Three Periods, One Dollar

The first article in this series looked at residential construction from the revenue side. This one looks at the commercial and institutional side, where the money is properly invoiced and properly recorded and the only question is which period it belongs to. That question has three different answers.

A Note On Currency

Everything here is stated as verified in August 2026 and requires confirmation before reliance.

Holdback percentages, holdback periods and release mechanics are set by provincial lien and construction legislation, which differs by province and changes. Nothing here states the law of any province, and a contractor must take those rules from their own jurisdiction.

One CRA memorandum we rely on is an older publication which uses illustrative dates from the 1990s[1], and another is a memorandum in the GST 300 series[2]. Both may have been superseded and neither was verified against the current legislation.

We describe a change to Ontario law taking effect in 2026 from a single commercial source and have not verified it[3].

This is not tax or legal advice. Holdback questions sit at the intersection of tax and construction law, and contract-specific questions belong with a construction lawyer.

What A Holdback Is

The definition, from CRA's own memorandum.

It states that a holdback may be defined as a part, usually a percentage, of the consideration for a supply that is retained by the recipient of the taxable supply for a period of time pending full and satisfactory performance of the supply, or a part thereof, by the supplier[1].

Commentary describes it in industry terms as a specific sum, typically a percentage of the total contract value, held by the client or owner as a form of security or assurance, and notes that payments on construction contracts are typically subject to statutory holdbacks under applicable provincial lien legislation[4].

Two features of that definition matter for the tax analysis, and this is our own emphasis.

The amount is consideration for a supply that has been made. It is not a deposit, not a contingent amount, and not a reduction in price. The work was done and the price includes it.

And the retention is pending performance rather than because of a dispute. A holdback exists on every draw on a normal project where nothing has gone wrong.

That combination is what creates the problem this article is about. The supply has occurred, so ordinary timing rules would make tax payable; but the money is not coming for months, and in the meantime it is not the contractor's to spend.

The Rule

The provision, in CRA's words.

Its memorandum states that under subsection 168(7), where the recipient of a taxable supply retains part of the consideration for that supply pending full and satisfactory performance of the supply or a part thereof, in accordance with either federal or provincial laws, or as required under the terms of a written agreement for the construction, renovation or alteration of, or repair to any real property, tax is payable on the amount held back on the earlier of the day that the holdback is paid out and the day the holdback period expires pursuant to the written agreement or applicable legislation[1].

An older memorandum states the same rule in the negative form, that no tax is payable on the amount required to be held back until the day the holdback is paid out or the day the holdback is required to be paid out, whichever is earlier, and extends the rule to ships and other marine vessels[2].

Three elements are worth isolating and this is our own analysis.

The rule covers holdbacks arising either under legislation or under a written agreement. A contractual holdback in excess of a statutory one is within the provision, provided the agreement is in writing.

The trigger is the earlier of two events, so a holdback paid out ahead of schedule accelerates the tax.

And the second trigger is the expiry of the period, not receipt of the money. A holdback that has become releasable but has not been paid is nonetheless taxable, which is the point contractors most often miss.

Why This Is Relief, Not Burden

The purpose of the provision, which is worth stating because contractors experience it as a complication.

Commentary puts it well: CRA provides relief so that a contractor is not remitting tax on money it has not received[5].

Without the provision, and this is our own analysis, ordinary timing rules would make tax payable when an invoice is issued or when consideration becomes due.

A contractor invoicing a progress draw would then owe tax on the whole amount, including the ten percent it will not see for months, and would fund that remittance from working capital.

On a large project that is a substantial and recurring cash cost, borne by a sector that is already the most working-capital-intensive in the economy.

So the provision is a genuine accommodation and it is one of the few places in this series where the legislation moves the timing in the taxpayer's favour.

The difficulty is that an accommodation only helps a business that takes it. A contractor whose systems remit on the full invoice has paid for a relief it never claimed, and one whose systems claim credits early on the other side has claimed a relief that runs against it.

Both of those are addressed below, and both are systems problems rather than judgment problems.

