The Holdback, the Crew and the Money Already Earned

A holdback leaves a profitable contractor short at payroll because part of every progress payment is kept back by the party above you until a date the law or the contract sets. The work is done and billed. The wages, fuel, rentals and supplier invoices behind it are already paid. The cash for that slice comes later, on a calendar you do not control.

In Ontario, the Construction Act fixes the holdback at 10 per cent and now requires the owner to release it every year, as well as after liens expire. Quebec's Civil Code works differently, and other provinces have their own acts. So the first step is to know which rule governs each job, then to measure your gap, then to compare the ways of bridging it. A loan from a life insurer against a corporate-owned policy is one of those ways, for some businesses, years after the policy is in place. It is not a plan for next month.

What is a holdback, and why is it not a late payment?

A holdback is money withheld by design. Each time you are paid for work, the payer above you in the chain keeps a set share, and releases it only when the governing rule says it must.

The reason is sound. The holdback gives the owner and each payer a fund that stands behind liens, so a subtrade or supplier who was never paid has something to claim against. Anyone who has inherited another trade's failure on a site understands why it exists.

It is not a late payment and it is not a disputed invoice. A late payment is an amount that was due and did not arrive. A disputed invoice is a disagreement about the work. A holdback is money that everyone agrees is owed, held under a rule until a date the rule sets. Each problem has its own remedy, and mixing them up is how they stay unsolved.

What it does to cash is the same everywhere. The job is profitable on the statements, the costs are paid, and a slice of the price sits elsewhere for months. Run four jobs and you wait on four holdbacks, at four stages. Add them up at each month end: that total is money you have earned and cannot yet spend.

When is a holdback released in Ontario?

Ontario's Construction Act sets the holdback, and a contract cannot bargain it away. We read the consolidation on e-Laws on 30 September 2026 (current to 25 September 2026). Here is what it says, in plain words. It is our reading, not legal advice.

• Section 22(1): each payer on a contract or subcontract under which a lien may arise must keep a holdback equal to 10 per cent of the price of the services or materials as they are actually supplied.
• Section 4: an agreement that the Act does not apply to a supplier, or that its remedies are not available, is void. Section 5(1) deems every contract related to an improvement amended as far as needed to conform with the Act.
• Section 26(2) to (4), in force since 1 January 2026: after each anniversary of the date the contract was entered into, the owner must publish a notice of annual release of holdback no later than 14 days after the anniversary. It then pays the contractor the holdback accrued on the previous year's supply at least 60 and no later than 74 days after the notice is published. Amounts covered by a lien that has been preserved or perfected, and not yet dealt with, wait.
• Section 26(5) and (6): a contractor pays its subcontractor's accrued holdback within 14 days of receiving it, and the same rule runs down each tier.
• Section 26(8) and section 27: holdback not paid under the annual rules is paid after the liens have expired or been dealt with. The owner pays the contractor within 14 days, and each tier pays the next within 14 days of being paid.
• Section 31(2): a contractor's lien for supply up to substantial performance expires 60 days after the earlier of the publication of the certificate or declaration of substantial performance and the date the contract is completed, abandoned or terminated.
• Section 6.4: an owner pays a proper invoice within 28 days of receiving it, unless it gives a notice of non-payment in the prescribed form within 14 days. Under section 6.5, a contractor paid in full then has seven days to pay the subcontractors whose work was in that invoice.

Contracts signed before 1 January 2026 follow the transition rule in section 87.4(4): the annual release starts at the second anniversary after that date and includes all the holdback accrued before it. Your lawyer confirms which version of the rules governs each job.

Illustrative example. Assume a contract entered into after 1 January 2026, services supplied at $150,000 a month, no lien preserved, and an owner who uses every day the Act allows. The 10 per cent holdback is $15,000 a month, or $180,000 by the first anniversary. The notice can come 14 days after the anniversary and payment up to 74 days after that, so the owner can pay as late as 88 days after the anniversary. A subcontractor one tier down can wait up to 102 days. The first month's holdback can therefore reach the contractor about fourteen months after the work was done. The arithmetic was checked; the figures are assumptions, not a forecast.

What does this change for you? In Ontario, a holdback can be followed up once it is due. Keep the contract date, put each anniversary in the calendar, watch for the owner's notice, and if a payment the Act requires does not arrive, a construction lawyer can tell you which remedy fits.

How do Quebec and the other provinces handle it?

We read the articles below on LégisQuébec on 30 September 2026. On our reading, Quebec's Civil Code does not set a percentage holdback the way Ontario's Act does. On a private job, retention comes from two places: your contract, and rights the Code gives the client.

