Holdbacks and progress billing: when the GST is actually due
Published on Published
The owner keeps back 10% of every billing, and the GST on that 10% does not fall due with the invoice. Remitting it early is a common, avoidable cash drain.
Short answer: under BC’s Builders Lien Act, the owner holds back 10% of the value of the work, generally for 55 days after the contract is completed or a certificate of completion is issued. GST on each progress billing is payable on the earlier of the day it is paid and the day it becomes due. GST on the holdback is different: it becomes payable on the earlier of the day the holdback is paid and the day the holdback period expires. So the 5% on the holdback is not remitted with the progress billing.
How the BC holdback works
- The owner, and each contractor paying a subcontractor, holds back 10% of the greater of the value of the work or materials provided and the amount paid
- The holdback period is generally 55 days from a certificate of completion, or from the completion, abandonment or termination of the contract
- A lien has to be filed within 45 days of a certificate of completion, or, without one, of the completion, abandonment or termination of the head contract
- Once the period ends with no lien filed and no lien action started, the holdback can be paid out
The Act sets out more than this, including when a separate holdback account is needed. A lawyer, not the books, decides questions about a lien.
When the GST is payable
For progress payments, the CRA says the GST becomes payable on each one on the earlier of the day the purchaser pays it and the day it becomes due. An invoice generally makes it due, so the GST on a progress billing usually belongs in the reporting period the invoice is dated in.
For holdbacks, the GST on the holdback amount becomes payable on the earlier of the day the purchaser pays you the holdback and the day the holdback period expires. That deferral applies to a holdback required by law, such as the Builders Lien Act, or by a written contract. A holdback that is neither does not defer the tax. If a lien keeps the holdback held past the end of the period, ask how the timing applies before you file.
| Amount | GST payable | |
|---|---|---|
| Progress billing, before holdback | CAD 100,000 | CAD 5,000 in total |
| Paid now (90%) | CAD 90,000 | CAD 4,500, in the period the billing is due or paid |
| Held back (10%) | CAD 10,000 | CAD 500, when the holdback is paid or the period expires |
The figures are invented. On a long job, the tax on the holdbacks can add up to a real sum, and remitting it months early is money the business did not need to give up yet.
What the books need
Questions people ask
What is the holdback in BC construction?
Under the Builders Lien Act, the owner and each contractor paying a subcontractor hold back 10% of the value of the work, generally until 55 days after completion or a certificate of completion, so that lien claims can be made against it.
When do I charge GST on a holdback?
The GST on a holdback required by law or a written contract becomes payable on the earlier of the day the holdback is paid to you and the day the holdback period expires.
Do I remit GST on the holdback with the progress billing?
No. GST on the part paid now is payable when the billing is paid or due. GST on the holdback waits until the holdback is paid or the period expires.
When is the GST on a progress billing due?
On the earlier of the day the payment is made and the day it becomes due. An invoice generally makes it due, so it usually falls in the period of the invoice date.
When can a holdback be released?
Generally once the 55-day holdback period has ended with no lien filed and no lien action started. Questions about a specific lien are for a lawyer.
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T5018 slips for subcontractor payments →
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