The Override That Does Not Reach It

A specific carve-out CRA identifies twice, and it matters on long projects.

CRA states that the override rule in subsection 168(3) does not apply to holdbacks, which are governed by subsection 168(7)[1][2].

The override in question is described as applying to supplies made under a written agreement to construct, renovate, alter or repair real property, with tax payable at the end of the month following the month in which the supply was substantially, being ninety percent, completed, calculated on consideration that has not been paid or become due by that day[2].

CRA's example runs it through: if construction is substantially complete on 3 June, tax is payable on 31 July on any consideration not paid or become due. If the contractor does not know all the expenses, tax is payable that day on any ascertainable consideration, being known expenses plus ten percent, with the balance taxable when it becomes ascertainable[1].

We reproduce those dates as CRA's illustration; they are from an older publication and are examples rather than current guidance.

The interaction is the point, and this is ours.

Substantial completion accelerates tax on everything outstanding except the holdback. So a project reaching ninety percent completion triggers a remittance obligation on unbilled or unpaid consideration while the holdback continues to sit outside it until its own period runs.

A contractor that treats substantial completion as the moment everything becomes taxable will over-remit on the holdback. One that treats it as the moment nothing is yet taxable will under-remit on everything else.

The Arithmetic Of A Draw

How it works on a single progress payment. These figures are our own, using a ten percent holdback and a thirteen percent rate for illustration.

Commentary describes the practical mechanic: on a $100,000 progress draw with ten percent held back, the contractor is paid $90,000 plus tax on that amount[3].

Working it through: the contractor receives $90,000 plus $11,700 of tax, being $101,700 now.

The remaining $10,000 plus $1,300 of tax, being $11,300, follows when the holdback is paid out or its period expires, whichever comes first.

Two observations, ours.

The tax follows the money in the same proportion. It is not that ninety percent of the tax is due now; it is that tax on ninety percent of the consideration is due now.

And the contractor's invoice will typically show the full $100,000 and the full $13,000, because that is what the contract says the work was worth. The invoice and the tax point are different things, which is the source of most of the confusion in this area.

Commentary makes exactly that point, noting that the timing rule does not mention the date of the holdback invoice at all[6].

At Contract Scale

What accumulates across a project, computed by us on the same assumptions.

On a $1 million contract, a ten percent holdback is $100,000, carrying roughly $13,000 of tax.

On $5 million, the holdback is $500,000 and the tax roughly $65,000.

On $20 million, the holdback is $2 million and the tax roughly $260,000.

Those are the amounts sitting in suspense on a single project at any time, and a contractor running several projects concurrently carries the sum of them.

Three practical consequences, ours.

The deferred tax is material relative to margin. Construction margins are thin, and a quarter of a million dollars of deferred tax on a single large project is not a rounding difference.

The balance is persistent. Because new draws are issued while old holdbacks remain outstanding, the suspense balance is a standing feature of the business rather than an occasional item.

And it is reconcilable. Unlike most exposures in this series, this one produces a balance that should tie to a schedule of open holdbacks by project, which makes it verifiable at any moment by whoever wants to check.

Collected Before It Was Payable

A trap stated in CRA's memorandum immediately after the relieving rule, and it removes the relief entirely.

CRA states that if the supplier collects an amount as tax or on account of tax before it becomes payable, the supplier must remit that tax with the supplier's return for the relevant period[1]. Commentary states the same, that if the tax is collected before it is payable it must still be remitted for the period of collection[3].

The consequence is significant and this is our own analysis.

The relief in subsection 168(7) defers the point at which tax becomes payable. It does not permit a supplier to hold tax it has actually collected.

So a contractor whose customer pays the full tax on a progress draw, including the tax on the held-back portion, has collected tax that was not yet payable, and must remit it.

That is not a hypothetical. Where an invoice shows the full contract amount and the full tax, and the customer pays the tax in full while retaining only the holdback principal, the contractor is holding tax on money it has not received.

Two implications. A contractor should know, for each customer, whether the tax on the holdback portion is being paid now or later, because that determines the remittance obligation.

