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Construction Holdback in Ontario: Homeowner Guide
Ontario Construction Act10% statutory holdback2026 annual-release rules
Construction Holdback in Ontario: What Homeowners Must Retain and Release
Construction holdback is not an optional discount, a permanent deficiency fund or the same thing as a deposit. It is a statutory 10% retention tied to potential construction liens. Since January 1, 2026, Ontario’s current regime also requires annual release of accrued basic holdback through a prescribed notice and payment process.
10%Basic statutory holdback
14 daysAnnual notice after anniversary
60–74 daysAnnual payment window after publication
2 holdbacksBasic plus finishing work
Do not release holdback merely because the contractor says the lien period is over.
The correct date depends on the applicable regime, contract anniversary, publication, substantial performance, completion, termination, last supply and any preserved or perfected lien.
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Include invoices, change orders, statements of account, substantial-performance records, annual notices, lien correspondence and deficiency lists.
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Four amounts commonly confused with holdback
Basic holdback10% of the price of services or materials as they are actually supplied under a contract or subcontract where a lien may arise.
Finishing holdbackAfter substantial performance, a separate 10% holdback applies to the remaining finishing services or materials as they are supplied.
Annual releaseUnder the current regime, accrued basic holdback is released annually following the contract anniversary and prescribed notice process.
Additional deficiency retentionA separate contractual amount, if properly authorized, for unresolved deficiencies. It is not the statutory lien holdback.
The statutory holdback follows the services or materials actually supplied. A separate contractual deficiency amount must be justified independently and should not be disguised as lien holdback.
How the 10% calculation works
Progress invoiceIllustrative CAD $80,000 value supplied before HST and other adjustments.
CAD $80,000 × 10% = CAD $8,000 holdbackCumulative projectIllustrative CAD $600,000 of services and materials actually supplied.
CAD $600,000 × 10% = CAD $60,000 accrued holdbackFinishing workAfter substantial performance, CAD $50,000 of remaining work is supplied.
CAD $50,000 × 10% = CAD $5,000 finishing holdbackNot a depositA 10% opening deposit and 10% holdback serve different purposes and should appear separately.
Deposit ≠ statutory holdbackIllustrations only. The contract price, approved changes, tax treatment, disputed work and actual value supplied must be reconciled from the project records.
The 2026 annual holdback-release process
1Contract anniversaryDetermine the anniversary of the date the contract was entered into.
2Publish within 14 daysThe owner publishes prescribed Form 6 stating the intended annual release amount and payment date.
360-day lien periodLiens for services and materials covered by the annual notice expire on the 60th day after publication unless preserved.
4Pay within 60–74 daysThe owner pays accrued holdback in that statutory window unless preserved or perfected liens prevent payment.
Transition rules matter.
Do not apply the new annual-release steps blindly to every pre-2026 contract or project agreement. Ontario’s transitional regulation preserves former annual or phased treatment in specified circumstances.
Substantial performance, completion and finishing holdback
| Concept | Construction Act meaning | Why it matters |
|---|---|---|
| Ready for intended use | The improvement or a substantial part must be ready for use or actually used for its intended purpose. | One half of the statutory substantial-performance test. |
| 3%-2%-1% formula | Remaining completion and known-defect correction cost cannot exceed 3% of the first CAD $1 million, 2% of the next CAD $1 million and 1% of the balance. | Determines whether substantial performance has been reached. |
| Certificate publication | A certificate or declaration has no effect for these purposes until published as required. | Publication can trigger lien-expiry timing. |
| Finishing holdback | After substantial performance, 10% continues to be retained from remaining services and materials as they are supplied. | Basic holdback release does not eliminate holdback on later finishing work. |
| Deemed completion | The contract is deemed completed when completion, known-defect correction or last-supply cost is no more than the lesser of 1% of the contract price and CAD $5,000. | Can affect lien-expiry and final holdback timing. |
What to review before releasing holdback
1
Current statement of account
Contract price, approved changes, value supplied, payments, holdback and balance.
