- A holdback is money kept back on closing, and the reason matters because the amount and release date depend on whether it comes from a contract, the Construction Act or tax rules.
- The Construction Act requires each payer on a construction contract to hold back 10% until liens expire or are satisfied.
- A buyer from a non-resident seller may be liable for the seller's tax if no certificate of compliance has been issued, so a holdback of 25% of the proceeds (50% for certain property types) is possible.
Being told that part of your sale proceeds or purchase money will be held back on closing can be alarming. The word holdback is used for several different situations, and each one has its own purpose and its own rules for release.
This article explains the main types you may meet in an Ontario sale or purchase, what drives the amount, and how to find out when the money comes back.
What a holdback means
A holdback is an amount that is not paid out at closing and is kept back until a condition is met. It may be held by a lawyer, by a party to the deal or by a payer under a construction contract. The first step is always to ask why it exists, who holds it and what has to happen for it to be released.
Holdbacks agreed between buyer and seller
Sometimes a buyer and seller agree that some of the money stays in trust after closing, for example because repairs or other work are unfinished. These closing holdbacks are contractual. The amount, how it is held and the release conditions come from what the parties agreed in writing, not from a statute.
If you are offered one, make sure the written agreement says exactly what work or condition is covered, who decides it is done, the deadline, and what happens to the money if the condition is not met. Vague wording is the most common source of disputes over holdbacks.
Construction Act holdbacks
If work was done on the property, the Construction Act may apply. Under s. 22(1), each payer on a construction contract must hold back 10% of the price of services or materials until liens expire or are satisfied.
A contractor's lien generally expires 60 days after the certificate of substantial performance is published, or after the contract is completed, abandoned or terminated (s. 31(2)). The final holdback is paid within 14 days after liens have expired or been satisfied (s. 26(8)).
This rule was amended in recent years and further changes were proposed, so check the current Act with a lawyer before relying on these timelines for a particular project.
Holdbacks when the seller is a non-resident
A non-resident who sells taxable Canadian property, such as Ontario real estate, must notify the CRA (Form T2062) within 10 days of the sale. Late notice carries a penalty of $25 a day, with a minimum of $100 and a maximum of $2,500. The CRA issues a certificate of compliance (T2068) once payment or acceptable security is provided.
If no certificate has been issued, the buyer may become liable for the seller's tax under Income Tax Act, s. 116(5). The buyer can therefore hold back 25% of the proceeds (50% for certain property types), less any certificate limit. Sellers in this position usually want to start the certificate process early.
Comparing the types and what to do next
| Type | Source of the rule | Release |
|---|---|---|
| Repairs or unfinished work | The agreement between buyer and seller | As written in the agreement |
| Construction lien holdback | Construction Act | Final holdback paid within 14 days after liens expire or are satisfied |
| Non-resident seller | Income Tax Act and CRA process | After a certificate of compliance is issued, subject to any certificate limit |
- Ask in writing who is holding the money, how much and why.
- Get the release conditions and the deadline in the agreement.
- Tell your lawyer early about any recent renovation or construction on the property.
- If the seller lives outside Canada, raise the CRA certificate process before the closing date.
- Keep records of invoices, notices and certificates that prove a condition was met.
Frequently asked questions
How much can be held back on closing?
It depends on the type. Construction holdbacks are 10% of the price of services or materials. A buyer from a non-resident seller may hold back 25% of the proceeds (50% for certain property types) if no certificate of compliance has been issued. Contractual holdbacks are whatever the parties agree.
When is a construction holdback released?
The final holdback is paid within 14 days after liens have expired or been satisfied. A contractor's lien generally expires 60 days after the certificate of substantial performance is published, or after the contract is completed, abandoned or terminated.
Can a buyer refuse to release a holdback for repairs?
That depends on the written agreement. Closing holdbacks for repairs or unfinished work are contractual, so the terms you signed control the conditions and timing.
How do I avoid a holdback as a non-resident seller?
The CRA issues a certificate of compliance (T2068) once payment or acceptable security is provided. Notice on Form T2062 is due within 10 days of the sale, with late penalties of $25 a day, minimum $100, maximum $2,500.
Sources
- Construction Act, R.S.O. 1990, c. C.30 (e-Laws document) — Ontario e-Laws
- CRA – Disposing of or acquiring certain Canadian property — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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