And where it is being paid now, the relief is unavailable regardless of what the legislation would otherwise permit. The collection has already happened.

Your Software Will Do This Wrong

A practitioner observation that we think is the single most useful item in this article.

Commentary states that accounting software would usually generate the holdback invoice first, which gets posted in the system, and the tax is allocated to the liability account. It describes best practice as temporarily reversing the entry so that the system does not show tax payable until the holdback is received or the lien period ends, or not posting it yet at all[6].

The importance of that, and this is our own analysis, is about where the error originates.

Almost every exposure described in this series arose from a decision: a classification, a characterisation, a judgment about facts. This one arises from a default setting.

Nobody decided to remit tax early on holdbacks. The invoice was raised, the system posted it, and the return was prepared from the system.

Three consequences follow.

The error is systematic across every project and every draw, in the same way this series found in the dealership article, because it flows from a process rather than from occasional judgment.

It runs in the taxpayer's disfavour on the revenue side. Over-remitting is a cash flow cost that nobody assesses, because CRA does not send a notice when a business pays early.

And it is correctable once. A process change at the point the holdback invoice is raised fixes every subsequent draw, which makes this an unusually good return on a small piece of work.

The Other Side Of The Same Error

The mirror image, which runs the opposite way and matters more.

Commentary states that the same analysis applies to input tax credits: if a subcontractor sends you a holdback invoice earlier than one of those two criteria is met, you cannot claim the credit on it[6].

So the timing rule is symmetrical. A contractor cannot recover tax on a subcontractor's holdback before that tax has become payable by the subcontractor.

The reason this matters more than the collection side is direction, and this is our own emphasis.

Over-remitting on the revenue side costs the contractor cash and produces no assessment. Claiming credits early on the payables side understates the amount remitted, which does.

And the same software default that causes the first causes the second. The subcontractor's holdback invoice arrives, is posted, and the credit is picked up in the return for that period.

A contractor with a large subcontractor base and a standing volume of holdback invoices is therefore claiming credits early, continuously, on every project.

Commentary describes the practical fix as the same on both sides: hold the entry until one of the two criteria is met[6].

Both Directions At Once

Why a general contractor is exposed on both sides simultaneously. This section is our own analysis.

A general contractor occupies two positions in the holdback chain at the same time.

The owner holds back from the contractor, which makes the contractor a holdback creditor upward.

The contractor holds back from its subcontractors, which makes it a holdback debtor downward.

On our own figures, a contractor with $5 million of work for an owner and $3.5 million subcontracted, at a ten percent holdback and a thirteen percent rate, has $500,000 held back from it carrying $65,000 of tax receivable later, and holds back $350,000 from subcontractors carrying $45,500 of credits claimable later.

Where the software default operates unchecked, both entries are recognised early.

The contractor remits tax it does not yet owe on the first, and claims credits it is not yet entitled to on the second, in the same return.

Those errors partially offset in cash terms, which is precisely why neither gets noticed. The net remittance looks approximately right.

But they are two separate errors, and on examination each is assessed on its own terms. The early credit claim is an understatement; the early remittance is not an offsetting overpayment the Agency is obliged to net against it, and recovering it depends on a rebate process with its own conditions and limits that we have not examined.

An apparently correct net position can therefore contain two findings.

Where CRA Is Reported To Look

A practitioner observation about audit focus, reported as stated.

Commentary says of the holdback area: if CRA audits you on GST/HST, this is probably where they will look at most, and gives the reason: because the contractor is reducing the amount that it pays to CRA, the Agency wants to make sure more is not owed[6].

We report that as a practitioner's characterisation rather than a published CRA position.

The reasoning is nonetheless sound and this is our own reading of it.

An examination allocates attention to where error is both likely and revenue-positive. The credit side of holdbacks is both: the timing rule is easy to get wrong, the software default produces the wrong answer, and the wrong answer reduces remittances.

The revenue side is equally likely to be wrong and the error runs the other way, which makes it a poor use of examination time from the Agency's perspective.