• Article 2111: the client does not have to pay before the work is accepted. It may then hold back enough to cover the reservations it made about apparent defects or poor work. It loses that right if you give sufficient security.
• Article 2123: when it pays, the client may hold back enough to pay the claims of workers. It may do the same for others who can enforce a legal hypothec and who told it about their contract with you. The hold lasts until you give a release of those claims, or sufficient security.
• Article 2726: architects, engineers, suppliers, workers, contractors and subcontractors have a legal hypothec on the building for the work the owner asked for. It exists without being published.
• Article 2727: the hypothec lasts 30 days after the work ends. To keep it, you register a notice within those 30 days and serve it on the owner. It then ends six months after the work ends, unless you publish an action or register a prior notice of the exercise of a hypothecary right.
• Article 2728: it secures the value the work added to the building. If you did not contract with the owner, you are covered only for work done after you gave the owner written notice of your contract.

Contracts with public bodies in Quebec can carry additional rules. A Quebec lawyer identifies which apply to the contract in hand, and the deadlines in article 2727 are short enough that the call should come early.

British Columbia has its own Builders Lien Act. We read it on BC Laws on 30 September 2026, in a consolidation shown as current to 11 February 2025. Section 4 requires the person primarily liable on each contract or subcontract to keep a 10 per cent holdback. Section 5 requires the owner to open a holdback account at a savings institution. Section 8 ends the holdback period 55 days after a certificate of completion is issued. Check for later amendments before you rely on these rules.

Alberta (the Prompt Payment and Construction Lien Act) and Manitoba (The Builders' Liens Act) also legislate the holdback and its release. We have not checked their current text, so we give no figures for them. If you work there, read your province's act on its government site alongside your contract, and have a construction lawyer in that province say which terms the law fixes and which the contract sets.

When is a holdback taxed?

Tax does not follow the day the cash arrives, and income tax and GST/HST follow different rules.

For GST/HST, subsection 168(7) of the Excise Tax Act applies where part of the price is retained under a federal or provincial act, or under a written agreement for the construction, renovation, alteration or repair of real property, pending full and satisfactory performance. Tax on the retained part is payable on the earlier of the day it is paid and the day it becomes payable. The CRA's GST/HST Memorandum 19.1, paragraphs 82 and 83, says the same and adds a catch: if you collect the tax on the holdback early, you remit it with the return for the period in which you collected it. An invoice that charges GST/HST on the full amount, holdback included, can pull the remittance forward.

For income tax, the CRA's archived Interpretation Bulletin IT-92R2, Income of contractors (29 December 1983), paragraph 3, says holdbacks become receivable, and are included in the contractor's income, on the later of the day the architect or engineer issues the final certificate of completion and the day the lien period under the provincial statute expires. The CRA says it has archived that bulletin and no longer updates it. How that position applies now that Ontario releases holdback every year, and how it fits the revenue method your corporation uses, is a question for your accountant. Bring your contracts and your holdback schedule.

Quebec businesses registered for the QST also collect it, which Revenu Québec administers, and Quebec corporations file a provincial return with Revenu Québec as well as the federal one. Ask your accountant how both treat your holdbacks.

Why does a profitable contractor run short at payroll?

Costs run on one calendar and receipts on another. Wages are weekly. Fuel is paid at the pump. Suppliers extend terms in days and shorten them the moment you pay late. A progress claim, on the other hand, is submitted, certified, approved and paid on the payer's cycle, and the holdback sits on top of that.

So, in substance, your business is financing the job above it. You pay for labour and materials, then wait to be reimbursed, and nobody pays you interest on the wait.

Growth makes it worse. A larger job means a larger float, a larger holdback and a longer wait, all paid for before the first cheque lands. The year the order book looks strongest can be the year the account is tightest.

The crew sits under all of it. A foreman, a journeyman and an apprentice held together over years behave like a fixed cost, while revenue moves with the season and the tender results. Letting a good crew go to solve a cash problem can cost more than the problem did, because the people who leave carry the skill and the reputation that win the next job. In our experience with contractors, this is where the cash gap hurts the business itself.

Profit and cash measure different things. A percentage of completion calculation can show a strong year while the account is empty. Underbilling, meaning work done and not yet billed, or billed and not yet certified, is real value sitting outside the account.

Then the gap gets filled at a high price: a supplier paid late, a card balance, an invoice factored at a discount nobody annualised, a short-term advance at a rate nobody would accept on a mortgage. That is not a failure of character. It is a predictable response to a timing mismatch, and a timing mismatch can be measured and managed.

