Incorporating a construction business: what the corporation protects — and what it can't

Liability is the driver — the tax deferral is the bonus

A general contractor or sub signs contracts where one bad project can produce claims worth more than the business. Deficiency claims, delay claims, injuries involving your crews or the public — a corporation puts those against the company's assets, not your home. Insurance remains the first defence; the corporate wall is what stands behind it when a claim is denied, excluded, or bigger than the policy.

The tax benefit is real but secondary. Profit retained in the corporation is taxed at about 12.2% in Ontario up to the $500,000 small business limit, which funds equipment, working capital for holdback gaps, and the cash cushion every contractor needs between draws. Personal guarantees will still follow you for years — banks, equipment lessors, and suppliers all ask — so treat incorporation as narrowing your exposure, not erasing it.

What incorporation does not change: WSIB, holdbacks, and trust money

Your regulatory obligations continue exactly as before, and one of them carries personal liability straight through the corporation. Plan for all three:

• WSIB. Coverage is compulsory in Ontario construction — incorporated or not, with only narrow exemptions. Executive officers and the corporation itself register, premiums are payable on the same payroll, and general contractors will still demand your clearance certificate before you set foot on site.
• Construction Act holdbacks and prompt payment. The 10% holdback, lien periods, and prompt-payment deadlines attach to the project, not to your legal form. Your receivables and payables keep the same holdback mechanics after incorporation.
• Trust obligations. Money you receive on account of a contract is trust money for your subs and suppliers under the Construction Act. Directors and officers who assent to a breach of that trust can be personally liable — this is the one construction debt a corporation does not shield. Never fund the corporation's other costs out of undisbursed contract receipts.

Reporting continues too: the corporation files T5018 slips for subcontractor payments, and its first GST/HST return needs the holdback timing rules applied correctly from day one.

One corporation or a split: equipment, real estate, and the opco

Most contractors start with a single operating company and add structure when there is something worth protecting. The classic split puts the operating risk in one company and the accumulating assets in others: a holdco over the opco banking surplus profit, equipment owned in the holdco and leased down, and a shop or yard held in a separate real estate company that rents to the opco.

The split earns its cost once equipment is paid down or a property enters the picture. Buying the shop inside the opco is the mistake we unwind most often — appreciation ends up trapped in the company most likely to be sued.

Bonding pushes the other way

Surety companies underwrite the opco's balance sheet, and stripping it weakens your bid capacity. Bonding lines are set on working capital and equity in the operating company, so a structure that sweeps every retained dollar up to a holdco can shrink the very number your surety uses to size single-job and aggregate limits. Sureties also take personal and corporate indemnities regardless of structure, so the holdco does not remove the owners from the hook on bonded work.

The workable answer is a measured one: leave enough equity in the opco to support the bonding program you want next year, sweep the true surplus, and keep the surety informed before a reorganization, not after. If you bid US work, entity choice gets another layer — state registrations and tax on materials differ by state — which we cover on our cross-border tax page for contractors.

Set-up done right the first time

Incorporation is a half-day of filings and a year of follow-through. We incorporate the company, open the RC, RT, and RP program accounts, register WSIB and transfer clearances, set the share structure for a future holdco without a reorganization, and build the minute book that lenders and sureties will ask to see. From there, job costing and holdback tracking live in the monthly books — the subject of our construction bookkeeping page — and the annual corporate filings run alongside your ongoing compliance.

Source: Workplace Safety and Insurance Board (WSIB).