How contractor deposits work and when to ask for one

Contractor deposits sit at the meeting point of two things every trade business needs, steady cash flow and a customer who trusts you. Ask for too little and you end up funding a stranger's materials out of your own account. Ask for too much and a careful homeowner hires someone else, or you find your province's guidance put the limit well below your number.

Getting that balance right comes down to three decisions. You decide when to ask, how much to ask for, and how the deposit is written into the job. We'll walk through each one, with the Canadian rules that shape them and a worked example from quote to final invoice.

Short answer A contractor deposit is part of the job price paid before work starts, then credited against the final invoice. Ask for one at the quote when you're ordering special materials, reserving a date or starting a longer job. Size it to the cost you'd lose if the customer cancelled, and check your province. Ontario's business guide recommends no more than 10% of the total project cost. Under CRA rules, GST/HST is generally collected when the deposit is applied to the price, not when it's received.

This guide covers contractor deposits for Canadian trade businesses, where the rules differ from the US state caps you may have read about. Home renovation contracts here fall under provincial consumer protection law, so the right number depends on where the work is. We use Ontario for the examples below because its guidance is specific and public.

What contractor deposits are, and what they pay for

A deposit is money the customer pays when they accept your quote, before any work begins. It counts toward the job price, so it comes off the final invoice rather than being charged on top.

In practice it does three jobs. It confirms the customer is committed, which matters when you're turning other work away to hold their date. It covers costs you'd otherwise carry yourself, such as special-order materials that can't be returned. And it gives both sides a written starting point for the payment schedule that follows.

A deposit is different from a progress payment. Progress payments are billed as the job moves forward, when materials arrive or a stage is complete. Longer jobs often use both, and that combination becomes important once provincial deposit guidance comes into play.

When to ask for a deposit

Since a deposit exists to cover what you'd lose on a cancellation, the clearest way to decide is to ask what's at stake before work starts. If the answer is very little, a deposit adds friction without much benefit. If the answer is a pallet of custom-ordered material, it's essential.

We'd recommend asking for a deposit when any of these apply:

• Special-order materials. Custom cabinets, made-to-measure windows, cut-to-size stone. Anything a supplier won't take back.
• A reserved start date. If you're holding a week in your schedule three weeks from now, the deposit is what secures it.
• A new customer. With no history to go on, a deposit confirms the job is real.
• A multi-day job. The longer the job, the more labour and material you have in it before the final invoice.

Short service calls with parts from your own stock are usually simpler to bill on completion. The customer is paying within the hour, and a deposit would only add a step.

How much should a contractor deposit be?

Once you know a deposit is warranted, the amount follows from the same question. What would you lose if the customer cancelled tomorrow? We use a simple sizing matrix built around that question. It's our recommendation, not a legal standard, and it sits underneath whatever your province sets.

Job	Risk	Deposit	Then
Service call	Stock parts, same day	None	Invoice on completion
Short job	Standard materials, 1 to 3 days	Small, to hold the date	Invoice on completion
Longer job	Several days, standard materials	Deposit at signing	One progress invoice midway
Custom order	Special-order or non-returnable materials	Deposit at signing	Materials invoice on delivery
Phased build	Weeks of work, several stages	Deposit at signing	Invoice each stage

Two principles sit behind the matrix. First, the deposit covers commitment and early costs, while larger material costs are better billed as a separate stage when they're ordered or delivered. Second, every figure goes on the quote, so the customer agrees to the whole schedule before you start.

What provincial rules say about deposits

The matrix gives you a structure. Your province sets the outer limits, and in Ontario those limits are spelled out clearly. Ontario's renovation business guide recommends that deposits are not more than 10% of the total project cost, and says the contract must include a payment schedule, including the deposit amount.

The same guide covers cancellations. A customer who signs a contract at their home has a 10-day cooling-off period, and if they cancel, you must refund any deposits within 15 days of their notice. If work started during that window at the customer's request, you're entitled to reasonable payment for work and materials already provided.

For a materials-heavy job in Ontario, this is where the matrix earns its place. A deposit of 10% or less at signing, followed by a materials invoice when the order lands, keeps you within the province's guidance without carrying the full material cost yourself. Rules differ in other provinces, so check your own consumer protection office before you settle on a figure.

How GST/HST applies to a deposit

With the amount and the schedule settled, the next question is tax. The CRA's guidance on deposits in Guide RC4022 is direct. Don't collect GST/HST when a customer gives you a deposit toward a taxable purchase. Collect it when you apply the deposit to the purchase price.

The same section covers the case where a customer walks away. A forfeited deposit is subject to GST/HST, calculated as a fraction of the amount kept. In Ontario, with 13% HST, that's 13/113 of the forfeited deposit.

How your deposit is set up in your contract and your books affects how these rules apply, so we'd suggest confirming the details with your accountant. The practical takeaway is simple. The full tax is calculated on the job price, and the deposit is credited against the total.

A worked example on an Ontario roof replacement

Let's put the matrix, the provincial guidance and the tax rule together on one job. A homeowner in Ontario approves a quote for an $18,000 roof replacement, before tax. The shingles, underlayment and flashing are ordered in ahead of the start date and cost about $7,000.

Because the materials are bought before any work happens, the quote follows the custom-order row of the matrix and sets out three payments. There's a deposit at signing, a materials invoice on delivery, and the balance on completion.

Step	Amount
Job price before tax	$18,000
HST at 13%	$2,340
Total for the job	$20,340
Deposit at signing (under 10%)	$1,800
Materials invoice on delivery	$7,910
Balance on completion	$10,630

The deposit holds the date in your schedule. The materials invoice ($7,000 plus $910 HST) means you aren't financing the shingles yourself while they sit on the driveway. On the final invoice, the deposit and the materials payment are both credited, leaving $10,630. If the customer had forfeited the $1,800 deposit instead, the HST included in it would be $1,800 × 13/113, or $207.08.

The figures are illustrative. The structure is the useful part. Every payment is on the quote, the signing deposit stays within Ontario's guidance, and nothing about the final balance is a surprise.

How StrikeHoney handles deposits

A schedule like that only works if the deposit is easy to pay and nothing falls through the cracks between quote and invoice. That's the part we built StrikeHoney to carry, from your phone.

• Deposit on the quote. Your customer opens the quote from a link, with no account, no app and no password. They can approve it and pay the deposit in the same tap, or approve now and pay later. Your call.
• Credited automatically. The deposit is applied against the final invoice for you, so the balance owing is already correct when you send it.
• Staged billing. Invoice the whole job, a percentage of it or specific line items, and the remaining balance is worked out as the job progresses. That's how the materials invoice in the roofing example would be billed.
• Money to your own bank. Payments run through Stripe and go to your bank account, with a standard payout in about 3 business days and no rolling reserve or surprise holds.

Card payments carry a flat 3.4% fee. The app itself costs $24/mo CAD, or $19/mo CAD if you pay for the year, and deposits are part of the one plan rather than an add-on. Our contractor quoting software covers the full quoting process, and every fee is listed on our pricing page.

The bottom line

Contractor deposits work best when they're sized to real risk and written down before the job starts. Ask at the quote, set the amount by what you'd lose on a cancellation, and bill larger material costs as their own stage. Check your province's rules, apply GST/HST when the deposit is credited to the price, and the deposit becomes a routine part of every job rather than a negotiation.

To put a deposit on your next quote today, use our free quote generator. Enter the job line by line, pick the province, add the deposit amount, and download a PDF with the balance owing worked out, with no account required.