That asymmetry is worth stating plainly to contractors: the side of this you are most likely to be assessed on is the side where you claimed too early, not the side where you paid too early.

Which means a contractor reviewing its position should start with the subcontractor holdback ledger rather than with its own billings.

The Income Tax Treatment

The second of the three periods, which follows different rules.

Commentary states that for income tax purposes, holdbacks are generally included in income when they become receivable under the contract or lien legislation, not necessarily when cash arrives, and recommends tracking them in separate accounts so they do not distort receivables and so income is not under- or over-reported[5].

Another states that where there are holdbacks on a receivable or payable and the lien period has not expired, those receivables can be excluded from income[7].

We report both as commentary describes them and note we have not verified the statutory basis, which a contractor should have confirmed.

The practical significance, and this is ours, is that the income tax trigger and the sales tax trigger are described in similar but not identical terms.

The sales tax rule turns on the earlier of payment and expiry of the holdback period[1]. The income tax treatment is described by reference to when the amount becomes receivable under the contract or the lien legislation[5].

Those will frequently coincide and will not always. A contractor should not assume that establishing one date settles the other, and where a project straddles a fiscal year end the difference has real consequences.

The Symmetry Requirement

A condition attached to the income tax exclusion that is easy to take half of.

Commentary states it directly: if the receivables are excluded from income, the related payables must also be excluded from the expense[7].

That is a fairness rule and it is exactly the kind of condition a business takes one side of, which is our own observation.

The favourable half is excluding holdback receivables from income, which defers tax. That half is attractive and gets applied.

The unfavourable half is excluding the corresponding subcontractor holdback payables from expense, which increases income. That half is easy to overlook because nothing prompts it.

A contractor that excludes receivables and deducts payables has taken the deferral on the revenue and the deduction on the cost, which overstates the deferral by the whole subcontracted portion.

On the figures used earlier, a contractor with $500,000 of holdback receivable and $350,000 of holdback payable would be deferring income on the full receivable while deducting the payable, when the correct position defers only the net.

This is the income tax analogue of the two-sided sales tax error described above, and it has the same cause: the two sides are handled by different processes and nobody reconciles them.

Three Periods, One Dollar

The framing that gives this article its title, and it is worth stating explicitly.

Commentary puts it plainly: accounting revenue, taxable income and sales tax timing on the same holdback dollar can fall in different periods, and all three need tracking[3].

Our own elaboration of why that happens.

Accounting revenue is generally recognised as the work is performed, under whatever revenue recognition policy the contractor applies. The holdback is revenue when the work is done, and it sits in receivables.

Taxable income follows a different trigger, described by commentary as when the amount becomes receivable under the contract or lien legislation, which may be later.

Sales tax follows a third trigger, being the earlier of payment out and expiry of the holdback period.

Three consequences, ours.

The financial statements will not agree with the tax return or with the sales tax returns on this item, and that is correct rather than an error.

Each requires its own schedule. A single holdback listing cannot serve all three purposes because the dates differ.

And a reconciliation between them is the document that makes the position explicable. A contractor that can show why the three figures differ has an answer; one that cannot has three numbers and no explanation.

Certificates And Deemed Completion

The mechanism that starts the clock, which sits in construction law rather than tax law.

Commentary describing Ontario lien legislation records that the payment certifier is normally the architect or engineer hired for the project, that on the basis of a certificate of completion the owner may pay a subcontractor without jeopardy and such payments reduce the holdback required to be maintained, that where a subcontract is certified to be completed the subcontract is deemed to have been completed on the date of certification, and that within seven days of certification a copy of the certificate must be given to the subcontractor, the owner and the contractor[8].

We report that as commentary on one province's legislation, which we have not verified and which does not describe the law of any other province.

The tax significance is the connection, and this is ours.

Subsection 168(7) makes the tax point turn on the expiry of the holdback period pursuant to the applicable legislation[1]. So the date on which a certificate is issued, and the period that runs from it, determine a federal tax obligation.