Why does credit tighten in the quarter you need it?

A lender reads the same statements you do, later. The operating line was sized on last year's results and is reviewed after a slow quarter. Capacity is easiest to obtain in a strong year, when you need it least, and can be cut or repriced when you need it more. That is prudence, not malice.

Security tightens at the same time. Personal guarantees, a general security agreement, an assignment of receivables and a charge on the house are ordinary requests in this trade. When the owner's spouse has signed, the household is inside the business risk.

The cost is not only interest. After a couple of tight years, some contractors pad their tenders against the chance that cash will not be there, and lose work to competitors who priced without the cushion. That lost work never shows on a statement.

How do you measure your own gap?

Use documents you already have. The order of the steps matters, because each one feeds the next.

1. Holdback outstanding at each month end for the last three years, from your job ledger and progress claims.
2. How long each release took compared with the date the statute or the contract set, from the notices, certificates and deposits.
3. Payroll on each pay date, including employer contributions and source deductions, from the payroll register.
4. Unrestricted cash on each pay date: your account balance less the GST/HST, QST and source deductions you owe.
5. Committed credit still undrawn on each pay date, from your lender's statement.
6. The shortfall on each pay date: payroll, less unrestricted cash, less undrawn committed credit. Subtract in that order, so you see what is left after the tools you already pay for.
7. What you paid to bridge each shortfall, from card statements, factoring agreements and supplier terms.

Then build a 13-week forecast by job, with a line for each expected holdback release, and run it a second time with every release a month late. The worst week of the past three years is a stress test, not a ceiling. Your accountant can build this with you.

What does bridging the gap cost you now?

A lender who fills the gap is paid for three things: supplying money you do not have at the moment you need it, taking the risk that you do not repay, and arranging, holding and recovering the money. All three are real services. The price rises with the risk the lender sees, so a contractor whose cycle swings hard pays more for the same money.

Some of that price hides in the way it is quoted. A factoring discount is stated per invoice, not per year, so it cannot be compared with an interest rate until you convert it.

Illustrative example. Assume you factor a $50,000 invoice at a 2 per cent discount to receive the cash 45 days early. You pay $1,000 and receive $49,000, so the cost for those 45 days is about 2.04 per cent. Over a year that is about 16.6 per cent as a simple rate, or about 17.8 per cent if you repeat it all year. The arithmetic was checked; the discount is an assumption, not a quote.

Convert every bridging tool you used last year the same way, merchant advances and early-payment discounts you gave up included, and set the total beside your annual profit. That one page changes decisions.

Which fixes come first?

Start with the steps that bring cash forward or cost least, and leave new commitments for last.

The last row sits at the end for a reason. Do not buy a life insurance policy to fund a near-term business need. A policy is life insurance first, its loan value builds slowly, and in the early years the cash surrender value can be below the premiums paid.

Where does a corporate-owned participating policy fit, and whose idea is it?

The idea is not this practice's. The financing approach R. Nelson Nash called The Infinite Banking Concept® is a mark of Infinite Banking Concepts, LLC, described in his own writing. Neither Canadian Wealth Creation Centre Inc. nor Jose Salloum is affiliated with that organisation or endorsed by it.

Infinite Financial Sovereignty® is a registered trademark of Jose Salloum. It names a narrower discipline carried out over a lifetime: own permanent life insurance for the protection it gives, and know in advance, in writing, what you could borrow against it, from whom and on what terms, before a repeating need for capital comes back.

For a contractor, that means a specially designed, high-cash-value, participating whole life insurance policy owned by the corporation, on the life of a shareholder or a key person, issued by a life insurer licensed in Canada. Solvency supervision depends on how the insurer is chartered: OSFI supervises a federally incorporated insurer, and the home province, the AMF in Quebec, supervises a provincially incorporated one.

Here is how the money moves, with every party named.

• The corporation owns the policy, pays the premiums and can request a policy loan once the policy has loan value.
• The insurer is the lender. It advances its own funds, secured by the policy's value, and the corporation owes the insurer.
• The interest is paid to the insurer, at a rate the insurer sets and may change. Interest you do not pay can be added to the loan, depending on the contract.
• Whether an outstanding loan affects the dividends the policy receives depends on the insurer's practice for that product. Ask for it in writing.
• If the loan and unpaid interest grow past the value securing them, the policy can end under the contract's terms, and that ending can produce taxable income in the corporation.
• At the death of the person insured, the insurer deducts the loan balance from the death benefit.
• The money arrives in the corporation. Getting it to you personally is a second transaction, such as a salary, a dividend or the repayment of a shareholder loan, with its own tax.

