T5018 Slips Explained: Reporting Subcontractor Payments in the Construction Industry — CPA Firm Near You, Montreal

The construction industry in Quebec is one of the most closely watched sectors by CRA and Revenu Québec. With constant subcontracting, progress billing, cash-based payments, and labour-intensive workflows, tax authorities rely heavily on reporting mechanisms to detect unreported income and claim mismatches. Among these mechanisms, the T5018 slip — also known as the Statement of Contract Payments — is one of the most critical, yet misunderstood, compliance tools for contractors.

This expanded guide explains when T5018 slips are required, how to prepare them, the legal framework surrounding subcontractor reporting, what CRA looks for during audits, and how to avoid the most common pitfalls. It also outlines how a CPA firm near you in Montreal can help protect your business from costly reassessments.

Legal and Regulatory Framework

Construction companies and businesses involved in construction activities must report payments made to subcontractors by filing an annual T5018 Summary and issuing T5018 slips to each subcontractor. This obligation falls under the Income Tax Act and CRA administrative policy, specifically for businesses whose principal business involves construction, renovation, repair, or demolition activities.

A business must file T5018 slips if all of the following apply:

• It is in the construction sector or construction-related sector
• It makes payments to subcontractors for construction services
• Total annual payments exceed CRA’s reporting thresholds
• Payments relate to construction activities in whole or in part

Payments that must be reported include labour, services, and mixed labour/material invoices, unless materials are clearly separated. Businesses must report:

• Name of subcontractor
• Business number or SIN
• Total amount paid in the calendar year
• Date range of services
• GST/QST paid or included, if applicable

CRA requires that these slips be submitted using calendar-year reporting, regardless of fiscal year-end.

Failure to file T5018 slips may result in:

• Penalties per slip
• Late-filing penalties
• Gross-negligence penalties for repeated non-compliance
• Increased chance of a full construction audit

Key Court Decisions and Legal Precedents

Courts have repeatedly upheld the importance of subcontractor reporting in the construction sector.

In several rulings, judges emphasized that:

• If a business is involved in construction activities, it must file T5018 slips even if it believes subcontractors are “temporary” or “informal”
• Payments lacking subcontractor names or complete records may be denied as deductions
• Businesses remain responsible for subcontractor documentation even when subcontractors operate informally or fail to provide complete details
• Cash payments to subcontractors without supporting documents create grounds for reassessment

Cases show that CRA is allowed to reconstruct income using third-party data, supplier invoices, bank deposits, and industry estimates when T5018 compliance is missing.

In one notable case, a contractor attempted to justify payments to “casual labour” without issuing T5018 slips. CRA denied all labour deductions. The court upheld CRA’s decision, stating that the contractor had a responsibility to document all subcontractor relationships.

In another case, a subcontractor used a corporation on paper but provided no corporate number or invoices. The contractor failed to issue T5018 slips and was assessed with penalties and tax on disallowed expenses.

These cases demonstrate the importance of proper reporting and documentation.

Why CRA and Revenu Québec Focus on T5018 Compliance

CRA considers the construction industry high-risk due to:

• High volume of subcontractor activity
• Frequent cash transactions
• Inconsistent or missing invoices
• Large expense claims for labour
• Potential underground economy risks
• Inaccurate GST/QST reporting
• Duplicate payments or unreported T4A vs T5018 inconsistencies

CRA uses T5018 data as part of its nationwide Construction Compliance Initiative. The slip data helps CRA:

• Identify subcontractors who fail to report income
• Match contractor expense deductions against subcontractor reported revenue
• Detect subcontractors operating without GST/QST registration
• Trigger audits when slip amounts do not match banking activity
• Identify unregistered or informal subcontractors

Revenu Québec cross-checks:

• RBQ licence records
• GST/QST registration files
• RL-1 slips
• Subcontractor income statements
• Municipal permit lists
• Labour cost-to-revenue benchmarks

Non-compliance significantly increases audit risk because authorities see missing T5018 data as a red flag for unreported cash labour.

The Mackisen Strategy: Ensuring Full Compliance

At Mackisen CPA Montreal, we work with construction companies, renovators, and contractors to establish a complete T5018 compliance system. This includes:

• Identifying subcontractors subject to T5018 reporting
• Setting up digital records for all contractor payments
• Reconciling labour invoices, e-transfers, and cheque payments
• Ensuring all subcontractors provide proper business details
• Matching GST/QST collected vs GST/QST paid
• Confirming RBQ licence status where required
• Gathering contracts or work orders for each subcontractor
• Preparing and filing T5018 slips accurately and on time
• Preparing audit-ready backup documentation

We build systems that ensure labour costs can be proven even years later, reducing the risk of lost records and denied deductions.

Real Client Experience

A Montreal general contractor underwent a CRA payroll audit after failing to issue T5018 slips for several subcontractors. CRA questioned more than $180,000 in labour expenses. Contractors paid by e-transfer had no invoices, and some subcontractors worked under personal names. We reconstructed all invoices using supplier delivery logs, site schedules, email confirmations, and bank records. T5018 slips were filed retroactively, and we negotiated a much lower reassessment.

In another case, a roofing company issued T5018 slips but inconsistently applied GST/QST rules. CRA challenged ITC claims and subcontractor deductions. We corrected all invoices, updated tax numbers, and resolved discrepancies between the slips and year-end financial statements.

A home renovation business had subcontractors paid in cash with handwritten notes. CRA denied nearly all labour deductions. We built a compliant system for future years, implemented formal subcontractor agreements, and salvaged a large portion of the expenses after extensive documentation work.

Common Questions

When do I need to file T5018 slips?

When you operate in the construction industry and pay subcontractors for construction-related services during the calendar year.

What if subcontractors refuse to give their business number?

You must document attempts and still report whatever information you have. CRA expects reasonable due diligence.

Do material-only invoices require T5018 reporting?

No, if materials are clearly separated from labour. Mixed invoices must be reported.

Are T4A slips the same as T5018 slips?

No. T5018 is for subcontractor payments in construction; T4A is for general service payments across industries.

What happens if I miss filing deadlines?

Penalties apply per slip, and CRA may increase audit targeting for future years.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps construction companies stay compliant while protecting labour deductions. Whether you work with one subcontractor or dozens, our expert team ensures accurate reporting, documentation, and full audit protection.