Pre-Construction Deposits: How They Work and How to Manage Them

Pre-construction deposits work differently from traditional down payments. This guide explains deposit structures, protections, and strategies.

Typical 20% Deposit Structure

$5,000 — Signing (deposit due immediately)
5% — 30 days after signing
5% — 6 months after signing
5% — 12 months after signing
5% — On occupancy
Total: 20% of purchase price

Example: $500,000 Unit

$5,000 — Signing
$20,000 — 30 days ($500,000 x 5% - $5,000)
$25,000 — 6 months
$25,000 — 12 months
$25,000 — Occupancy
Total deposits: $100,000 (20%)

Variations

• 15% structure: Less common, higher developer risk
• 25-30% structure: For investors or non-residents
• Accelerated: Larger deposits sooner
• Extended: Smaller deposits over longer period

Ontario (Tarion)

• Deposit protection: Up to $20,000 per unit
• Covers deposits if builder goes bankrupt
• Freehold homes: Up to $40,000
• Condominiums: Up to $20,000

British Columbia

• Developer Disclosure Statement required
• Holdback provisions protect deposits
• Deposits held in trust until specific milestones

Alberta

• New Home Warranty Program
• Deposit protection up to $100,000 (structural)
• varies by coverage level

Trust Account

• Deposits held in lawyer's or developer's trust account
• Not accessible to developer until specific milestones
• Protects buyer if developer fails

Registered Education Savings Plan (RESP) Style

• Some developers hold deposits in interest-bearing accounts
• Buyer may earn interest on deposits
• Check your agreement for terms

1. Save During Construction

• 12-24 months between deposits
• Use this time to save for each installment
• Set up automatic savings plan

2. Use RRSP Home Buyers' Plan

• First-time buyers can withdraw $60,000 ($35,000 per person)
• Tax-free withdrawal for home purchase
• Must repay over 15 years

3. First Home Savings Account (FHSA)

• Contribute up to $8,000/year (max $40,000)
• Tax-deductible contributions, tax-free withdrawals
• Can combine with HBP

4. Investment Strategy

• Keep deposits in high-interest savings (safe)
• Consider GICs for guaranteed returns
• Don't invest in volatile assets (stocks) — you need the money

Missed Deposit Payments

• Breach of contract: You may lose the unit
• Forfeiture: Previous deposits may be at risk
• Developer options: May extend time or cancel agreement
• Legal consequences: Developer may sue for damages

Solutions

• Borrow from family: Gifted deposits are acceptable
• Line of credit: Borrow deposit (increases debt ratios)
• Assignment sale: Sell the contract before deposit is due

Use our Mortgage Calculator and Affordability Calculator for financial planning.

During Construction

• Deposits are not tax-deductible
• Interest earned on deposits is taxable
• Keep records of all deposit payments

At Closing

• Deposits become part of down payment
• No immediate tax impact

On Sale (Assignment or After Closing)

• May be treated as business income (fully taxable)
• Or capital gains (50% taxable) depending on circumstances
• Consult a tax professional

Ontario

• Deposits must be held in trust
• Tarion provides deposit protection
• 10-day cooling-off period to review agreement

British Columbia

• Deposits held in trust or with deposit holder
• Developer must disclose deposit handling
• 7-day rescission period

Alberta

• Deposits held in trust
• New Home Warranty Program protects deposits
• No cooling-off period (check agreement)

Deposit Questions

1. What is the total deposit amount and percentage?
2. What is the payment schedule?
3. Where are deposits held?
4. Is there deposit protection (warranty)?
5. What happens if I miss a deposit payment?
6. Can I get my deposit back if I change my mind?
7. Do I earn interest on deposits?

Agreement Questions

1. What are the estimated closing costs?
2. Are development charges capped?
3. What utilities and upgrades are included?
4. What is the estimated occupancy date?
5. What are the assignment rights?
6. What are the conditions for cancellation?

Pre-construction deposits are paid over time, giving you flexibility to save. Understand the deposit structure, protections, and consequences of missing payments. For financial planning, use our Calculators. The AI Advisor can answer deposit questions.

This guide is for educational purposes only.