How do I handle construction holdbacks in my Ontario company’s books?

Under the Ontario Construction Act (RSO 1990 c. C.30 as amended by the 2019 modernization) a 10% holdback is required on progress payments to protect subcontractors and lien claimants. For accounting: recognize the full contract revenue when billed, book the 10% holdback as a separate ‘holdbacks receivable’ asset, and recognize HST on the full amount at the time the invoice is issued (not when the holdback is released).

Timing example. An Ontario construction contractor bills a project owner $500,000 for August 2026 progress plus HST at 13%. Full invoice: $500,000 net + $65,000 HST = $565,000 gross. Holdback: 10% x $500,000 = $50,000 held back (holdback is on the pre-HST amount under the Construction Act). Cash receivable at invoice: $565,000 – $50,000 = $515,000. Holdbacks receivable on the balance sheet: $50,000.

HST timing. Under Excise Tax Act s. 168, HST is exigible at the earlier of (a) the day consideration is paid, (b) the day consideration becomes due. The Construction Act’s mandatory holdback delays legal entitlement to the holdback portion until the statutory holdback release period passes (usually 60 days after Substantial Performance is certified). CRA has historically allowed the HST on the holdback portion to be reported when the holdback becomes due, not on original billing – see GST/HST Memorandum 19.1.

Revenue recognition (IFRS 15 / ASPE 3400). Recognize revenue on the full progress amount when the performance obligation is satisfied (usually the % completion method under ASPE 3400). The holdback is not a deferred-revenue liability; it is a receivable that is not yet legally collectible.

Note: Failure to remit the holdback to a subcontractor within the release window is a lien-perfection issue under the Construction Act, not a CRA issue. Coordinate with construction-law counsel on holdback release procedures.

Source: ontario.ca — Ontario Construction Act

— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA

Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.