Accounting for construction and trades businesses

Guidance written for “small business” assumes a company that sells something in a month and collects for it in the same month. Construction does not work that way. A job can start in one fiscal year, be invoiced progressively through the next, and have part of its money legally withheld until well after the work is finished. That reshapes revenue, cash flow, sales tax timing and year-end reporting at once. Below is what differs, and every page on this site that covers it.

What is different about construction accounting

Construction breaks three assumptions ordinary bookkeeping makes: that revenue belongs to the month it was invoiced, that money invoiced is money collectible, and that everyone paid is either an employee or an expense. Holdbacks, work in progress and subcontractor reporting all follow from that.

Revenue is earned across a job, not in a month

When a contract spans a year end, the profit has to be split between two fiscal periods: carrying work in progress that has not yet been billed, and deferring revenue billed ahead of the work. Get it wrong and a profitable year looks like a loss, or a loss year attracts tax. It is the most common reason construction books disagree with the owner’s sense of the year.

Holdbacks are earned money you cannot collect

Provincial builders lien legislation requires a percentage of each progress payment to be held back for a defined period after substantial completion. The work is done and the revenue usually reported, but the cash sits with the payer. A growing company can be profitable on paper and short of cash purely because holdbacks accumulate faster than they release. Tracking them by job, with release dates, is the cash forecast.

Paying subcontractors triggers its own information return

A business whose primary activity is construction and which pays subcontractors for construction services generally has to file a T5018 information return reporting those payments. It is separate from payroll, separate from the T2, and has its own due date tied to the reporting period chosen. Trades that grow from a one-person operation into a crew-based one usually discover it a year late.

Related: Accountant for landscaping and lawn care companies.

Worker classification is a live risk on both sides

A construction business is usually both a payer and a payee. On the paying side, treating a worker as a subcontractor when CRA would call them an employee creates retroactive source deductions and penalties. On the receiving side, a corporation working substantially for one general can be assessed as a personal services business, which removes the small business deduction. Workers’ compensation adds a parallel test: a clearance letter before releasing payment protects against a sub’s unpaid premiums.

Equipment, not inventory, dominates the balance sheet

Excavators, trailers, scaffolding, tools and vehicles land in different capital cost allowance classes at different rates, and the purchase year determines when the deduction starts. Leasing rather than financing changes both the deduction pattern and the debt shown on statements, which matters when a surety or a bank reads them.

Sales tax timing rarely matches cash timing

GST/HST is generally remittable by reference to the invoice, not the payment. Holdbacks are the exception: the tax on a holdback becomes payable on the earlier of the day it is paid and the day the holdback period expires. Combined with lumpy project cash, this is why construction businesses so often fall behind on remittances despite being profitable.

The guides, tools and pages for this vertical

These are grouped by the part of the job they belong to: the mechanics that are specific to construction, the services a contractor buys, and the cities the work happens in.

Construction-specific mechanics

• Construction accounting in BC — the service-page view of holdbacks, progress billing and job costing. Read it when you want to know what an engagement actually covers.
• How holdbacks are accounted for — where the receivable sits, when revenue is recognized, and how release dates drive the cash forecast. Read it before your first large contract.
• T5018 subcontractor reporting — who has to file, what counts as a construction payment, and the deadline. Read it the first year you pay another crew.
• WorkSafeBC registration and clearances — when registration is required and why a clearance letter is checked before a sub is paid. Read it before hiring anyone on site.

Who you pay, and how

• Subcontractor or employee — the classification test applied from the hiring side, with crew-based examples. Read it before your first hire.
• How CRA classifies a worker — the same factors seen from the worker’s side of the relationship. Read it if you are the one being engaged.
• Personal services business risk — what happens if CRA decides your corporation is really an employee. Read it if one general contractor provides most of your revenue.
• Employee or contractor, for the hiring business — the commitments each model creates. Read it while you are still deciding.
• Payroll services — what running payroll properly involves once someone belongs on it. Read it the month before the first pay run.

Equipment and vehicles

• Equipment and CCA classes, which class machinery, trailers and tools land in and how fast each is written off. Read it before a major purchase, while timing is still a choice.
• Capital cost allowance, in general — the underlying depreciation rules, including what happens when an asset is sold. The companion to the guide above.
• Vehicle and mileage deductions — the log that supports the claim. The most commonly reduced deduction on a trades return.
• Company vehicle benefit calculator — estimates the taxable benefit when the corporation owns the truck you also drive personally. Run it before transferring a vehicle in.
• Equipment-heavy businesses in Mission, a local page for operations where machinery is the largest asset on the books.

City and regional pages

• Accounting for contractors — the core service page for incorporated trades and contracting corporations.
• Contractor accountant, Surrey — the same work framed for Surrey trades.
• Contractor accountant, Langley — for Langley-based trades and small builders.
• Contractor accountant, Chilliwack — for the eastern Fraser Valley.
• Contractor accountant, Edmonton — for Alberta trades, where provincial rules and rates differ.
• Contractor accountant, Winnipeg — for Manitoba trades.

Wider reading

• Contractor accounting topic hub — the companion hub organized by tax topic rather than by industry — classification, subcontractors, equipment and owner pay in one place.
• Bring the books current — for when several seasons of receipts are in a box and the filings are behind.
• Corporate tax hub — the T2, its deadlines and instalments.
• Everything on GST and HST — the sales tax on every progress claim you issue.

Who this fits

This hub is written for incorporated general contractors, subtrades, small builders and specialty trades — framing, electrical, mechanical, roofing, excavation, landscaping — that bill by project or progress claim rather than by product, whether you run a crew of two or a roster of subs. If you invoice for services without holdbacks, job costing or site labour, the contractor topic hub is the closer fit.

How this runs remotely

EverStone CPA is a fully virtual, one-CPA firm. That suits construction: job records, progress claims, supplier invoices and holdback schedules already live in software, a project tool or a phone camera. Meetings are by video, documents move electronically, and filings go straight to CRA. A contractor in Chilliwack and one in Winnipeg get the same process, and a mid-job year-end question is answered the week it arises.