Construction business expenses in Canada: T5018 reporting, input tax credits, and capital cost allowance

Canada has no single construction tax scheme, but it has two construction-specific obligations that ordinary businesses do not: the T5018 information return on subcontractor payments, and the discipline of capital cost allowance on the tools and equipment a contractor accumulates. Handle those, claim your input tax credits cleanly, and the rest is standard expense accounting. Every figure below is sourced from CRA guidance in the Sources section.

T5018: reporting what you pay subcontractors

If your primary business activity is construction and you make payments to subcontractors, you must report them on a T5018 Statement of Contract Payments. This is part of the CRA’s effort to reduce the underground economy in construction ^[1] .

The amount reported in box 22 includes GST/HST and any applicable PST ^[1] . The practical requirement is that your books capture, per subcontractor, the total paid across the reporting period split between service and goods, because only the service component drives the obligation. Sloppy vendor records make T5018 season painful.

Input tax credits on materials and equipment

As a GST/HST registrant you recover the tax paid on purchases used in your commercial activities by claiming input tax credits (ITCs) on your return ^[2] . For a construction business that means the GST/HST on lumber, fixtures, tool purchases, equipment rental, and fuel is recoverable to the extent the spend is for commercial use ^[2] .

ITCs are only as good as the documents behind them: the CRA requires supporting records showing the supplier, the amount, and the tax. The provincial picture matters too, because rates run from 5% GST in Alberta to 15% HST in the Atlantic provinces; the Canadian GST/HST guide covers the split and the recoverable-versus-non-recoverable distinction for provinces with separate PST.

Capital cost allowance on tools and equipment

Tools and equipment are usually capital, so they are deducted through capital cost allowance (CCA) over time rather than expensed at once. The dividing line for tools is $500 ^[3] :

Most small tools fall into Class 12 and are not subject to the half-year rule, so they are fully deductible in the year of purchase ^[3] .

Vehicles and travel

A vehicle used for the business is claimed on the business-use share of running costs, or on a per-kilometre basis where records support it, as set out in the claim mileage in Canada guide. Motor vehicles are themselves a CCA class, so the purchase is depreciated while fuel, insurance, and repairs are running costs.

Subcontractor records in practice

The T5018 obligation rewards a vendor ledger that is right all year rather than reconstructed in a panic. Each subcontractor needs a running total of construction-service payments, kept separate from any pure goods supplied, with the sales tax recorded so box 22 can be populated without re-opening invoices. The same records double as the audit trail behind your input tax credits, so the discipline pays twice: once for the information return, once for every GST/HST claim. Where a payment mixes labour and materials, note the service component, because that is what the $500 test turns on. Contractors who track this at the point of payment file the T5018 in minutes; those who do not spend February rebuilding a year of vendor history from bank statements.

Where ExpenseFlow fits

The Canadian construction load is two-sided: vendor-side records clean enough for the T5018, and purchase-side documents clean enough to defend every ITC. ExpenseFlow captures each receipt and supplier invoice, extracts the GST/HST and line detail, codes it, and syncs the transaction into Xero or QuickBooks Online with the image attached, building the six-year record archive the CRA expects. It surfaces the subcontractor and tax data you need; it does not file your T5018 or your GST/HST return.

Common mistakes

• Missing T5018 slips because subcontractor payments were not tracked per vendor across the period ^[1] .
• Claiming ITCs without the supporting documents the CRA requires ^[2] .
• Expensing a $500-plus tool that should sit in Class 8, or pooling a sub-$500 tool that could be written off in full ^[3] .
• Claiming a full ITC on a purchase with personal use, when the credit follows the commercial-use share.