Contract price, approved changes, value supplied, payments, holdback and balance.
2
Progress invoice history
Shows whether 10% was actually retained from each applicable payment.
Shows whether 10% was actually retained from each applicable payment.
3
Certificate or declaration
Substantial-performance document and publication information where applicable.
Substantial-performance document and publication information where applicable.
4
Annual release notice
Prescribed Form 6, publication date, amount and intended payment date.
Prescribed Form 6, publication date, amount and intended payment date.
5
Lien search and legal review
Current land-title and court/lien information interpreted by an Ontario construction lawyer.
Current land-title and court/lien information interpreted by an Ontario construction lawyer.
6
Subcontractor information
Names, contracts, last-supply dates, completed-subcontract certificates and disputes.
Names, contracts, last-supply dates, completed-subcontract certificates and disputes.
7
Deficiency schedule
Separates incomplete or defective work from statutory holdback.
Separates incomplete or defective work from statutory holdback.
8
Release calculation
Basic holdback, finishing holdback, preserved liens and amount proposed for payment.
Basic holdback, finishing holdback, preserved liens and amount proposed for payment.
9
Payment directions
Lender, owner, contractor and subcontractor timing for released funds.
Lender, owner, contractor and subcontractor timing for released funds.
10
Transition analysis
Contract date and rules applying before or after January 1, 2026.
Contract date and rules applying before or after January 1, 2026.
Holdback is not the same as deficiency money
Bad: permanent holdback leverage
“The Owner may retain the statutory holdback until every deficiency and warranty concern is completed to the Owner’s satisfaction.”
Better: separate the two amounts
“Statutory holdback shall be retained and released in accordance with the Construction Act. Any additional amount retained for identified incomplete or defective work must be separately stated, reasonably related to the cost of correction, supported by the Contract and adjusted as deficiencies are completed.”
Educational example only. An Ontario lawyer should adapt payment, set-off, notice, deficiency and release wording to the actual project.
A land-title search is one step—not a complete holdback-release opinion.
Upload My Holdback DocumentsUpload the contract, statements, notices, certificates and lien correspondence. The Free Scan finds the biggest issue; the Full Review is $99.99.
Eight holdback red flags
!
No holdback deducted
The owner pays every invoice in full even though a statutory holdback may be required.
The owner pays every invoice in full even though a statutory holdback may be required.
!
Ten percent of total price held immediately
Holdback is generally calculated as services or materials are actually supplied, not automatically taken from the whole unearned contract on day one.
Holdback is generally calculated as services or materials are actually supplied, not automatically taken from the whole unearned contract on day one.
!
Holdback used as a deficiency fund
The owner treats the statutory amount as permanent leverage for unrelated warranty or finishing disputes.
The owner treats the statutory amount as permanent leverage for unrelated warranty or finishing disputes.
!
Automatic release on occupancy
Occupancy is not the same event as expiry, satisfaction or discharge of all applicable lien claims.
Occupancy is not the same event as expiry, satisfaction or discharge of all applicable lien claims.
!
No annual-release process
A post-2025 contract ignores mandatory anniversary notice and payment requirements.
A post-2025 contract ignores mandatory anniversary notice and payment requirements.
!
Wrong publication method
The required notice or certificate is not published in the prescribed form and location.
The required notice or certificate is not published in the prescribed form and location.
!
Old law copied into new contract
The agreement relies on repealed optional annual/phased provisions without transition analysis.
The agreement relies on repealed optional annual/phased provisions without transition analysis.
!
Lien search treated as complete protection
A search alone may not identify every timing, preservation or non-attaching-lien issue.
A search alone may not identify every timing, preservation or non-attaching-lien issue.
Important Ontario legal checks
- Basic holdback: Each payer under a contract or subcontract where a lien may arise retains 10% of the price of services or materials as they are actually supplied.
- Personal exposure: An owner can be personally liable to valid lien claimants for holdback the owner was required to retain, subject to the Act’s limits.