That places a document produced by a project's architect or engineer, for construction law purposes, at the centre of a sales tax calculation.

Two practical points. Certificates should be collected and dated in the accounting records, not merely filed on the project side, because they set the tax point.

And a deemed completion date differing from the actual one is exactly the kind of divergence that produces a wrong tax point where the accounting team is working from site information rather than the certificate.

When A Lien Is Filed

The disputed case, which does not suspend the tax.

Commentary states that when a lien is filed, the portion of the holdback withheld to satisfy the lien is not released, that this amount is often paid into court, and that tax is payable on that amount on the day the holdback is paid out or the day it becomes payable, whichever is earlier[4].

Two observations, ours.

The rule does not contain a dispute exception. A holdback caught up in a lien claim is subject to the same trigger as any other, which means a contractor can face a tax point on money that is the subject of litigation and may never be received in full.

And payment into court is a real event. Where an amount is paid out in that way, a contractor should establish with advisors whether that constitutes the holdback being paid out for these purposes, because the consequence differs substantially depending on the answer.

Separately, commentary on the sales tax questions raised with the Agency records a situation in which tax on a remaining holdback value would become payable only at the end of a two year period, being the time when the amounts became ascertainable[9].

We report that as a description of one arrangement discussed in a professional forum, not as a general rule, and it illustrates that unusual fact patterns in this area produce answers that cannot be read off the general provision.

The Ontario Change

A current development, reported from a single source and requiring verification.

Commentary states that Ontario's mandatory annual holdback release started on 1 January 2026, and refers to Construction Act amendments effective that date[3].

We have not verified this and it describes one province only. A contractor in Ontario should confirm it with a construction lawyer, and contractors elsewhere should not assume anything from it.

Taken as reported, the significance is about predictability, and this is our own analysis.

A holdback release that occurs on an annual schedule rather than at the end of a project changes the character of the item. It becomes a recurring, dated event rather than a contingent one tied to completion.

Commentary makes exactly that point, observing that holdback release is now scheduled and predictable, which means it can finally be forecast properly[3].

That is genuinely useful for a sector whose principal financial difficulty is working capital. An amount whose timing is known can be financed, planned around and committed against.

The corresponding difficulty is the subject of the next section.

Why Scheduled Release Concentrates The Event

The other half of the same change. This section is our own analysis, building on the commentary's own warning.

Commentary states it directly: there is a date coming when a large accumulated holdback becomes payable in one movement, and that both the receipt of it and the obligation to pass it down the chain belong in a cash flow forecast now rather than in the month it lands[3].

Consider what that means for a contractor's tax position.

Under a project-by-project release, holdbacks mature at different times as projects complete, so the associated tax points are spread across periods.

Under an annual release, holdbacks across multiple projects mature together, which concentrates the tax point into a single reporting period.

Three consequences.

The remittance in that period is unusually large, and a contractor budgeting from prior periods will understate it.

The credit side lands at the same time, since the contractor's own subcontractor holdbacks are being released on a corresponding schedule, which partially offsets but requires the same records to claim.

And the income tax consequence concentrates too, because amounts becoming receivable in one year rather than spread across several changes the year in which income is recognised.

A contractor in an affected jurisdiction should model that period specifically, and should do so before it arrives rather than discovering it in the return.

What The Auditor Actually Examines

The enquiry in practice. This section is our own analysis.

The subcontractor holdback ledger against credits claimed, testing whether credits were taken before the holdback was paid or its period expired. Commentary identifies this as the likely focus.

The date each holdback period expired, by project, evidenced by certificates and by the applicable legislation rather than by assumption.

Holdback invoices and their posting dates, since the tax point does not turn on the invoice date.

Whether tax was collected on held-back amounts, which removes the deferral regardless of the provision.

Treatment at substantial completion, given that the override does not reach holdbacks.

The income tax exclusion and its symmetry, testing whether payables were excluded where receivables were.

Amounts subject to lien claims, and how a payment into court was treated.

The suspense balance, reconciled to a schedule of open holdbacks by project.

