Rules checked: October 24, 2026, against Ontario’s Construction Act on e-Laws (ontario.ca). This is general information, not legal or tax advice. Lien and holdback rights depend on strict deadlines, so talk to a construction lawyer about your own contracts.
Disclosure: TradesTally is written by Kris, who owns VB Concrete & ICF Structures, an Ontario concrete and ICF contractor, so the holdback rules affect his business directly.
On long projects, holdback has always been a cash-flow problem for trades. Ten percent of every invoice gets held, sometimes for years, while the project drags on. Foundation and concrete subs feel it most: they’re often done in the first months of a build but wait until the end of the whole project to collect their last 10%.
Ontario changed that. As of January 1, 2026, the Construction Act requires holdback on many contracts to be released every year, not only at the end of the project. This guide explains what holdback is, what changed, the new timelines, and when the change actually reaches your existing contracts.
All section references below are to Ontario’s Construction Act, R.S.O. 1990, c. C.30 as published on e-Laws.
Holdback basics: the 10% rule
The Act defines “holdback” as the 10 per cent holdback required under section 22. (s. 1)
Under s. 22(1), each payer on the construction pyramid (the owner, the contractor, and each subcontractor that hires subs) must retain a basic holdback of 10 per cent of the price of the services or materials as they are actually supplied, until the holdback can be paid under the Act.
There is also a separate finishing holdback in s. 22(2): 10 per cent of the price of services or materials supplied after the contract is certified (or declared) substantially performed.
Under s. 22(4), holdback can be retained in the form of a letter of credit or a demand-wording holdback repayment bond instead of cash, in the form and amount the regulations allow.
Paying the other 90%
Holdback doesn’t freeze the whole invoice. Under s. 24, a payer can make payments up to 90 per cent of the price of services or materials supplied, unless they’ve received written notice of a lien. If they have, they must keep back enough to cover the lien as well.
Holdback is now trust money
The 2026 changes also made it clear that holdback is part of the statutory trust at every level of the pyramid (the trust provisions in ss. 7 and 8). Paying out holdback when the Act allows it discharges the trust for that money (s. 10(2)). For subs, that means money held back for your work isn’t just the payer’s working capital.
What changed on January 1, 2026: mandatory annual release
The big change is the new s. 26, in force January 1, 2026. Before, Ontario allowed annual or phased holdback release as an option where the contract provided for it (former ss. 26.1 and 26.2). Those optional provisions have been repealed and replaced with a mandatory annual release for contracts that qualify.
Here’s how the new process works under s. 26.
Step 1: The owner publishes a notice each year
Within 14 days after each anniversary of the contract (the annual release date), the owner must publish a notice of the holdback it intends to pay for the past year. The notice uses the prescribed form, Form 6, which Ontario’s court forms site lists with a version date of November 1, 2025 and an effective date of January 1, 2026. (Ontario Court Forms: Construction Act forms)
Step 2: The owner pays the holdback after the lien window
The owner must then pay the holdback for the year within the window of 60 to 74 days after publishing the notice, unless a lien has been preserved or perfected against that holdback. That gap gives lien claimants a chance to preserve their liens before the holdback is released.
Step 3: The money flows down the pyramid
Once the contractor receives holdback, it must pay its own subcontractors the holdback owing to them within 14 days (s. 26(5)). The same 14-day rule applies to each subcontractor paying its own subs (s. 26(6)).
If a lien is registered
If holdback isn’t paid because a lien was preserved or perfected, the payer must pay within 14 days after the lien is vacated, discharged or otherwise resolved (s. 26(7)).
What didn’t change: lien timelines
An earlier proposal would have had liens expire on an annual basis too. That wasn’t carried into the final law. Section 31, the lien expiry section, still runs off the existing triggers such as publication of a certificate of substantial performance, completion, abandonment or termination. Annual release is about holdback payments, not about resetting your lien deadlines. Don’t assume an annual release notice gives you a fresh lien period.
When the change reaches your contracts
This is where many trades are surprised: the new rule did not start paying holdback on existing contracts on January 1, 2026.
The transition rules in O. Reg. 384/25 say that for contracts entered into before January 1, 2026, the first annual release happens on the contract’s second anniversary after January 1, 2026. In practice, that means most existing contracts won’t see their first mandatory annual release until some time in 2027.
The Ontario Association of Architects’ practice tip PT.10.2 (February 4, 2026) and law-firm summaries illustrate the point: a contract with an anniversary of March 1 that was signed in 2023 would see its first mandatory annual release on March 1, 2027. (OAA Practice Tip PT.10.2)
For contracts entered into on or after January 1, 2026, the annual cycle runs from the first anniversary of the contract.
Important: these timelines depend on the contract’s date, its type and the regulation’s details. Have a lawyer confirm how the rules apply to your specific contract.
