Holdbacks, WIP and the contractor's year-end

A contractor’s year-end is a timing exercise, and three clocks decide it. Holdbacks are revenue you have earned and cannot yet collect; they generally stay out of income until you have a right to receive them. The GST/HST on that same holdback runs on a different clock — generally payable on the earlier of the day it is paid and the day the lien period expires — so one holdback can be income in one period and a remittance in another. Work in progress is the third: work done, costs already in the year, no invoice against them. Put those in the right periods and the rest of the file is arithmetic.

None of it is a judgment anyone can make in June while preparing the return. These are facts about the last day of the fiscal year, and your job records either support them or they don’t.

The holdback is money you have earned and don’t yet have a right to

A holdback is the slice of each progress billing the owner keeps until the work is certified and the lien period runs out, set by contract or by provincial lien legislation. Two clocks run on it, and they are not the same clock.

For income tax, amounts held back under a construction contract or provincial lien legislation are generally not included in income until you have a right to receive them — usually when the certificate is issued or the lien period expires. The rule runs the other way too: holdbacks you owe a subcontractor are generally not deductible until then either. Large holdbacks receivable and small holdbacks payable defer income; the reverse defers a deduction, and a deduction arriving a year late doesn’t announce itself.

The GST/HST on a holdback runs off the lien period, not the billing

Tax on a holdback generally becomes payable on the earlier of the day the holdback is paid and the day the lien period expires, so it is not remitted with the rest of the progress billing. Charge tax on the full contract value and remit it in the quarter you billed, and you are funding the CRA out of money the owner is still holding.

Two events, two dates, and no reason for them to fall in the same reporting period. So the ledger needs a job, an amount, a certification date and a lien-expiry date on every line. A single balance-sheet total is nothing you can file from.

Work in progress is where the year actually gets decided

Work in progress is the half-finished job on December 31: hours worked, materials installed, nothing invoiced since the last draw. It splits in two, and the halves behave differently.

Billed work is the easy half. On an accrual basis an invoice issued before year-end is revenue of that year whether the customer has paid or not, and an unpaid December invoice is a receivable, not a deferral. Cash arriving in February changes nothing.

Unbilled work is the half that needs a professional look at your contracts, and the honest answer is that it depends on them. The principle is matching — the costs of a job sit in the year you incurred them, and the revenue those costs earned generally belongs in the same year. Where a contract straddles a year-end, recognized methods measure how much of it you completed by that date and bring in the corresponding share. Which method fits your facts is settled once with someone who has read the contracts, documented, then applied the same way every year after. Choosing annually on whichever answer is cheaper does not survive review.

A secondhand idea worth correcting: the work-in-progress election that keeps unbilled work out of income attaches to a defined list of designated professions, and construction is not on it.

The equipment date that counts is the day it started working

Capital cost allowance — CCA, the tax system’s version of depreciation — generally starts once an asset is available for use. Not ordered, not paid for, not delivered. Working. A skid-steer that lands on the yard December 22 and sits on the trailer until spring is a next-year deduction, and no invoice date fixes that. The date carries more weight this year: Bill C-15, law on March 26, 2026, reinstated the accelerated investment incentive, a larger first-year deduction in place of the usual half-year haircut, and added immediate expensing for a short list of productivity assets, covered here.

If it’s a vehicle, classification comes first. Inside the tax definition of a passenger vehicle, the Class 10.1 ceiling applies — C$39,000 before tax for 2026. That is where the buy-versus-lease comparison starts.

Your crew and your subs are two separate filing problems

The people on your jobs generate two returns, on calendars that share no dates.

Your crew are employees. Income tax, CPP and EI come off their pay, the employer’s share goes on top, and both remit on a schedule set by the size of your payroll. T4s — the slips reporting employment income — go to the CRA and to each employee by the last day of February for the previous calendar year. That is a calendar-year deadline inside a fiscal-year file, which is why it slips past contractors whose year-end isn’t December.

Your subs are the other return. If construction is your main business activity you generally file a T5018, listing payments to subcontractors for construction services, six months after the end of the reporting period you elected, on payments totalling C$500 or more to one sub. The threshold, the period election and the per-slip penalty are here; the date joins the deadline table.

Which list a person belongs on is not settled by the invoice, and getting it wrong lands on the payer: the CRA generally assesses the unremitted CPP and EI, both shares, plus penalties and interest. The same working-relationship facts run the other way for a sub billing through their own corporation, toward a personal services business finding on their side.

A worked example: C$80,000 of holdbacks and one half-finished basement

Illustrative, round numbers, December 31 year-end. A renovation company closes with C$80,000 of holdbacks receivable across four jobs, C$18,000 owed to its own subs, and one basement two-thirds built. The point is which year each item lands in, not what it totals. These are the general rules; a certification date on the wrong line changes the answer.

C$30,000 of the C$80,000 belongs to a kitchen certified in November, with a lien period that ran out on December 12. The right to receive it arose inside the year, so that amount is income of the closed year and the GST/HST on it became payable then too. The other C$50,000 sits on three jobs still inside their lien periods at December 31 — not in income yet, no GST/HST payable yet, though the billings underneath went out months ago. One account, two answers, decided by a date on each line.

The C$18,000 owed to subs runs the same test in reverse: the share tied to the certified kitchen is deductible this year, the rest waits. A good year for holdback releases is often a thin year for holdback deductions.

The basement is the work-in-progress question. Its costs are in the year already — framing labour on the December payroll, materials installed in November — and nothing has been invoiced since the early-December draw. Leave it there and the year shows a job’s costs without the revenue they earned, understating the closed year and overstating the next. Somebody has to know, at December 31, what share of it was built.

Then the calendar. The T2, the corporation’s income tax return, is due June 30, six months after year-end, with the balance generally due two months after year-end — three months for many CCPCs claiming the small-business deduction. A fiscal-period T5018 is due June 30 too, and the crew’s T4s went in four months before either.

The job-costing habit that makes all of this cheap

None of the above is difficult. It is record-keeping done on the day, by somebody who knows which job a receipt belongs to. Job costing means every dollar carries a job number — labour hours, materials, sub invoices, equipment time. Kept that way through the year, your holdback schedule, your completion estimate and your T5018 list fall out of the ledger. Rebuilt in June from a folder of receipts, all three are guesses, and a guess is what gets asked about first.

What Cadence does

For contractors and trades, we track holdbacks separately in the file so the income and the GST/HST both land in the right period, each line carrying its certification and lien-expiry dates rather than disappearing into one balance. The work-in-progress method gets set once, with your contracts in front of us, then applied the same way every year. Your filing calendar carries the T2, the GST/HST returns, the crew’s T4s and the T5018 on one page from onboarding. Job costing and work-in-progress accounting are scoped to your systems — what that covers is settled at the estimate. Where your records carry the numbers we work from them; where they don’t, that is a conversation for the quarter before year-end, not the June after it.