Introduction

Cash flow management is the most common operational challenge for incorporated contractors and construction companies. Revenue arrives in irregular instalments. Project costs front-load expenses. Holdbacks delay final payment. And throughout all of this, CRA obligations — HST remittances, payroll remittances, and corporate tax instalments — fall due on fixed schedules regardless of project timing.

Many construction companies that are profitable on paper run into cash flow crises because HST that has been collected is no longer in the bank when remittance day arrives. This is almost entirely preventable with a simple account structure.

The Problem: Treating Collected HST as Available Cash

When a contractor invoices a client for $100,000 plus $13,000 HST, the full $113,000 enters the bank account. Only $100,000 belongs to the contractor. The $13,000 belongs to the CRA — it was collected on the CRA's behalf and must be remitted, typically quarterly.

In practice, many contractors treat the full $113,000 as available operating cash. By the time the HST remittance date arrives, the $13,000 has been spent on materials, wages, or equipment. The remittance is late, penalties and interest accrue, and the contractor is now funding a CRA debt from the next project's cash flow — a cycle that compounds over time.

The Account Structure That Prevents This

A simple three-account structure eliminates the problem for most construction companies:

Operating account: All project revenue is received here. Project expenses — subcontractors, materials, equipment, wages — are paid from this account. This account handles the day-to-day cash flow of the business.

HST reserve account: When revenue is deposited to the operating account, the HST portion is immediately transferred to the HST reserve account. This account exists solely to hold HST collected until it is remitted to the CRA. It is not operating cash.

Tax reserve account (optional but recommended): A portion of each deposit is transferred to a reserve for corporate income tax instalments and year-end tax balances. For a construction company with significant seasonality, accumulating tax reserves during active months prevents a large unexpected cash requirement when the T2 balance is due.

Calculating the HST Transfer Amount

For a contractor on the regular HST method, the amount to transfer to the HST reserve is straightforward: 13/113 of each invoice total (for invoices at 13% Ontario HST). If the invoice is for $113,000, $13,000 goes to the reserve.

For contractors using the HST quick method, the reserve calculation is different — the quick method involves remitting a percentage of gross revenue rather than net HST. The appropriate reserve amount depends on which method the contractor uses and should be confirmed with a CPA.

Applying the Same Discipline to Payroll

Payroll source deductions work the same way. When a weekly payroll of $50,000 in gross wages generates $15,000 in source deductions (income tax, CPP, EI — employee and employer portions), that $15,000 needs to be available on the remittance date — not treated as cash that can be used elsewhere and replaced before the deadline.

Many contractors who maintain the HST reserve discipline apply the same approach to payroll: a payroll account where only net pay is transferred to employees, and source deductions are held until the remittance date.

The Seasonal Cash Flow Reality

Construction revenues are concentrated in certain months — typically April through November in Ontario — with slower winter periods. The account structure described above allows contractors to build reserves during the active season that cover HST, tax, and payroll obligations through the slower months, rather than scrambling for liquidity in January and February.

When to Speak With a CPA

For a contractor who has experienced cash flow pressure around remittance or tax payment dates, reviewing the account structure and cash management approach with a CPA is a worthwhile exercise. The solution is usually structural — not about the business not being profitable enough.

Rotaru CPA works with incorporated contractors and construction businesses on cash flow planning and CRA compliance. Book a consultation to discuss your account structure.