How this connects to substantial performance
The annual release doesn’t replace the end-of-project holdback rules. Substantial performance, certification and the end-of-job holdback payment still work as they did.
Under s. 2(1), a contract is substantially performed when the improvement is ready for use (or being used for its intended purpose) and the work can be completed or corrected at a cost of not more than:
- 3 per cent of the first $1,000,000 of the contract price,
- 2 per cent of the next $1,000,000, and
- 1 per cent of the balance.
Under s. 2(3), a contract can be deemed complete when the price of the remaining work is not more than the lesser of 1 per cent of the contract price and $5,000.
Prompt payment still applies
Annual release sits alongside Ontario’s prompt payment rules, which are worth knowing alongside it:
- An owner must pay a contractor’s proper invoice within 28 days of receiving it, unless it gives a notice of non-payment.
- An owner disputing an invoice must give the notice of non-payment within 14 days of receiving the proper invoice (s. 6.4).
- A contractor must then pay its subs within 7 days after receiving payment from the owner.
- Under the 2026 changes, an invoice is deemed a proper invoice unless the owner flags it within 7 days of receiving it (s. 6.1(2)).
Prompt payment governs the 90%. Annual release now governs much of the 10%. Together they’re meant to move money down the pyramid faster.
A worked timeline (illustrative dates)
To see how the s. 26 steps fit together, take a hypothetical contract entered into on February 1, 2026:
- February 1, 2027: first anniversary, which is the annual release date.
- By February 15, 2027: the owner publishes the Form 6 notice (within 14 days after the anniversary).
- 60 to 74 days after publication: the owner pays the contractor the holdback for the year, unless a lien has been preserved or perfected against it.
- Within 14 days after the contractor receives it: the contractor pays each sub its share of that holdback.
- Within 14 days after each sub receives it: each sub pays its own subs.
The dates are only an example. The real dates depend on when the owner actually publishes and pays, so log each one as it happens.
What subcontractors should do now
1. Know your contract dates. Write down the date each prime contract and subcontract was entered into. Annual release is tied to the anniversary of the contract, and pre-2026 contracts follow the transition rule.
2. Watch for the owner’s annual notice. The Form 6 notice starts a timeline. If you’re not paid holdback you’re owed, the publication of the notice and the 60–74 day window are key dates.
3. Track the 14-day pass-through. Once your payer receives holdback, the Act gives it 14 days to pay you. Keep track and follow up in writing.
4. Don’t let your lien rights lapse. Annual release doesn’t extend lien deadlines under s. 31. If you aren’t paid, talk to a construction lawyer early.
5. If you hire subs, pay their holdback on time. The 14-day rule applies to you too, and holdback is now clearly trust money at every level.
6. Update your contracts and admin. New subcontracts should reflect the annual release process, and your accounts receivable tracking should show holdback by contract year, not just by job.
What this means for cash flow
For early-phase trades such as excavation, foundations, concrete and ICF, the practical effect could be large. On a multi-year project you could collect each year’s holdback roughly a year at a time, instead of waiting for substantial performance of the whole project. But because of the transition rule, for most pre-2026 contracts that benefit only starts arriving in 2027.
When you’re planning cash flow for late 2026 and 2027, treat holdback on older contracts the same way as before, and plan for the annual cycle on newer ones.
Frequently asked questions
How much is holdback in Ontario?
10 per cent of the price of services or materials as they’re supplied (s. 22(1)), plus a separate 10 per cent finishing holdback on work after substantial performance (s. 22(2)).
When did annual holdback release start?
The mandatory annual release in s. 26 came into force on January 1, 2026. For contracts entered into before that date, the first annual release is on the second anniversary after January 1, 2026, which for most contracts falls in 2027.
How long does the owner have to pay after the annual notice?
The owner publishes the notice within 14 days after the anniversary, then pays within 60 to 74 days after publishing, unless a lien has been preserved or perfected.
How fast does a contractor have to pay its subs’ holdback?
Within 14 days of receiving it (s. 26(5)); the same applies between subcontractors (s. 26(6)).
Does annual release reset lien deadlines?
No. The lien expiry rules in s. 31 weren’t changed to an annual cycle.
Sources
- Ontario, Construction Act, R.S.O. 1990, c. C.30 (e-Laws): https://www.ontario.ca/laws/statute/90c30
- Ontario Court Forms, Construction Act forms (Form 6): https://ontariocourtforms.on.ca/en/construction-act-forms/
- Ontario Association of Architects, Practice Tip PT.10.2 (Feb. 4, 2026): https://oaa.on.ca/
Not legal advice. Construction lien and holdback rules have strict deadlines and depend on your contract. Get advice from an Ontario construction lawyer before acting.