That last item is the one that makes this area manageable. Unlike most exposures in this series, the correct answer produces a balance that can be tied out at any moment.

What Records Survive

A holdback register by project, showing the amount held, the applicable period, the certificate date and the expiry date, for both receivables and payables.

Certificates of completion, dated, held in the accounting records rather than only on the project file.

A reconciliation of the three timings, showing where accounting revenue, taxable income and sales tax fall for the same amounts.

Evidence of when tax was collected on held-back amounts, since collection removes the deferral.

The posting policy for holdback invoices, documented, so that the treatment is a decision rather than a default.

Working papers for the income tax exclusion, showing both the receivable exclusion and the corresponding payable exclusion.

Documentation of any lien claim and of amounts paid into court, with the treatment adopted and its basis.

What To Do

Start with the subcontractor holdback ledger. Commentary reports that the credit side is where CRA is most likely to look, because that is where the error reduces remittances.

Change the posting default, not the year-end adjustment. The error originates when a holdback invoice is posted, so fixing the process fixes every subsequent draw.

Track the expiry date, not the invoice date. The tax point is the earlier of payment out and expiry of the period, and the invoice date does not appear in the rule.

Get the certificates into the accounting records. A document produced by the project architect or engineer sets a federal tax point.

Check whether you are collecting tax on the holdback portion. If you are, you must remit it, and the deferral is unavailable however the legislation reads.

Do not apply the substantial completion override to holdbacks. CRA states in two publications that it does not reach them.

Take both halves of the income tax exclusion. Excluding receivables requires excluding the related payables, and taking only the favourable half overstates the deferral.

Build three schedules, not one. Accounting revenue, taxable income and sales tax fall in different periods on the same dollar.

Reconcile the suspense balance to open holdbacks by project. This is one of the few exposures in this series that ties out to a number.

If your province has moved to scheduled release, model that period now. Concentrating maturities concentrates the remittance, the credits and the income recognition together.

The Limits Of This Analysis

Several caveats matter. This is not tax or legal advice; holdback questions sit at the intersection of tax and construction law and contract-specific questions belong with a construction lawyer. Everything is stated as verified in August 2026 and requires confirmation. Holdback percentages, periods and release mechanics are set by provincial lien and construction legislation, which differs by province and changes; nothing here states the law of any province. The two CRA memoranda relied on are older publications, one using illustrative dates from the 1990s, and neither was verified against the current legislation; both may have been superseded. The description of Ontario's mandatory annual holdback release from 1 January 2026 comes from a single commercial source and is not verified. The description of certificates and deemed completion is commentary on one province's legislation which we have not verified. The income tax treatment, including the receivable exclusion and the symmetry requirement, is reported from commentary and we have not verified its statutory basis. We have not examined the rebate process, conditions or limits applying to tax remitted before it was payable, which affects the two-sided analysis we have offered. We did not obtain the memorandum on holdbacks referred to in one CRA publication. All arithmetic is our own, applies an illustrative holdback percentage and rate to hypothetical contract values, and is illustrative only. The three-periods framing, the both-directions analysis, the observation that the software default rather than a judgment creates the error, the concentration analysis and the audit examination structure are our own. This article does not address prompt payment and adjudication regimes, the treatment of deficiency holdbacks distinct from statutory holdbacks, bonding, or percentage-of-completion accounting policy.

Related Reading

Compliance & Reporting The Permit Is The Lead The same sector from the revenue side, and the subcontractor slips that sit alongside these holdbacks. Corporate Tax Taxed On Money You Have Not Earned The other timing article in this series, where cash and tax also fall in different periods. Sales Tax The Tax Depends On Who Your Customer Is Another systematic error created by a process rather than a judgment, and therefore uniform across every transaction.

Frequently Asked Questions

When is GST/HST payable on a holdback?

CRA states that under subsection 168(7) tax is payable on the earlier of the day the holdback is paid out and the day the holdback period expires under the written agreement or applicable legislation. Note the second trigger: a holdback whose period has expired is taxable whether or not the money has arrived.

