In short
Once the work is done and verified, the money is released to the seller.
It protects the buyer without delaying the closing.
How it works in Ontario
A holdback is part of the purchase money that is kept back at closing instead of going to the seller. It's usually held in trust by one of the lawyers until a set condition is met, then released.
The rules for each holdback come from the agreement or a separate holdback agreement signed before closing. Lawyers on both sides normally negotiate the details.
Repair or completion holdbacks
If the seller agreed to fix something and it isn't finished by closing, the parties may agree to hold back an amount instead of delaying the deal. Common examples are a repair found in the inspection or exterior work that can't be done in winter.
A good holdback agreement says how much is held, who holds it, what has to be done, the deadline, who confirms it's done and what happens if it isn't.
Getting a contractor's quote before closing helps set a realistic amount, so the holdback actually covers the work.
Non-resident seller holdbacks
When the seller isn't a resident of Canada, the Income Tax Act can make the buyer liable for part of the seller's tax. Unless the seller gets a certificate of compliance from the Canada Revenue Agency, the buyer can withhold 25% of the price, or 50% for certain types of property.
Because the amounts are large, both lawyers usually deal with this early, and the money is held in trust until the CRA certificate arrives. Tell your lawyer right away if you're buying from someone who lives outside Canada.
Why it matters to buyers and sellers
For a buyer, a holdback means you aren't relying on a promise after the seller has been paid. For a seller, it lets the deal close on time while the last item is sorted out.
Holdbacks are separate from your deposit. The deposit is the buyer's money held before closing; a holdback comes out of the seller's sale proceeds at closing.
Common questions about holdback
What is a holdback in a real estate closing?
A holdback is money kept back from the seller at closing and held in trust until an agreed condition is met. Common reasons are unfinished repairs and a seller who isn't a Canadian resident. The terms are set in the agreement or a holdback agreement negotiated by the lawyers.
Who holds the holdback money?
The holdback is usually held in trust by one of the lawyers, often the seller's lawyer or the buyer's lawyer, as agreed in writing. It's released when the agreed condition is met, such as a repair being finished or a CRA certificate being issued.
How much is held back when the seller is a non-resident?
Without a CRA certificate of compliance, the buyer can withhold 25% of the purchase price, or 50% on certain types of property. A certificate can reduce or remove the holdback. Your lawyer will confirm the seller's residency and the amount.
How do you agree on a repair holdback?
Put it in writing before closing. A clear holdback agreement states the amount, who holds it, the exact work, the deadline, who confirms it's done and what happens if the work isn't completed. Your lawyer can draft or review it.
Sources
General information for Ontario, updated October 2026. Not legal, tax or mortgage advice. Rules change, so confirm with your lawyer, lender or the source above before you rely on it.