Statutory holdback is a mandatory percentage of each payment that owners and general contractors must retain and hold in trust until the lien period expires. It serves as a fund that subcontractors and suppliers can claim against if they are not paid. In Ontario and British Columbia, the statutory holdback rate is 10% of each progress payment. Alberta also requires 10%. Manitoba requires 7.5%. Territories without specific lien legislation (Northwest Territories, Nunavut, Yukon) have no statutory holdback; any holdback in those jurisdictions is purely contractual.
Why it matters to Canadian contractors
- If you are a subcontractor, the GC or owner is legally required to hold back 10% (in ON, BC, AB) of every payment to you. This is not optional and cannot be waived by contract.
- The holdback is held in trust. It is not the owner's or GC's money to spend. If the GC becomes insolvent before releasing it, the holdback is protected for subcontractors and suppliers.
- For a $200,000 contract in Ontario, $20,000 of your billings will be held back until the lien period expires. Tracking this separately from your receivables is essential for accurate cash flow forecasting.
- Releasing the holdback too early (before lien rights expire) can expose an owner to paying twice if a lien is registered afterward. Understanding the timeline matters for all parties.
Common mistakes and pitfalls
- Holdback is calculated on the base amount before HST, not on the total invoice including tax. Calculating it on the gross amount results in over-withholding.
- The holdback release date is tied to the lien period expiry, not the project completion date. In Ontario, lien rights expire 60 days after the last supply of services or materials.
- A separate holdback must be tracked for each subcontract, not just one holdback pool for the whole project. This is a common administrative error on multi-sub projects.
- In Ontario, annual release of holdback became mandatory on January 1, 2026 under the Construction Act amendments (Bill 216 and Bill 60). For affected contracts the payer must publish a notice of annual release within 14 days after each contract anniversary, then pay the released holdback 60 to 74 days after that notice. Under Bill 60 this annual payment is no longer tied to lien expiry, so missing the anniversary notice is a real compliance gap.
- Quebec uses the Civil Code framework, which has no statutory holdback equivalent. Retention in Quebec is contractual.
Related
- Free holdback calculator→
- Ontario Construction Act prompt payment guide→
- Glossary: Lien deadline→
- How the 28-day rule works→
This glossary entry is for general information only and does not constitute legal or tax advice. Canadian tax and construction law rules vary by province and contract. For advice specific to your situation, consult a licensed professional.