Painting contractor tax: T2125 or T2 — and T5018 slips either way

T2125 or T2: the decision is cash retention, not status

A sole proprietor reports painting income on form T2125 inside the personal return; a corporation files its own T2. The incorporation question has a simple test: if you draw out everything the business makes, the corporation mostly adds accounting fees. If profit stays behind to fund a second crew, a sprayer rig, or a van, the small business deduction taxes that retained profit at a combined 12.2% in Ontario instead of your marginal personal rate.

The switch itself is a planning event — assets roll in under section 85, the GST/HST account changes, and the first short corporate year sets the fiscal year-end. Done mid-repaint-season without planning, it doubles the paperwork for one year.

Painting is construction — T5018 slips apply to your subs

If construction activities are your primary source of business income, payments to subcontractors belong on a T5018 information return, due within six months of the reporting period you pick, and painting counts as construction for this purpose. The slip reports the full amount paid including GST/HST, and CRA matches it against what each sub declares — which is exactly why subs who ask to be paid in cash are a risk you inherit, not a favour you grant.

Two habits keep the sub file clean. First, verify a sub's GST/HST registration number before paying tax on their invoices; ITCs claimed against a cancelled or bogus number are denied later, with interest. Second, keep the employee line bright: a helper who uses your sprayers, your ladders, and your schedule looks like an employee to CRA regardless of what the invoice says, and reclassification means retroactive CPP, EI, and T4 penalties on top of the sub's hurt feelings. Slips are not required for subs paid less than $500 in the period, and you can report on either a calendar-year or fiscal-year basis — but the choice sticks once made.

Vehicle costs: the van is easy, the crew cab is not

A wrapped cargo van full of drop sheets, sprayers, and forty-liter pails is the simple case — used to haul equipment between sites, it can fall outside the passenger-vehicle rules entirely, so the corporation deducts its real costs without the standby-charge headache. The hard case is the crew cab that drives the kids to hockey on weekends. That vehicle needs a mileage log splitting business from personal kilometres, because the log is the first thing CRA asks for and the claim collapses without it.

For sole proprietors the same log drives the business-use percentage applied to fuel, insurance, repairs, and CCA — Class 10 at 30%, or Class 10.1 with a capped cost base for pricier passenger vehicles. Parking at jobs is fully deductible either way; the commute from home to your own shop is not. If the corporation instead pays you a per-kilometre allowance for a personally owned truck, CRA's prescribed rates keep it tax-free — a flat monthly car allowance, by contrast, is just taxable salary.

HST: small-supplier timing and the quick method math

New painters get one grace period: under $30,000 of taxable revenue over four rolling calendar quarters, registration is optional. Cross it mid-year and you must start charging on the supply that tips you over — noticing in February that you crossed in September is an expensive discovery, so we watch the running total, not the year total. Registering early is often better anyway, since it unlocks ITCs on the van and gear while margins are thinnest.

Once registered, the quick method deserves a real calculation rather than a guess: it lets a service business remit a flat percentage of tax-included sales instead of tracking every ITC, and for a painter whose main input is labour it can genuinely save money — but heavy paint-and-materials years flip the answer. We run both numbers annually and elect only when the math wins. When the work itself crosses the border — a US franchise banner, royalty payments south — the withholding questions in our cross-border tax guide for painting contractors take over.