Bookkeeping for contractors Ontario is different from bookkeeping for any other small business, and the reason is the Construction Act. A 10% statutory holdback sits on every payment in the chain, and since January 1, 2026, releasing it annually is mandatory rather than optional.
If your books treat holdback as a bad debt or leave it out of revenue entirely, your margins are wrong and your HST filings may be too. This guide covers the accounting, the payment deadlines and the numbers to watch.
The 10% holdback and how to record it
Holdback is where bookkeeping for contractors Ontario starts. The basic holdback is 10% of the value of services or materials supplied to an improvement. It is retained from every payment, it is not optional, and failing to retain it can expose a payer to liability beyond the contract price.
In your books, holdback is revenue you have earned and a receivable you have not been paid. Bill the full progress amount, record the 10% in a separate holdback receivable account, and leave it out of your regular accounts receivable ageing so it does not distort your collection numbers.
Bookkeeping for contractors Ontario needs a holdback schedule by project: contract date, each progress billing, holdback accrued, anniversary date and release date. That schedule is what tells you how much of your cash is legally parked.
Holdback amounts are now treated as trust funds under the Act, which is another reason to track them separately rather than mixing them into general working capital.
What changed on January 1, 2026
Bookkeeping for contractors Ontario changed this year. Annual release of accrued holdback became mandatory for contracts longer than a year. The owner publishes a Notice of Annual Release of Holdback within 14 days after each contract anniversary, stating the amount and the intended payment date.
Payment then follows no earlier than 60 days and no later than 74 days after publication, provided no lien has been preserved or perfected. The old notice of non-payment of holdback is gone, so owners can no longer set off against holdback for deficient work.
Contractors and subcontractors must pass holdback down the chain within 14 days of receiving it, with no set-off permitted at any level.
| Step | Timing |
|---|---|
| Contract anniversary | Day 0 |
| Owner publishes Notice of Annual Release | Within 14 days |
| Owner pays accrued holdback | No earlier than day 60, no later than day 74 after publication |
| Contractor pays subcontractors | Within 14 days of receipt |
| Subcontractors pay their subs | Within 14 days of receipt |
Transition matters. For contracts entered into on or after January 1, 2026, the first annual release follows the first anniversary. Older contracts follow a different schedule, so check each one rather than assuming.
Prompt payment deadlines to build into your workflow
Prompt payment is the other deadline set bookkeeping for contractors Ontario has to track. A proper invoice starts the clock. The owner pays within 28 days unless it delivers a notice of non-payment within 14 days, and under the 2026 deeming rule it has only 7 days to notify you in writing that an invoice is deficient.
Once the owner pays, a general contractor has 7 days to pay its subcontractors unless it issues its own notice of non-payment. Interest runs on unpaid amounts.
For bookkeeping for contractors Ontario purposes, that means invoice dates, receipt dates and notice dates all need recording. A spreadsheet with the invoice date, the day 7, day 14 and day 28 markers is enough, and it is the difference between collecting and arguing.
Legal summaries of the current rules are published by Ontario construction counsel and the Construction Act overview for builders.
HST on progress billings and holdback
In bookkeeping for contractors Ontario, HST at 13% applies to the full progress billing, including the portion held back. The tax is generally collectible when the invoice is issued, not when the holdback is released, so you can owe HST on money you have not received.
That timing gap is the single most common cash-flow surprise in this trade. If you hold back 10% on a $200,000 billing, you are short $20,000 of cash while remitting HST calculated on $200,000.
Set aside the HST on every progress billing as it is issued. A separate bank account for HST and payroll remittances is boring advice that prevents most of the emergencies.
Bookkeeping for contractors Ontario: job costing and WIP
In bookkeeping for contractors Ontario, every cost needs a job number: labour, materials, equipment rental, subcontractors, permits and disposal. Without that, you know your company made money but not which jobs made it.
