Construction accounting is its own discipline. Revenue and cash arrive on different schedules, holdbacks lock up a slice of every payment for months, profit lives or dies on job costing, and you carry reporting duties — like the T5018 for subcontractors — that most industries never touch. Get these wrong and a profitable contractor can still run out of cash. RN Canada helps contractors in Edmonton, Calgary (served remotely from our Edmonton head office), Vancouver, and across Canada build books that track every project accurately.
Accounting pain points: holdbacks, WIP, and progress billing
Three mechanics make construction books different from a normal trade business:
- Holdbacks. Provincial lien/builders' legislation in Alberta and BC lets owners retain a percentage of each progress payment until substantial completion. That's earned revenue you haven't collected — it must sit on the balance sheet as a receivable and be tracked per project, because it ties up real cash for months.
- Progress billing. You invoice in draws as work advances, not in one lump. Billings rarely line up with costs incurred in the same month.
- Work-in-progress (WIP). Work performed but not yet billed. Without a WIP schedule and a percentage-of-completion view, monthly profit swings wildly and is effectively meaningless.
Layer on job/project costing — assigning every labour hour, material invoice, and subcontractor cost to the right job — and you finally see which projects actually make money instead of a single blended margin.
Tax considerations: T5018, GST/HST, and equipment
Subcontractor reporting (T5018). If construction is your primary activity, you must report payments to subcontractors on the T5018 Statement of Contract Payments each year. That means capturing subcontractor payments cleanly all year, not scrambling at filing time.
Sales tax. Construction services are generally taxable for GST/HST, and the treatment interacts with holdbacks and progress draws. In BC, 7% PST also applies to many materials and some services; Alberta has no PST, which simplifies things and lowers input costs. The combination is error-prone — see our GST/HST/PST guide and confirm project-specific treatment with us.
Equipment. Trucks, excavators, and tools are capital assets deducted over time through Capital Cost Allowance (CCA), not expensed at once; financing versus leasing changes both the tax and cash picture. And since most contractors incorporate, watch your corporate tax instalments — once tax owing crosses the threshold you pay through the year, separately to the CRA and (in Alberta) to provincial TRA. Details in our corporate tax instalments guide, and you can ballpark the bill with the corporate tax calculator.
Payroll considerations: crews, subcontractors, and AB vs BC
Construction payroll mixes employees and subcontractors, and the employee-versus-contractor line carries real CRA risk if you misclassify. On top of wages you remit the employer share of CPP, CPP2, and EI everywhere in Canada. The provincial difference matters: Alberta has no provincial payroll or health tax, while BC levies an Employer Health Tax once payroll passes its threshold — a direct cost difference for contractors operating in both provinces, and one to price into bids.
Cash-flow considerations: managing lumpy timing
Construction cash flow is famously lumpy. You front labour, materials, and subcontractor costs; holdbacks delay part of every payment; and progress draws arrive on the owner's timeline. The result: strong projects can still create a cash crunch mid-build.
The fix is a rolling cash-flow forecast tied to your project schedule — expected draws, holdback release dates, payroll runs, and supplier terms mapped week by week. Our cash-flow management guide covers the fundamentals; applying it to a project pipeline is where most contractors need help.
The fractional-CFO angle: bidding, bonding, and growth
As contracts get larger, the financial questions get harder: Which jobs are actually profitable? Can we fund this bid without choking cash? Are we strong enough for bonding or a credit line? A fractional CFO brings senior financial leadership part-time to answer them — building job-cost reporting, WIP schedules, and forecasts that banks and bonding companies trust.
See our part-time CFO / management accountant service. RN Canada is led by Ozgur Duymaz, Ph.D., CPA (Canada), ACCA (UK), CMA (US), and serves contractors across Alberta and British Columbia.
Run a different kind of business? Browse the industries hub — contractors often compare notes with our professional-services and restaurants pages.
Want construction books that show real project profit? Contact RN Canada.
This page is general information, not personalized tax, accounting, or legal advice. Speak with RN Canada about your specific situation.
Frequently asked questions
A holdback is a percentage of each progress payment retained until a project is substantially complete, as required by provincial lien/builders' legislation in Alberta and BC. It is earned revenue you haven't collected yet, so it belongs on the balance sheet as a receivable — not ignored — and it ties up real cash for months. Tracking holdbacks per project is essential to knowing your true cash position.
WIP is the value of work performed but not yet billed on open projects. Without a WIP schedule, your financials swing wildly between billings and overstate or understate profit in any given month. A proper WIP and percentage-of-completion approach matches revenue and cost to the work actually done, which is what lenders, bonding companies, and the CRA expect to see.
The T5018 is the Statement of Contract Payments. Businesses whose primary activity is construction must report payments made to subcontractors for construction services on a T5018 slip and summary each year. Missing or late filings draw CRA penalties, so subcontractor payment tracking has to be part of your bookkeeping from the start.
Construction services are generally taxable for GST/HST. In BC, PST also applies to many materials and some services, while Alberta has no PST. The interaction of GST, PST, holdbacks, and progress billing makes construction sales tax error-prone, so review the GST/HST/PST guide and confirm treatment with RN Canada for your projects.
Equipment and vehicles are capital assets, deducted over time through Capital Cost Allowance (CCA) rather than expensed all at once. The class and rate depend on the asset. Financing or leasing also affects the tax and cash-flow picture, so equipment decisions should be planned with both in mind.
Construction cash flow is lumpy: you pay for labour, materials, and subcontractors before you bill, holdbacks delay 5–10% of every payment for months, and progress draws arrive on the owner's schedule, not yours. Profitable contractors still fail on cash. A rolling cash-flow forecast tied to project draws and holdback releases is the fix.
The mechanics are similar but the costs differ. Alberta has no PST and no provincial payroll/health tax; BC charges 7% PST on many inputs and an Employer Health Tax above a payroll threshold. Both follow federal GST and CCA rules. The provincial differences change job-cost pricing and bidding, especially for contractors working in both.