The T2 runs on earned; the shop collects on unearned
Money received for cabinets not yet delivered can be brought into income and then held back with a paragraph 20(1)(m) reserve, so tax follows the work rather than the wire transfer. A true security deposit is not income at all until the shop applies it against a bill. Between the two treatments sits most of a millwork shop's year-end tax position.
The reserve is only as strong as its working paper. A job-by-job schedule of what was collected against what was earned supports the deduction; a round number pencilled in at year-end is the first thing a reviewer strikes. Because we maintain that schedule all year, the deferral is already documented when the return is filed.
Cancellations get their own entry. When a client walks and the shop keeps the deposit, the kept amount becomes income at that point — and there is an HST remittance hiding inside it, since a forfeited deposit is treated as tax-included. Rare, but expensive to discover on assessment instead of on filing.
What December 31 looks like on a shop floor
A millwork year-end has more moving pieces than the bank statement admits, and each one takes its own treatment on the corporate return:
| On the floor or in the bank | How the return treats it |
|---|---|
| Deposits and draws on undelivered jobs | Deferred with a documented reserve until each milestone is earned |
| Half-built boxes on the benches | Work in progress — the costs sit in inventory, not this year's expenses |
| Racked sheet goods, banding and hardware | Closing inventory at the lower of cost and net realizable value, from a real count |
| The 10% holdback a builder retains under Ontario's Construction Act | Generally not taxed until release makes it due to you |
| Installer invoices received but unpaid | Deductible when incurred — and counted toward the T5018 file |
Skip the count or the work-in-progress entry and the return quietly overstates expenses in one year and profit in the next, which is how a shop ends up explaining a margin swing it never actually had.
Installers: settle employee or subcontractor before anyone cuts a slip
Site crews are where cabinet shops get reassessed. The CRA weighs who controls the work, who supplies the tools, whether the installer can send a replacement, and who carries the chance of profit or risk of loss — not what the invoice says. Treat an employee as a subcontractor and the reassessment is retroactive CPP and EI with penalties, plus a parallel conversation with WSIB about premiums.
For genuine subcontractors, the question becomes the T5018. The slips are required when construction activities are the corporation's primary source of business income: a shop living on supply-and-install builder contracts likely crosses that line, while one that mostly fabricates and ships may not. We document which side of the test you sit on once, and where slips are due we file them for every installer paid $500 or more, amounts reported with HST included, within six months of the reporting period end — the CRA matches every slip against what the installer declared.
HST that flips sign in a machine month
In a normal month the shop remits 13% as each draw is invoiced or falls due, whichever comes first, and recovers input tax credits on sheets, banding and blades. The month a CNC or a finishing booth lands, the credits can swamp the collections and the return becomes a refund claim — which routinely draws a pre-payment verification letter asking for the invoices behind it. We capture supplier invoices with registration numbers as we go, so the refund clears on the first response; if a deeper look follows, CRA Audit & Review Support answers it from working papers that already exist.
One calendar, not five surprises
A shop's filing year has at least four clocks running at once: the T2 on its fiscal year, HST on whatever monthly or quarterly cycle the shop elected, T5018s on their own chosen period, and the owners' personal returns every April. Miss the sequencing and the personal return gets filed before the corporate dividend decision that should have shaped it.
Our Corporate Tax Filing engagements for millwork shops carry the T2, the HST returns and the owners' personal returns on a single calendar, fed by books kept current inside End-to-End Accounting rather than reconstructed in the spring. Scope and fee are quoted in writing after a free 15-minute discovery call — no hourly surprises. We file for cabinet and millwork shops across Mississauga and the GTA, from two-person benches to shops running builder programs by the subdivision.
