GST/HST on holdback: no tax before the holdback is payable

Ten percent of every progress payment is withheld from you by law. Without one subsection of the Excise Tax Act, you would be remitting the tax on it years before you saw the money.

That subsection is 168(7), and it is the single most valuable provision in Canadian tax law for a construction business. Most contractors have never read it, and a fair number are quietly getting it wrong in both directions — remitting too early, or worse, invoicing the holdback net and misstating the price.

Start with the general rule

Excise Tax Act subsection 168(1):

"Tax under this Division in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due."

Earlier of paid and due. On an ordinary invoice with net-30 terms, tax becomes payable when the invoice becomes due — whether or not the customer paid.

And where payment is staged — subsection 168(2):

"Notwithstanding subsection (1), where consideration for a taxable supply is paid or becomes due on more than one day, (a) tax under this Division in respect of the supply is payable on each day that is the earlier of the day a part of the consideration is paid and the day that part becomes due; and (b) the tax that is payable on each such day shall be calculated on the value of the part of the consideration that is paid or becomes due, as the case may be, on that day."

Progress billing is exactly this. Each draw is its own event with its own tax point.

Applied to holdback without more, the result would be brutal: a draw becomes due, ten percent of it is retained by law, and tax on the whole draw is payable now.

Subsection 168(7): the holdback carve-out

"Notwithstanding subsections (1), (2), (3), (5) and (6), where the recipient of a taxable supply retains, pursuant to (a) an Act of Parliament or of the legislature of a province, or (b) an agreement in writing for the construction, renovation or alteration of, or repair to, any real property or any ship or other marine vessel, a part of the consideration for the supply pending full and satisfactory performance of the supply, or any part thereof, tax under this Division, calculated on the value of that part of the consideration, is payable on the earlier of the day that part is paid and the day it becomes payable."

Take it apart.

"Notwithstanding subsections (1), (2), (3), (5) and (6)." It overrides every other timing rule in the section, including the substantial completion rule discussed below.

Two qualifying sources, and only two. A retention "pursuant to an Act of Parliament or of the legislature of a province" — the statutory holdbacks: Ontario's 10 percent under Construction Act s. 22(1), British Columbia's 10 percent under Builders Lien Act s. 4(1), Alberta's major lien fund under PPCLA s. 18(1). Or a retention pursuant to "an agreement in writing" for construction, renovation, alteration or repair of real property or a vessel.

"Pending full and satisfactory performance." That is what a holdback is. A retention for some other reason — a set-off, a disputed deficiency, a credit hold — is not obviously within the subsection.

The new tax point: the earlier of the day the holdback is paid and the day it becomes payable. Not the day you invoiced. Not the day the rest of the draw became due.

Where the "becomes payable" date comes from

Subsection 168(7) does not define it. Provincial construction legislation does, and this is where the federal and provincial rules interlock.

Ontario. Section 22(1) of the Construction Act requires each payer to retain 10 percent until all liens claimable against the holdback have expired or been satisfied, discharged or otherwise provided for. Since 1 January 2026, section 26 imposes a mandatory annual release: after each anniversary of the contract date the owner publishes a notice within 14 days and pays the accrued holdback at least 60 but not more than 74 days after publication, with the contractor paying subcontractors within 14 days of receipt.

That amendment moved the date on which holdback becomes payable in Ontario — and therefore moved the 168(7) tax point on long jobs. On a three-year contract, holdback that once became payable at the end now becomes payable annually. The GST/HST follows it. The release mechanics themselves are covered in Ontario holdback is released every year since 1 January 2026.

British Columbia. Section 8 of the Builders Lien Act expires the holdback period 55 days after the certificate of completion is issued, or 55 days after the head contract is completed, abandoned or terminated (or the improvement completed or abandoned where there is no head contractor). The certificate mechanics behind that date are in British Columbia builders lien: 45 days from the head contract.

Alberta. Section 18 of the PPCLA requires the owner to retain 10 percent for 60 days from the certificate of substantial performance or the date of completion — 90 days for oil and gas wells and well sites and for concrete work. The same Act's payment and adjudication clocks are covered in Alberta prompt payment: 28 days, 7 days, and a proper invoice.