No credit committee imposes a repayment schedule, but that freedom has limits: interest keeps accruing at the insurer's rate, and a balance left to grow can end the policy. Plan the repayment from a documented source, such as a holdback release date, and put the date in writing before you take the loan. The mechanics are set out in how a policy loan works and when a policy loan becomes taxable.

The death benefit does its own job throughout. For an owner whose household has guaranteed the business debt, what the policy pays on a death is not secondary.

Policy loan or a lender's loan against the policy: what is the difference?

Two different debts can involve the same policy. Know which one you are signing.

The tax rows rest on sections we read on Justice Laws on 30 September 2026 (current to 21 September 2026); this is our reading, and your accountant applies it. Paragraph 20(1)(c) allows interest on borrowed money used to earn income from a business or property, but excludes borrowed money used to acquire a life insurance policy. Subsection 20(2.1) counts interest on a policy loan only to the extent the insurer verifies it in prescribed form and within the prescribed time, which is CRA form T2210. Paragraph 20(1)(e.2) allows a premium deduction only where an interest in the policy is assigned to a restricted financial institution in the course of borrowing from it, the interest on that borrowing is deductible, and the institution requires the assignment as collateral. The deduction is then the least of the premium, the net cost of pure insurance for the year, and the part that can reasonably be related to the amount owing during the year.

When could a policy fund a payroll run, and when should it not?

Use a written test, not a feeling. Run it only on a policy already in force, with figures the insurer gives you in writing.

1. Take the shortfall from your gap worksheet for the pay date in question.
2. Ask the insurer, in writing, for the maximum loan the contract allows today and the balance of any loan already outstanding, interest included. Subtract the second from the first. That is the loan available.
3. If the loan available is smaller than the shortfall, stop: the policy is not your bridge for this pay date.
4. Name the repayment source and its date in writing, for example a holdback payment the Construction Act or the contract requires by a known date.
5. Ask the insurer for the balance projected to that repayment date with interest added, and compare it with the maximum loan the contract would then allow. The difference is your headroom. Agree with your advisor, in writing, the headroom below which you will not borrow.
6. Cost the interest at the insurer's current rate for the days until repayment, and set it beside the cost of the other tools on your list.

Illustrative example. Assume a payroll run of $48,000 including employer contributions, unrestricted cash of $20,000 and $15,000 of committed credit still undrawn. The shortfall is $48,000 less $20,000 less $15,000, or $13,000. The insurer states in writing a maximum loan of $60,000 and an existing loan of $30,000, so $30,000 is available and step 3 is passed. After a $13,000 loan the balance is $43,000, which leaves $17,000 of headroom before the interest to the repayment date is added. The arithmetic was checked; every figure is an assumption, not an insurer's value.

When should it not? When the policy is in its early years and its loan value is small. When the repayment source is a hope rather than a dated right. When the headroom would fall below the margin you set. When the shortfall comes back every month, because that is a capital problem for the operating line and the business plan. And not by buying a new policy for the purpose.

To judge how long a policy takes to reach a useful loan value, ask for a dated illustration showing, for years 1, 3, 5, 10 and 20, the premiums paid to date, the guaranteed cash surrender value, the illustrated value at the current dividend scale and at a lower one, the maximum loan available and the adjusted cost basis. The cash surrender value is the figure that matters, not the premiums paid. An illustration is not the contract, and dividends are not guaranteed.

Who owns the policy inside the corporation?

Three decisions go together: who owns the policy, who pays the premium, and who is named beneficiary. Letting them be decided one at a time, or by whoever fills in the application, is where expensive errors start. They are set out at length under corporate-owned life insurance.

A mismatch does not announce itself. When a corporation pays a premium on a policy owned by, or benefiting, a shareholder personally, the CRA can assess a shareholder benefit under subsection 15(1) of the Income Tax Act. A corporate-owned policy pledged as security for a shareholder's personal loan raises its own benefit question. Both are risks to review with your accountant before anyone signs.

Some contractors run an operating company alongside a holding company, or a separate corporation that holds the yard and the equipment. Which entity owns, pays for or is named beneficiary of a policy is a decision for you, your accountant and your lawyer. Each choice gives a different result on a death, on a sale, with creditors and on a reorganisation.

Partners sharpen the question. Two or three contractors who own a company together, with a bonding facility and personal guarantees behind it, have a buy-sell question before an insurance question, which is why the succession question arrives early in this trade.

