Holdbacks: billed now, taxed when the lien window closes
Under the Construction Act, 10% of each payment on commercial and municipal work is retained, and it stays retained until the lien period tied to the contract expires. For income tax, that money is not yours yet in the legal sense that matters: until you hold an enforceable right to it, it stays out of income, and we exclude holdback receivables from the T2 until they become releasable. The treatment is symmetric, so the holdbacks you retain from your milling or trucking subs are not deductible until they are released either.
HST follows its own version of the same logic. Tax on a holdback becomes collectible only when the holdback is paid or becomes payable, not when the progress invoice goes out. On a billing with 10% retained, you remit HST on the 90% now and on the rest later. Filed carelessly, companies remit the full 13% up front and lend the CRA money for months. Getting it right requires nothing exotic, just a holdback schedule per contract that both the T2 and the HST returns are prepared from.
| Moment on a contract | Income tax | HST at 13% |
|---|---|---|
| Progress invoice issued, 10% retained | The 90% is income | Collectible on the 90% |
| Lien period still running | Holdback stays out of income | Not yet collectible on the holdback |
| Holdback released or payable | Income in that year | Collectible on that return |
Deposits and the driveway side of the ledger
A true booking deposit is not subject to HST when you take it. The tax applies when the deposit is applied against the finished job, or when a customer forfeits it, so a spring full of driveway bookings does not create remittances before a tonne is laid. Invoiced progress billings are different and taxable when issued, which is exactly why the two revenue streams cannot share one bookkeeping treatment.
Filing frequency changes with growth: annual filing is available up to $1.5 million in taxable supplies, quarterly runs to $6 million, monthly beyond that. Many paving companies cross the first line the year they win their first municipal program, and nobody warns them. On the recovery side, 13% on a paver or a tandem is a serious input tax credit, and the refund return it produces routinely draws a CRA pre-assessment review. We file with the invoices ready and answer those reviews through CRA Audit & Review Support.
Driveway work is also where the CRA looks hardest at contractors generally, because the customers are homeowners and the amounts are round. A clean trail of quotes, deposits and completion payments, invoiced with HST every time, is the cheapest audit defence there is, and it costs nothing when the books are set up to produce it automatically.
T5018s for the spread you subcontract
A business whose primary activity is construction reports subcontractor payments on T5018 slips, not T4As. For a paving company that catches the milling sub, the line-painting crew, the curb machine operator and usually the hired trucking, since hauling tied to construction services is generally reportable while goods-only suppliers are not. Reported amounts include the HST you paid them.
The return is due six months after your fiscal year-end, and the CRA matches every slip against the sub's own filings, which is precisely why they ask for it. We keep a subcontractor ledger through the season, verify each sub's HST registration number before the first payment rather than after, and file the T5018 return with the T2 file, not as an afterthought in the spring rush.
A T2 calendar set by the plant schedule
A fiscal year that closes just after the hot-mix plants stop shipping means the books close with almost no work in progress, jobs either done or not started, which makes the year-end file clean and cheap. Our Corporate Tax Filing team then prepares the T2 through your quiet months: the balance is due two or three months after year-end depending on your small-business deduction status, the return itself six months after, and all of it lands before spring mobilization instead of during it.
The owner side follows in sequence. We finish the corporate file first so your T4 and T5 amounts are settled facts, then prepare the personal return through Personal Tax Filing before the April rush collides with your April.