Does the invoice date matter?

No, and commentary makes the point that the rule does not mention it. The tax point turns on payment out or expiry of the period. That is precisely why accounting software creates errors here: it posts from the invoice, which is not the relevant date.

Which side of this is riskier?

The credit side. Over-remitting on your own billings costs cash and produces no assessment. Claiming credits on subcontractor holdbacks before the tax has become payable understates your remittance, and commentary reports this is where CRA is most likely to look on a construction audit.

We collected the full tax on the invoice. Can we still defer?

No. CRA states that where a supplier collects an amount as or on account of tax before it becomes payable, that tax must be remitted with the return for the relevant period. The deferral applies to when tax becomes payable, not to tax you are actually holding.

Does substantial completion trigger tax on the holdback?

No. CRA states in two publications that the override rule in subsection 168(3) does not apply to holdbacks, which are governed by subsection 168(7). Substantial completion accelerates tax on other outstanding consideration while leaving the holdback on its own timetable.

Can we exclude holdback receivables from income?

Commentary describes holdbacks as excludable where the lien period has not expired, but attaches a condition that is easy to miss: if receivables are excluded, the related payables must also be excluded from expense. Taking only the favourable half overstates the deferral by the whole subcontracted portion.

References

1. Canada Revenue Agency. GST/HST Memorandum 19-1, Real Property and the GST/HST, on a holdback being defined as a part, usually a percentage, of the consideration for a supply retained by the recipient for a period of time pending full and satisfactory performance of the supply or a part thereof; on subsection 168(7) providing that where the recipient of a taxable supply retains part of the consideration pending full and satisfactory performance, in accordance with federal or provincial laws or as required under the terms of a written agreement for the construction, renovation or alteration of, or repair to any real property, tax is payable on the amount held back on the earlier of the day the holdback is paid out and the day the holdback period expires pursuant to the written agreement or applicable legislation; on the override rule in subsection 168(3) not applying to holdbacks; on the substantial completion illustration in which tax is payable at the end of the following month on consideration not paid or become due, with ascertainable consideration described as known expenses plus ten percent and the balance taxable when ascertainable; and on a supplier who collects an amount as tax or on account of tax before it becomes payable being required to remit that tax with its return. Note: a CRA primary publication using illustrative dates from the 1990s; not verified against current legislation. canada.ca — Memorandum 19-1
2. Canada Revenue Agency. GST Memorandum 300-6, Time of Liability, on paragraph 168(3)(c) applying to supplies made under a written agreement to construct, renovate, alter or repair real property, a ship or a marine vessel, with tax payable at the end of the month following the month in which the supply was substantially, being ninety percent, completed, calculated on consideration not paid or become due by that day; on the rule applying to ships and marine vessels only where the work is to take more than three months; on the override rule in paragraph 168(3)(c) not applying to holdbacks governed by subsection 168(7); and on subsection 168(7) providing that no tax is payable on the amount required to be held back until the day the holdback is paid out or the day it is required to be paid out, whichever is earlier. Note: a CRA primary publication in an older memorandum series; it refers to a separate memorandum on holdbacks which we did not obtain. canada.ca — GST 300-6
3. SKG Financial. Construction Holdbacks, HST and WIP in Ontario, on HST on a statutory or contractual holdback becoming payable under subsection 168(7) on the earlier of the day the holdback is paid out and the day the holdback period expires under the agreement or the applicable legislation; on the practical mechanic of a $100,000 progress draw with ten percent held back, where the contractor is paid $90,000 plus HST on that amount; on HST collected before it is payable still having to be remitted for the period of collection; on accounting revenue, taxable income and HST timing on the same holdback dollar falling in different periods with all three needing tracking; on Ontario's mandatory annual holdback release starting 1 January 2026 under Construction Act amendments; on a date coming when a large accumulated holdback becomes payable in one movement, with both its receipt and the obligation to pass it down the chain belonging in a cash flow forecast; and on holdback release now being scheduled and predictable and therefore forecastable. Note: a commercial accounting publication; the Ontario legislative change is reported from this source alone and is not verified. skgfinancial.com
