Contractor accountant in St. Catharines

The 10% holdback and the year it belongs to

Under the Construction Act the owner or general contractor retains 10% of each payment until the work is finished and the holdback period has passed. For the contractor that money is earned and invoiced, but not yet collected, and sometimes not collectable for months. At year-end the question is not whether the holdback exists but which year the income belongs to and how it sits on the balance sheet.

We track holdbacks receivable and payable job by job, so the ones owed to you and the ones you are holding from your own subcontractors are both visible, and we review them at the cut-off. Construction holdbacks explains the accounting in more detail.

Progress billing and work in progress

Larger jobs are billed in stages: a draw on signing, another at framing, another at close-in. Those draws rarely match the work actually done on the day the year ends. A job billed ahead of its progress has income the business has not yet earned; a job behind its billing has earned income not yet invoiced. Both distort the year if nobody looks.

A simple work-in-progress schedule at year-end compares cost to date, estimated cost to complete and billings on each open job. It turns the return from a record of invoices into a record of the year’s actual work, and it is the schedule lenders and bonding companies ask for first.

Those same readers usually want full financial statements, and for an owner-managed contractor the right form is normally a compilation engagement: statements prepared from your records with a report that says plainly they carry no audit or review assurance. Where a bonding company or a general contractor’s vendor check asks for more, that is a different engagement, and it is better to know before the deadline than after. Statements come together much faster when the books have been kept current all year, which is the real reason to close every month even in the busy season. See compilation engagements.

T5018 slips for the subcontractors you pay

A business whose main activity is construction reports payments to subcontractors for construction services on T5018 slips. The return is due six months after the end of the reporting period, and you can report on a calendar year or on your fiscal year, as long as you stay consistent. The slips need each subcontractor’s name, address and business number, which is far easier to collect before the first payment than after the last. The T5018 tracker and subcontractor reporting guide set out the details.

WSIB and the clearance you should hold

Most construction businesses in Ontario need WSIB coverage, and in construction the rules reach further than in most industries, including coverage for many owners and partners who would be exempt elsewhere. The hiring contractor can also be made responsible for premiums a subcontractor failed to pay. The practical protection is a clearance certificate for each subcontractor, checked before you pay and kept with their invoice.

WSIB is a separate account from the CRA and from employer health tax, with its own registration, premiums by classification and reporting dates. We keep those dates on the same calendar as everything else.

HST on construction work

Construction services and materials are taxable at 13% HST in Ontario, and the HST you pay on materials, tools, fuel and subcontractors is recovered through input tax credits. Holdbacks change the timing: HST on a holdback generally becomes payable when the holdback is released or becomes due, not when the progress bill is first issued. A contractor who remits HST on the full invoice at once is funding the CRA ahead of time.

Subcontractors who are not registered do not charge HST, and it is worth checking a sub’s registration before assuming a credit is available. Input tax credits covers what a claim needs.

Employee or subcontractor on your crew

A labourer who works only for you, on your schedule, with your tools, is an employee whatever the invoice says. The CRA looks at control, tools, the chance of profit or loss and the right to send a substitute. When it reclassifies a worker, the business owes the CPP and EI that should have been deducted, with penalties and interest, and the WSIB position shifts with it. We look at each arrangement before it becomes a pattern. See subcontractor versus employee.

Winter, equipment and the tax bill

Trucks, trailers, excavators and tools are depreciated through capital cost allowance, and a purchase only produces a deduction once the asset is available for use. Buying equipment in the last week of the year for the deduction works only if it is on site and in use. Instalments follow the same seasonal logic: a strong summer can produce an instalment notice that arrives when the ground is frozen and cash is tight. We plan purchases and instalments against the season you actually have. CCA classes sets out the rules.

Remote contractor accounting from Abbotsford

EverStone is a sole practitioner CPA firm at 32615 South Fraser Way in Abbotsford, serving St. Catharines clients entirely online. There is no St. Catharines office and no local staff. Meetings are held by video or phone, documents are exchanged by secure upload link and e-signature, and no visit is required at any point. Subcontractor payments, holdbacks and equipment costs are tracked as they happen rather than reconstructed at year-end.