The Complete Guide to Statutory Holdback in Ontario (2026)

Statutory holdback is the single most misunderstood number on an Ontario progress draw. It isn’t a penalty, and it isn’t optional — it’s a fixed percentage every payer on a construction contract is legally required to withhold, on every payment, whether the contract mentions it or not. This guide covers what the Construction Act actually requires: the 10% rule, the difference between basic and finishing holdback, the obligation to pay it down the contracting chain once it’s released, and the mandatory annual release that took effect January 1, 2026.

What statutory holdback actually is

Holdback exists to protect the people at the bottom of the contracting chain — the subcontractors, workers, and suppliers who could otherwise register a lien against the property if they aren’t paid. Instead of leaving a lien claim to chase money that may already be gone, the Construction Act requires every payer (owner to contractor, contractor to subcontractor, and so on down the chain) to hold back a fixed percentage of what they owe. That holdback stays in place as security until the lien period tied to that work has expired, been satisfied, or is otherwise resolved.

This is a statutory obligation, not a contractual one. A contract that tries to set holdback below the Construction Act’s rate, or skip it entirely, doesn’t override the Act — the obligation to withhold still applies.

The 10% rule: basic holdback

Under section 22(1) of the Construction Act, every payer must retain a basic holdback equal to 10% of the price of the services and materials actually supplied under the contract, as certified or invoiced. This applies to every payment, not just the final one — if a draw bills $100,000 of completed work, $10,000 of that is withheld as basic holdback, on that draw and every draw before it.

Basic holdback isn’t calculated once at the end of a job. It accrues progressively, draw by draw, and the full accrued amount is what eventually becomes releasable — see Work Completed To Date and how a Schedule of Values tracks it per line item.

Basic holdback vs. finishing holdback

The Construction Act actually creates two statutory holdbacks, and the line between them is when the work happened, not what kind of work it is:

• Basic holdback (s. 22(1)) — 10% of everything supplied before the contract reaches substantial performance.
• Finishing holdback (s. 22(2)) — 10% of everything supplied after substantial performance, up to total completion.

Substantial performance is a defined legal milestone — the point where the work is ready for use, or nearly so, subject only to minor items. A contract doesn’t just end at substantial performance; deficiency corrections, close-out items, and remaining scope often continue afterward. Finishing holdback exists because that remaining work still needs its own 10% security, separate from the basic holdback that’s already accrued.

The two holdbacks release on different clocks (see below), and a contractor tracking only one of them will misstate how much cash is actually still owed on a project that’s substantially performed but not yet totally complete.

Paying holdback down the chain

Holdback release isn’t the end of the story — it comes with a cascading obligation to pass it on. Under section 26 of the Construction Act, once a contractor receives holdback that’s been released to them, they have 14 days to pay it down to the subcontractors it’s owed to. Each subcontractor who receives their share then has 14 days to pay their subcontractors, and so on down the chain — the same discipline the Construction Act’s prompt-payment regime (O. Reg. 302/18) already applies to ordinary progress payments.

This matters for cash-flow planning in both directions: as a contractor, receiving a holdback release starts your own 14-day clock to your subs; as a subcontractor, you have a right to expect your share within 14 days of your contractor receiving theirs — not “whenever it’s convenient.”

The mandatory annual release and Form 6

Historically, holdback sat untouched until the end of a project — sometimes for years on a multi-phase build. That changed for good on January 1, 2026. Bill 60 replaced the old, opt-in annual release regime (which only applied above a $10,000,000 contract threshold) with a mandatory scheme under section 26: an owner must publish a Notice of Annual Release of Holdback (Form 6) within 14 days of every contract anniversary, and — barring a preserved lien — pay the accrued holdback out 60 to 74 days later.

This is now a $0-and-up rule, not a megaproject rule. We cover the full annual-release timeline, the transition rules for contracts signed before 2026, and what it changes about cash-flow planning in a dedicated explainer:

Read the full breakdown of Ontario’s 2026 annual holdback release changes →

When holdback is released after substantial performance

Outside the annual mechanism, basic and finishing holdback each release on their own clock, both anchored to the same milestone:

• Basic holdback: releasable 60 days after the Certificate of Substantial Performance is published, provided no lien is preserved against it.
• Finishing holdback: releasable 45 days after the contract reaches total completion, on the same no-outstanding-lien condition.

Both clocks assume no lien has been registered against the amount in question — a preserved or perfected lien puts the release on hold until it’s resolved. This is why tracking the Substantial Completion Date accurately matters well beyond scheduling: it’s the single date that arms every statutory release clock on the project at once.

How Vinclo automates this

Every draw in Vinclo withholds statutory holdback automatically at the rate cascaded from your company defaults down to the line item, and the release clocks above — statutory and maintenance — start the moment you set a project’s Substantial Completion Date. You get a Project Warning before a release date arrives, not after it’s already overdue.

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This guide explains the general shape of Ontario’s statutory holdback rules. It doesn’t cover every exception or transition provision in the Construction Act, and it isn’t legal advice — for how these rules apply to a specific contract, talk to a construction lawyer.