Custom home builder bookkeeping: one ledger per lot, from deposit to holdback release

Job costing is the ledger; everything else is a report

A builder's chart of accounts is short and the job list is long. The lot address is the unit of account: land, land transfer tax, development charges, permits, the Tarion enrolment fee paid before the footings go in, every sub invoice and every trip to the lumber yard get coded to a house and a cost code before they touch the general ledger. Your Home Construction Regulatory Authority (HCRA) licence is overhead; almost everything else belongs to a lot. When a bank feed files a building-supply purchase under "Supplies" with no job attached, the margin on that house is already wrong.

The practical stack is Buildertrend or a similar builder platform for estimates, selections, purchase orders and change orders, synced to QuickBooks Online Projects, with Dext capturing sub invoices and yard receipts against the right lot. Custom builds on a client's land and spec builds on your own land sit in the same system but behave differently: a spec home is inventory on your balance sheet until it closes, while a custom contract is work in progress measured against a client's contract price. We set the two up differently from day one so nothing has to be restated at year-end.

Deposits and draws are not revenue yet

Money that arrives before the work is done is a liability, trust money, or both. Under Ontario's Construction Act, amounts you receive on account of a contract are trust funds for the subs and suppliers on that project, and since 2018 the Act has required trust funds to sit in a bank account in the trustee's name with records that trace each project's money in and out. That is a bookkeeping specification as much as a legal one. We record client deposits as liabilities, progress draws as billings, and recognize revenue on a cost-to-cost percentage of completion, so the profit and loss reflects the work done rather than the timing of the lender's inspector.

The WIP schedule is where those pieces meet: contract price including approved change orders, cost to date, estimated cost to complete, revenue earned, amounts billed, and the over- or under-billing on each lot. An allowance overrun on cabinetry or tile that was never written up as a change order shows up here first, as cost with no matching revenue, which is exactly the moment you can still bill it.

Holdbacks cut both ways

You hold back ten percent from every sub, and the owner or lender holds back ten percent from you. Both belong in their own accounts — holdback receivable and holdback payable — never netted into ordinary receivables and payables, because their timing is governed by the lien period rather than by anyone's payment terms. HST on a holdback is not due until the holdback is paid or becomes payable, so the ledger has to keep the tax on those amounts parked until release. Prompt-payment rules add a second clock: 28 days to be paid on a proper invoice, seven days to pay your subs after that, and the books need to show you meeting both.

Because more than half of your revenue comes from construction, every sub who provides services is a T5018 reporting matter. We tag sub vendors at set-up, capture their business number, and split materials from labour on mixed invoices, so the annual slips come straight out of the vendor ledger. Which contractors have to file T5018 slips explains the threshold and the timing.

HST inside a builder's books

You claim input tax credits on almost everything that goes into a house, and the sale or the contract is taxable at the end, so the HST account moves in large amounts every period. The custom and spec paths differ here too. On a custom home built on the client's own lot, you charge HST on the contract and the client claims the owner-built rebate themselves on form GST191, so we produce the itemized construction summary they will need. On a spec home sold with the price stated as HST included and the rebate assigned to the builder, the buyer signs the GST190 application at closing, you credit the rebate against the price, and the credited amount is claimed on your GST34. The signed application belongs in the lot's file, not in the lawyer's drawer.

Two more entries recur. When you buy a lot from a registrant such as a developer, you do not pay HST to the vendor; you self-assess it on your return and claim the offsetting credit in the same period. And when a spec home that will not sell is rented instead, the self-supply rule treats you as having sold and repurchased it at fair market value, so we flag the first lease in the books and get an appraisal before the return is filed. How input tax credits work covers the mechanics behind the monthly HST movement.

Spec inventory, land carry and the after-closing tail

Land you hold for a future build is inventory, and the carrying costs on it — mortgage interest, property taxes, insurance during the build — are generally capitalized into the cost of the lot and the house rather than expensed in the year paid. The books therefore carry each unsold lot at its accumulated cost, which is also the number a lender's quantity surveyor will ask you to prove. Once a home closes, the lot does not go quiet: pre-delivery inspection items, 30-day and year-end warranty claims, and the occasional two-year item all get costed back to the closed lot so you can see which trades and which plans generate the tail.

If you sell five or more new homes to the public in a calendar year, you are also a reporting entity under Canada's anti-money-laundering rules, which raises the standard for how deposits and buyer identification are documented. Builders paying US suppliers in USD, or building for US-citizen clients, will find the recording issues in our cross-border guide for custom home builders; the monthly close itself is described on our bookkeeping services page.

Source: Ontario — Construction Act, R.S.O. 1990, c. C.30.