Track work in progress separately from billed revenue. Costs incurred on a job you have not yet invoiced are an asset, and treating them as an expense makes a profitable month look like a loss.
Reconcile your job cost reports to the general ledger monthly. Contractors who only reconcile at year-end usually discover pricing problems two seasons too late.
Subcontractors, WSIB and T5018
Bookkeeping for contractors Ontario extends to compliance filings. Construction businesses generally need WSIB coverage, and that extends to independent operators in the sector. Confirm each subcontractor’s clearance certificate before the final payment, because unpaid premiums can follow up the chain.
Businesses whose primary activity is construction must file a T5018 information return reporting payments to subcontractors. Keep the business numbers and addresses on file as you engage each sub, not in February.
Also settle the worker classification question early. Paying a long-term crew member as a subcontractor with no other clients and no tools of their own is the classification CRA looks at most closely.
Two views on percentage of completion
The case for percentage of completion
In bookkeeping for contractors Ontario, recognising revenue as work progresses matches income to the costs that produced it and gives you monthly margins you can act on. Bonding companies and lenders generally expect it.
The case for keeping it simple
On short jobs finished within a month or two, billing-based revenue is close enough and far cheaper to maintain. The estimates behind percentage of completion are only as good as the job costing under them.
The workable rule is job length. Contracts running past a month-end deserve percentage of completion; two-week jobs generally do not.
Key takeaways
- Holdback is 10% of every payment, earned revenue and a separate receivable.
- Annual release is mandatory since January 2026, with a 14-day notice and payment at day 60 to 74.
- Proper invoices are payable in 28 days, with 14 days for a notice of non-payment and 7 days to flag a deficient invoice.
- HST is due on the full progress billing, including the held-back portion.
- Bookkeeping for contractors Ontario needs job costing and a holdback schedule, not just a bank reconciliation.
A monthly close for a construction business
A bookkeeping for contractors Ontario monthly close is short: reconcile the bank and credit cards, post supplier invoices to job numbers, update the holdback schedule, and review work in progress against billings. Four steps, done in the first week of the month.
Then compare each active job’s costs to its estimate. A job running 15% over at the halfway point will not fix itself in the second half, and finding that in month three rather than at completion is the whole point of job costing.
Print an accounts receivable ageing with holdback shown separately. Mixing the two makes your collections look worse than they are and hides genuinely late invoices.
Bookkeeping for contractors Ontario also means a deadline calendar: HST filing dates, source deduction remittances, T5018 and WSIB reporting, plus each contract anniversary for holdback release.
Cash-flow planning around holdback
Cash-flow planning is the other half of bookkeeping for contractors Ontario. On a $1 million contract, 10% holdback is $100,000 of your revenue sitting unavailable, with HST already remitted on the billings that created it. That is the number to plan around, not the contract value.
Build a simple forecast showing holdback accruing by month and releasing by anniversary. It turns an abstract problem into dates you can borrow against or plan hiring around.
Operating lines are usually cheaper than factoring receivables. Lenders will consider a holdback schedule as support, which is another reason to keep it accurate rather than reconstructing it at year-end.
Frequently asked questions
Is holdback revenue or a liability?
Both, depending on which side of the contract you are on. Money you hold back from a subcontractor is a liability. Money held back from you is revenue already earned and a receivable.
Can an owner still refuse to release holdback?
Not for deficient or incomplete work. The notice of non-payment of holdback was repealed, though a preserved or perfected lien still stops release.
Do I charge HST on the holdback portion?
Yes. HST applies to the full value of the progress billing, and the tax is generally collectible when the invoice is issued.
Want your job costing and holdback schedules set up properly? Corporate Empire does bookkeeping for Ontario construction and trades businesses. Book a free 15-minute books review.
Based on the Construction Act as amended January 1, 2026, and CRA rules current to September 2026. General information, not legal, tax or accounting advice. Confirm holdback timing and transition rules for each contract with construction counsel.
