Incorporating a fence and deck business: liability first, tax second, timing third

Liability: what the corporation shields, and what still reaches you

A corporation puts the contracts, the debts, and most lawsuits on the company rather than on you. If a railing fails or a post hole finds a gas line, the claim is against the corporation and its insurance, and your house is not the backstop. That is the strongest reason a deck builder incorporates, and it is why we tell most of them to do it before the first employee rather than after the first good year.

The shield has known gaps. Directors are personally liable for unremitted payroll deductions and unremitted HST, so incorporating does not make a missed remittance someone else's problem. Truck loans, equipment leases, and lumber-yard credit accounts will usually carry your personal guarantee for the first years. And commercial general liability insurance stays mandatory in practice, because a corporation with no assets and no policy protects nobody, including your customer.

Tax: the small business rate only helps if money stays inside

An Ontario corporation pays about 12.2 percent combined on its first $500,000 of active business income, against personal rates that climb well past 40 percent at the top. The saving is a deferral: it only exists on profit that stays in the corporation. A builder who takes every dollar home to live on ends up roughly where a sole proprietor would after paying personal tax on the salary or dividends. A builder who clears more than the household spends can leave the rest inside, pay it out in slower years, or build a reserve for equipment and winter payroll at the corporate rate. Our plain-language guide to incorporating in Ontario walks through where that line usually falls.

Two other tax points are specific to owner-operators. Paying a spouse who actually works in the business — quoting, scheduling, bookkeeping — is legitimate, but dividends to family members who do not work in it are caught by the split-income rules. And a fence company is rarely sold for a price that makes the lifetime capital gains exemption the reason to incorporate; it can matter later, but liability and deferral are the drivers now.

WSIB and the corporation: executive officers in construction

Incorporating changes your own WSIB position. In construction, executive officers of a corporation are covered compulsorily, unless the business qualifies for the home renovation exemption because all of its work is on existing private residences and paid directly by the occupant. A corporation with workers may also exempt one executive officer who does no construction work at all, which fits an owner who has moved fully into sales and scheduling. As we read the rules, taking any builder-paid or commercial job removes the exemption, and we would rather set the account up before that job than explain it afterward. Employees on the crew are covered in every scenario.

Moving trucks, trailers, and tools in: section 85 or a plain transfer

Assets worth more than their tax cost — a truck bought used and well kept, or a trailer you built out yourself — can be rolled into the corporation under a section 85 election at an agreed amount, so the transfer does not trigger tax. Tools and equipment worth less than what you paid can usually be transferred at their undepreciated capital cost with no election at all. The corporation records what it owes you for the assets as a shareholder loan, which you can draw back out over time without tax. If the entire business is transferred, a joint election can keep HST off the transfer as well. We value the fleet before the transfer, because a truck rolled in at a made-up number is a problem at the next audit and at the next sale.

Year-end: pick a date when nothing is half-built

A corporation chooses its fiscal year-end, and for this trade the right answer is a date after the last fall job closes and before spring signings begin, when the yard is nearly empty and no deck is half-built. That shrinks the year-end inventory count and the straddling-job analysis to almost nothing. Our fiscal year-end guide covers the trade-offs. Once incorporated, the T2 is due six months after year-end and the balance owing three months after for most small CCPCs, the Ontario annual return is a separate filing from the tax return, and a minute book has to exist and be kept up. We handle the registrations in the winter so the corporation is in place before you take the first deposit of the season.

If you buy composite or hardware from US suppliers, the corporation is also the right vehicle for the import paperwork and for any product you sell south; see our cross-border guide for fence and deck builders. Our incorporation and compliance services page lists what the fixed-fee setup includes.