A spouse who guaranteed the loan and does not work in the business is inside the risk too. Coverage on that spouse is a separate household question. Dividends paid to a spouse who does no work in the corporation can be caught by the rules on tax on split income, depending on the shares and the business, so an arrangement set up years ago deserves a fresh look.

How is a corporate policy taxed?

The answer rests on facts about your corporation, confirmed by its accountant before anyone applies.

Premiums are generally not deductible. The limited exception in paragraph 20(1)(e.2), described above, applies only where its conditions are met, and a lender in this trade may require the assignment that brings it into play.

Growth inside the policy is not taxed each year while the policy remains exempt under section 306 of the Income Tax Regulations. Exempt status has to be maintained, and a change made carelessly later can cost it. See the exempt test.

A policy loan is a disposition for tax. Only the part of the loan above the policy's adjusted cost basis immediately before the loan is income, and the loan lowers the basis. Repaying it restores the basis and can give a deduction under paragraph 60(s), limited to amounts previously included in income.

When a private corporation receives a death benefit, it adds to its capital dividend account the proceeds received because of the death, less the policy's adjusted cost basis immediately before the death, under paragraph (d) of the definition in subsection 89(1). An insurer policy loan outstanding at death reduces the amount received. Paying a capital dividend needs an election under subsection 83(2), filed on time, and a shareholder who lives outside Canada is subject to withholding tax on it. The accountant calculates the credit first. The details are in the capital dividend account.

Before surplus is left in the corporation to pay premiums, name the regimes that can apply to it: the small business deduction and its business limit; the passive income rule, which grinds that limit as adjusted aggregate investment income rises; the personal services business rules, if the corporation's work looks like employment; and, in Quebec, the paid-hours condition on the provincial small business deduction. The passive income rule is set out separately. Federal rules apply everywhere, and Quebec corporations also deal with Revenu Québec.

What stands behind the contract?

The insurer's promise, and its solvency. No government backs the policy, which puts it in a different position from a deposit.

Assuris protects policyholders if a member insurer fails. For a whole life policy, as read on assuris.ca on 30 September 2026, you keep up to $1,000,000 or 90 per cent of the promised death benefit, whichever is higher, and up to $100,000 or 90 per cent of the promised cash value, whichever is higher, both calculated on net values after any policy loans. Every life insurer authorized in Canada must be a member. That is not deposit insurance.

Dividends are not guaranteed. The insurer's board declares them each year based on the performance of the participating account, and past dividends do not indicate future ones. Read the guaranteed values separately from the illustrated values built on top of them.

What does this not do?

It does not release a holdback earlier. Only the statute, the contract and your follow-up change when the money arrives. A policy changes what may be available while you wait, years after it was started.

It does not remove interest. The insurer charges interest on every loan, and that interest is paid to the insurer.

It does not replace an operating line or a bonding facility. You need committed outside credit for the job that outruns everything else. Ask your surety how it treats the cash surrender value of a corporate policy.

It is not an investment. Participating whole life is insurance, so do not judge it as a portfolio by its rate of return. Compare it with the alternatives that do the same job: coverage you need, and capital you can reach on known terms.

It does not reward being started and dropped. A policy surrendered in its early years may return less than the premiums paid, depending on the design and the year. Compare the guaranteed and illustrated surrender values, net of any loan, at the years you might need to leave, and ask your accountant what income a surrender would create.

Who does this not suit?

A business without surplus in a normal year, as distinct from a strong one. Surplus that shows up only in the strongest years is not what a premium needs.

A contractor carrying expensive debt. Clearing a high-rate advance or a card balance is a certain saving, and certainty is worth a great deal against anything illustrated.

A contractor who may need the money back within a few years, or who plans to sell or hand over the business within about a decade. Leaving early can cost money, and the policy has little time to build value.

A business with no need for life insurance. Without a real protection need, the policy has no reason to exist.

And any business whose accountant has not reviewed the structure. A no in the first half hour is worth more than a yes nobody checked.

Which questions go to whom?

Each professional answers a different part of the file.

Reading costs you nothing. If a policy is bought, the firm is paid by the insurer's commission, so ask any advisor you meet how they are paid.

Where does the rest of this sit?

The corporate structuring behind all of it is in business owners. The contract itself is explained in how a participating policy works, and a loan against it is compared with other credit in a policy advance and other credit. The costs and the ways it can fail are in the real costs and objections and risks. For a shareholder who borrows from the company, read the shareholder loan and the policy loan.