- Mandatory annual release: Under the current section 26, the owner publishes Form 6 no later than 14 days after each contract anniversary and pays the accrued annual holdback 60 to 74 days after publication unless specified lien circumstances apply.
- Publication location: Form 6 must be published on a prescribed construction trade news website.
- Downstream payment: A contractor generally pays the corresponding subcontractor holdback within 14 days after receiving the owner’s annual holdback payment, unless the statutory lien exception applies.
- Termination: After abandonment or termination, the payer cannot use holdback to obtain replacement services or satisfy another claim until applicable liens have expired or been satisfied, discharged or otherwise provided for.
Deadline mistakes can be expensive.
A homeowner should not calculate release from the last invoice alone. Obtain legal advice before annual release, substantial-performance release, termination or any disputed lien situation.
Official references: Ontario Construction Act, O. Reg. 304/18—publication rules, O. Reg. 267/25—Form 6, and O. Reg. 384/25—transitional matters.
Twenty-four questions before releasing holdback
1
Does the Construction Act apply?
2
What is the signed contract date?
3
Which transition rules govern?
4
What is the current contract price?
5
What approved changes are included?
6
How much value has actually been supplied?
7
Was 10% retained from each payment?
8
Is any alternative holdback security used?
9
Has substantial performance occurred?
10
Was it properly certified or declared?
11
Was the certificate published?
12
What is the publication date?
13
What finishing work remains?
14
What is the finishing holdback?
15
Has a Form 6 annual notice been published?
16
What amount does the annual notice cover?
17
Has any lien been preserved or perfected?
18
Do any liens not attach to the premises?
19
Have liens been satisfied, discharged or provided for?
20
Is a lawyer reviewing release timing?
21
Are deficiencies separately valued?
22
Has the lender approved the release?
23
How will the contractor pass holdback downstream?
24
What records prove final payment?
Contract Centre and related guides
Construction holdback FAQ
Is construction holdback always 10% in Ontario?
Where Part IV of the Construction Act applies, the basic holdback is 10% of the price of services or materials as they are actually supplied. The legal analysis still depends on the project, payer and contract.
Is holdback calculated on HST?
The Act refers to the price of services or materials. Tax treatment and invoice presentation should be confirmed with the project lawyer and accountant rather than guessed from a simple invoice total.
Can the homeowner keep holdback because of deficiencies?
Statutory holdback protects lien exposure. A separate, reasonable deficiency retention may exist under the contract, but the owner should not automatically convert the entire lien holdback into a permanent deficiency fund.
What changed on January 1, 2026?
Ontario introduced mandatory annual payment of accrued basic holdback under the current regime. The owner publishes Form 6 within 14 days after each contract anniversary and generally pays within the statutory 60-to-74-day window unless specified lien circumstances prevent payment.
Does every old contract follow the new annual system immediately?
No. Ontario enacted transition provisions. The contract date and prior annual or phased holdback rights can affect which rules apply, so older agreements require specific review.
What is substantial performance?
For Construction Act purposes, the improvement must be ready for its intended use and the remaining completion or known-defect correction cost must fall within the Act’s 3%-2%-1% formula.
Is substantial performance the same as final completion?
No. Substantial performance, occupancy, contract completion, finishing work and final completion are distinct concepts and can trigger different payment, holdback and lien consequences.
Should a homeowner release holdback without a lawyer?
For a major project, annual release, substantial performance, termination, contractor insolvency or any lien concern, an Ontario construction lawyer should verify the current deadline, notice, searches and release documents.
Release holdback by the statute—not by guesswork
Upload the contract, payment records, certificate, annual notice, deficiency list and lien correspondence. Start with the Free Scan. The complete builder-reviewed Full Report is $99.99, and an independent Ontario construction lawyer can review release timing from $499.99.
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ICFhome can review plans and construction budgets and prepare a payment schedule that separates progress payments, statutory holdback, allowances and final deficiency amounts.
Reviewed July 30, 2026. General educational information only. This page is not a lien opinion, legal advice or a deadline calculation. Ontario holdback and lien rights depend on the contract date, project facts, notices and transition rules.
