Construction businesses carry tax rules most other businesses never meet: an annual report of what you paid subcontractors, money held back on every job, and a steady question of who is an employee and who is not. Getting these right each month keeps year-end and CRA enquiries manageable.
The points where tax and accounting rules come into play are numbered.
Numbered points are explained below.
At: Crew and subcontractors
If a subcontractor is really an employee, the deductions that were never taken become the business’s cost. Calling a worker a subcontractor does not make them one: the CRA looks at the whole working relationship, such as who controls the work and who owns the tools, to decide whether CPP, EI and income tax should be deducted.
We go through how each worker is engaged and set up payroll where the answer is employment.
At: Costs to the job
Missing slips can bring late-filing penalties, and the CRA uses them to match what subcontractors report. If construction is more than half of your business activity, you must report payments to each subcontractor for construction services on a T5018 slip when they total more than $500 in the year, not counting GST/HST, with a T5018 Summary.
We track subcontractor payments in your books through the year and prepare the slips from them.
At: Progress billing
Reporting HST on a holdback too early means paying tax on money you have not received. GST/HST on a holdback is not payable when you bill it; it becomes payable on the day the holdback is paid out or the day it is required to be paid out, whichever is earlier.
We time the holdback on your GST/HST return separately from the rest of the invoice.
At: Retainage
Holdbacks tie up money you have earned, often for months. In Ontario, the Construction Act requires the payer on a contract or subcontract to hold back 10% of the price of services and materials as they are supplied, until lien rights expire or are dealt with.
We record holdbacks receivable and payable job by job, so you can see what is owed to you and what you owe.
Job costing, holdback tracking, payroll and the T5018 data all come from monthly books.
Corporate returns and GST/HST filings need holdbacks and progress billings timed correctly.
Worker status and payroll questions from the CRA need a clear, documented answer.
Holdbacks and slow-paying clients make cash flow the main constraint on taking on work.
A contractor who incorporates or hires a first employee needs the payroll and GST/HST accounts in place from the start.
If construction is your main business activity and you paid a subcontractor more than $500 (before GST/HST) for construction services in the year, yes.
The tax becomes payable when the holdback is paid to you or is required to be paid, whichever is earlier, not when the progress bill is issued.