Three provinces, three dates. Which is the point: the tax point for holdback is a provincial construction-law question wearing a federal tax hat.

The rule that catches long jobs: subsection 168(3)(c)

Contractors who have heard of 168(7) usually have not heard of this one, and it works in the opposite direction.

Subsection 168(3) provides that where all or part of the consideration has not been paid or become due on or before the last day of the calendar month immediately following the first calendar month in which certain events occur, tax on that consideration becomes payable on that day. Paragraph (c) is the construction case:

"where the supply is under an agreement in writing for the construction, renovation or alteration of, or repair to, (i) any real property, or (ii) any ship or other marine vessel, and it may reasonably be expected that the construction, renovation, alteration or repair will require more than three months to complete, the construction, renovation, alteration or repair is substantially completed"

In plain terms: once the work is substantially completed, tax on any consideration not yet paid or due becomes payable at the end of the following month, whether or not you have invoiced it.

A contractor who finishes in April and does not send the final invoice until August has a tax point on 31 May, not in August. Delaying the invoice does not delay the tax.

The one relief is that 168(7) is expressed to apply "notwithstanding subsection … (3)". Holdback is not swept up by the substantial completion rule. Everything else on that job is.

Two more provisions worth a paragraph each

Deposits — subsection 168(9):

"For the purposes of this section, a deposit (other than a deposit in respect of a covering or container in respect of which section 137 applies), whether refundable or not, given in respect of a supply shall not be considered as consideration paid for the supply unless and until the supplier applies the deposit as consideration for the supply."

Taking a deposit at signing is not a tax point. Applying it against a draw is. The distinction lives in how you record it, not in what the customer calls it.

Bundled supplies — subsection 168(8). Where a supply combines service, personal property or real property and "the consideration for each element is not separately identified":

"(a) where the value of a particular element can reasonably be regarded as exceeding the value of each of the other elements, the supply of all of the elements shall be deemed to be a supply only of the particular element; and (b) in any other case, the supply of all of the elements shall be deemed (i) where one of the elements is real property, to be a supply only of real property, and (ii) in any other case, to be a supply only of a service."

The operative words are "not separately identified". Separately identify the consideration for each element on your document and 168(8) never engages. A single bundled figure hands the characterization to a deeming rule.

What this means for how you invoice

Four consequences, all of them about the shape of the document rather than the arithmetic.

Invoice the full value of the work. Holdback is a retention of part of the consideration for a supply that was made in full. Reducing the price by the holdback misstates the supply, misstates the receivable, and forfeits any clean way to account for the tax later.

Show the holdback as a separate withheld amount, with the tax on it distinguished from the tax on the payable portion. That is what 168(7) is asking you to be able to do.

Record the holdback release date per job, from the provincial rule that applies. Ontario's anniversary regime, BC's 55 days, Alberta's 60 or 90. That date is the tax point.

Separately identify the consideration for each element on quotes and invoices, so 168(8) has nothing to deem.

None of this needs a special holdback module. It needs positions with prices and a document that keeps the withheld amount visible instead of netting it away — the same discipline the $500 invoice tier and the holdback line both ask for: invoicing for contractors: the $500 tier and holdback.

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Current as of August 29, 2026. This article describes the timing rules in section 168 of the Excise Tax Act and is not tax advice. It does not cover Quebec's sales tax, which is administered separately and is not covered by the Excise Tax Act; input tax credit timing; self-supply and new housing rules; the treatment of deficiency holdbacks and set-offs as distinct from statutory or contractual holdback; or reporting-period and filing mechanics. The interaction between subsection 168(7) and provincial construction legislation depends on the province and on the terms of your contract. The provisions quoted were checked on the date shown. Confirm your position with a tax adviser.

What Zirko does: it produces documents with individual positions carrying description, quantity and price, so the consideration for each element is separately identified rather than bundled, and it carries interim and final documents on one job with recorded payment terms — so the full value of the work stays visible when part of the payment is withheld. Zirko maintains the Canadian tax jurisdictions with their rates and shows a rate by its components. Zirko does not calculate holdback, does not determine tax points, does not track release dates, does not file returns and gives no tax advice. Issued documents are immutable; a correction is a separate document.