4. LedgersOnline. GST/HST Timing Rules for Construction Contractors in Canada, on a holdback in construction contracts referring to a specific sum, typically a percentage of the total contract value, held by the client or owner as security or assurance, with payments typically subject to statutory holdbacks under applicable provincial lien legislation; on GST/HST payable on the holdback amount becoming due on the day the holdback is paid or the day the holdback period expires under the written agreement or applicable legislation, whichever is earlier; on a worked example of a monthly progress application subject to a ten percent statutory holdback whose period does not expire until a later month, with tax on the holdback not payable until then unless paid earlier; and on a lien being filed, where the portion of the holdback withheld to satisfy the lien is not released and is often paid in court, with tax payable on that amount on the day it is paid out or becomes payable, whichever is earlier. Note: a bookkeeping services publication. ledgersonline.com
5. MaxPro Financials. (2026, July). Construction Bookkeeping and GST Guide in Canada, on GST/HST on progress payments generally becoming collectible on the earlier of when payment is made or the invoice is issued or due; on CRA providing relief so that GST/HST on a holdback amount is typically not payable until the holdback is released or the lien period expires, so that a contractor is not remitting tax on money it has not received; on holdbacks for income tax purposes generally being included in income when they become receivable under the contract or lien legislation rather than when cash arrives; on tracking them in separate accounts so they do not distort receivables and so income is not under- or over-reported; and on getting the timing wrong meaning either paying too early, hurting cash flow, or too late, risking interest and penalties. Note: a commercial accounting publication; the income tax description is not verified against the legislation. maxprofinancials.ca
6. JTL CPA. Construction: HST Implications, on holdback GST/HST not being payable until the funds are received or the lien period has expired; on accounting software usually generating the holdback invoice first, which gets posted with the tax allocated to the liability account, and on best practice being to reverse the entry temporarily or not post it until one of the two criteria is met; on the same analysis applying on the input tax credit side, so that a credit cannot be claimed on a subcontractor's holdback invoice received earlier than one of those criteria; on the holdback area probably being where CRA will look most on a GST/HST audit, because the contractor is reducing the amount it pays; and on the timing rule not mentioning the date of the holdback invoice. Note: a professional accounting publication; the characterisation of CRA audit focus is a practitioner observation rather than a published CRA position. jtlaccounting.com
7. Empire CPA. How Are Holdbacks Treated for Tax Purposes?, on a holdback amount on each invoice, typically ten percent of the progress billing, being a typical billing method in construction, with the customer not paying until the work is approved as complete and without deficiencies; on holdbacks on a receivable or payable being excludable from income where the lien period has not expired; and on the requirement that if the receivables are excluded from income, the related payables must also be excluded from the expense. Note: a professional accounting publication; not verified against the legislation. empirecpa.ca
8. Construction Law Canada. Two Construction Lien Issues, on the payment certifier normally being the architect or engineer hired for the project; on the owner being able to pay a subcontractor without jeopardy on the basis of a certificate of completion, with such payments reducing the holdback required to be maintained; on a subcontract certified to be completed being deemed completed on the date of certification; and on a copy of the certificate having to be given to the subcontractor, the owner and the contractor within seven days of certification. Note: commentary on one province's lien legislation, not verified, and not descriptive of any other province. constructionlawcanada.com
9. Canadian Bar Association. GST/HST Questions for Revenue Canada, on section 168 applying to a holdback, and on tax on a remaining holdback value in the arrangement discussed becoming payable only at the end of a two year period, being the time when the amounts became ascertainable. Note: a professional forum record describing one arrangement; not a statement of general application. cba.org

This article is provided for general informational purposes and is not tax or legal advice. Holdback percentages, periods and release mechanics are set by provincial legislation which differs by province; nothing here states the law of any province. The CRA memoranda relied on are older publications not verified against current legislation. The Ontario legislative change described is reported from a single source and is unverified. All arithmetic is the authors' own and is illustrative only.