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Hold back part of a subcontractor's bill

Open this in Talisk HQ

On a job you sublet, you usually keep a percentage of the subcontractor's bill back until their work is signed off. They bill you $10,000, you keep 10%, and you pay $9,000 now. You still owe them the other $1,000.

Recording that as a holdback keeps three things true at once: the cost is counted in the month the work was done, the $1,000 still shows on your books as money you owe, and your payables list stops telling you to pay something your own contract says is not due yet.

  1. Open the bill and approve it as normal.
  2. Choose Hold back.
  3. Enter the percentage you are keeping, or the exact amount.

The bill screen then shows the full amount of the work, the holdback taken off, and Payable now, so you can pay the right figure without working it out. The total stays the full amount, because that is what you owe: only the part that is due today has changed.

The percentage is of the work, not of the total

A 10% holdback on $10,000 of work plus $500 GST holds back $1,000, not $1,050. That is what the lien legislation means by a percentage of the value of the work, and it is what the tax rules mean by part of the consideration.

It is the opposite side of the invoice holdback

The two look the same and sit on opposite sides of your balance sheet. A holdback a customer keeps from you is Holdback Receivable, an asset: money you are owed. A holdback you keep from a subcontractor is Holdback Payable, a liability: money you owe. A general contractor on one job often has both at once, and they stay separate.

When you can set one

You can hold money back on a bill you have approved and still owe money on. You cannot hold back on a bill that is still in review, because nothing has been recorded in your books yet, and you cannot hold back more than you still owe. Money already paid to the subcontractor cannot be withheld after the fact.

If you need to cancel a bill that has a holdback on it, release the holdback first. TALISK_HQ asks you to do that rather than unpicking it for you, so your books show what actually happened: the money went back into what you owed, and then the bill was reversed.

Releasing it

When the work is signed off, open the bill and choose Release holdback. That moves the money back into your ordinary payables, so it shows as due and can be matched to the payment when you make it.

You can release part of it. Half at substantial completion and half at final is common, and TALISK_HQ keeps count of what is left.

TALISK_HQ will never release a holdback for you on a date. A deficiency period ending is a fact about the calendar; the holdback becoming payable is your judgement about whether the work was accepted.

What you are holding back altogether

Across every job, the total is the Holdback Payable line on your balance sheet, under Ledger then Reports. That figure is built from your ledger rather than from a list of bills, so it is the one that ties out.

To see which jobs make it up, open that account's detail from the balance sheet. Every line is one holdback withheld or released, and each one opens the bill it came from.

The GST on a holdback you keep

By default TALISK_HQ claims the input tax credit on the whole bill straight away, which is the ordinary rule.

There is a narrower rule that changes the timing. If the holdback is required by law or by a written contract, and the work is construction, renovation, alteration or repair of real property or a vessel, then no tax is payable on the held-back part until the holdback is paid out or becomes payable. You have not paid that tax and it is not payable, so you cannot claim it back yet either. If that describes your contract, tick Defer the credit under the holdback rule when you set the holdback, and TALISK_HQ will keep that credit off your return until you release it.

This tick matters more here than on an invoice, and it is worth reading twice. On an invoice, leaving it off just means the tax reaches the CRA a little earlier than it had to, which is never wrong. On a bill it is the other way round: leaving it off means you claim a credit in a period you were not yet entitled to it, which the CRA can assess back with interest. Deferring when you did not have to only means claiming a little later, and you have four years to claim an input tax credit.

So if the holdback is on a written construction contract for work on a building, tick it. If you are not sure whether the rule applies to your contract, that is worth one question to your accountant rather than a guess.

The rule is a GST and HST rule only. PST is not recoverable on a purchase at all, and TALISK_HQ never defers QST here.

What it does not cover

TALISK_HQ does not pay the subcontractor and does not tell you whether their work is acceptable. Recording the holdback is bookkeeping; deciding to release it is your call about the job.

Good to know: This is the money YOU keep back from a subcontractor. The money a customer keeps back from you is the other article, "Hold back part of an invoice". A bill holdback splits the payable, not the cost. The subcontractor did the work, so the full amount is an expense on the day you record the bill; only the part you do not have to pay yet moves out of Accounts Payable into Holdback Payable. It is a percentage of the work, before tax, not of the bill total. You can only hold back from a bill you have approved and still owe money on, and you cannot hold back money you have already paid. Releasing it is always something you do, never something Talisk does on a date. Talisk does not pay the subcontractor for you and does not decide whether their work is acceptable.

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