job too (Excise Tax Act, s. 168). The holdback rules above come from the Ontario, British Columbia and Alberta Acts and do not govern a Quebec job, and Quebec sales tax is a separate tax that is not covered here.

An Attestation de Revenu Québec may be required for covered licensed construction work once contracts with the same subcontractor reach $25,000 before tax. The conditions, deadlines and exemptions are in the subcontractor reporting guide.

Cash or accrual: how do I show profit by job when the money arrives months later?

Show job profit on what you billed and what the job cost, not on cash. The CRA says all self-employment income except farming, fishing and commission income must be reported on the accrual method (Guide T4002). That rule is for self-employment income; a corporation's T2 starts from its financial statements. Books kept on cash would show a profitable job as a loss until the owner pays. Cash timing, corporate statements and the choice of method are in cash or accrual accounting.

Use two views: a profit and loss by job, on billings, for margin, and the holdback schedule for when cash arrives and leaves. If costs run ahead of billings, the job looks like a loss until you bill; compare the share of the estimate spent with the share billed each month.

When a holdback counts as income on the return depends on the accounting method and the CRA's current position. Its old contractor bulletin (IT-92R2) is archived and no longer updated, so settle the treatment with whoever prepares the return before the books close.

What if a holdback is never released or is tied up in a lien?

A holdback stays in holdback receivable while it is still owed under the contract and the Act; writing it off is a separate decision with its own tax tests. A lien holds the money. In Ontario the annual release does not apply while a lien is preserved or perfected, and payment is due within 14 days after that ends (s. 26(7)). In British Columbia, money in a holdback account cannot be paid out without the agreement of everyone who administers it, and any of them can ask the court for directions (s. 5). In Alberta, while a lien is registered the owner must also keep any other unpaid amount payable under the contract (s. 18(2)), so more than the holdback can be tied up. A lien claim has strict deadlines and court steps that this page does not cover.

For GST/HST, if the tax on the holdback was never collected or reported, there may be nothing to adjust on the return; confirm against the returns you filed. If it was reported and the holdback is written off, the tax may be recoverable as a bad debt on a return filed within 4 years after the due date for the period of the write-off, and a later recovery is added back (Excise Tax Act, s. 231). The conditions and the income tax side are in writing off unpaid customer invoices. In the books, when you write off a holdback receivable whose tax never became payable, clear that tax from "GST/HST on holdback, not yet due" too, so only the net-of-tax amount is the loss.

On the payable side, keep a subcontractor's holdback in holdback payable until the Act and the subcontract release it. In Ontario, if a subcontract is abandoned or terminated, a payer cannot use its holdback to pay a replacement trade until liens have expired (s. 30). British Columbia (s. 6) and Alberta (s. 18(6)) bar the same use. Ontario protects a payer only for payments up to 90% of the price supplied (s. 24).

Example

These examples are illustrative; all figures are Canadian dollars.

Toronto addition with a monthly draw

A renovator signs a $200,000 addition. The owner keeps 10% of each draw. A $50,000 draw is invoiced by taking the $5,000 holdback off first and adding 13% HST to the $45,000 left: $5,850 HST, so the invoice due is $50,850. The Act requires the holdback, so the HST on it, $650, is not yet payable. The draw entry: debit accounts receivable $50,850 and holdback receivable $5,650 ($5,000 plus $650 HST); credit job revenue $50,000, GST/HST collected $5,850 and GST/HST on holdback, not yet due $650.

At the end the holdback is $20,000 and its HST $2,600. The certificate is published, the 60-day lien period ends with no lien, and the owner pays within 14 days. The HST is payable on the earlier of that payment and the day it becomes payable (the two CRA memoranda above read that day differently) and goes on the return for that period. Had the invoice added HST to the whole draw before taking off the holdback, the memorandum's other example has all $6,500 of HST reported for the period of the invoice, the $650 included.

Vancouver framer keeping a holdback from subs

A framing contractor's subs bill $80,000 on a job and the framer keeps 10%, $8,000, in holdback payable. GST at 5% on the $8,000 is $400 (PST ignored). A certificate of completion is issued, and the 55-day holdback period runs from it. With no claim of lien, the framer pays the $8,000 plus the $400 GST, and claims the $400 credit in the period the tax is paid or becomes payable, whichever is first, which may be the end of the 55-day period.

Montreal drywall subcontractor

A drywall subcontractor expects $30,000 of work for one contractor in the year. That is above the $25,000 line where an Attestation may be required for covered licensed construction work, so the contractor checks the conditions and deadlines in the subcontractor reporting guide. The Ontario, British Columbia and Alberta holdback rules above do not apply to this job.

Different for you?

• Your first job with a holdback is ending, a subcontractor filing is near, or the CRA is asking about holdbacks and subcontractor invoices: which province's holdback rules apply to each job, the GST/HST timing on past draws and how the books show job profit are the points to settle. See bookkeeping.
• You paid subs and slips are missing: follow T4A and T5018 reporting, and see bookkeeping to rebuild the payments by year.
• The CRA is reviewing your GST/HST return: see GST/HST reviews and audits.
• Your books are months behind, holdbacks do not reconcile, or money from one job has paid another job's costs: start with catching up on overdue books and bookkeeping.
• Holdbacks are still open at year-end: how they count on the return is a separate question from the books; see cash or accrual accounting and bookkeeping.
• You build, rent or sell homes: use GST/HST on residential property.
• A holdback is disputed or a lien has been filed: the dispute is a legal matter for a construction lawyer; the books and any GST/HST adjustment are covered above, and the records side is bookkeeping.
• Your jobs are in Quebec or another province: the books and the federal GST/HST timing above still apply; take the rate and release dates from that province's lien law, and see bookkeeping for the job books.