Incorporating a flooring business: when the first builder contract decides for you

Liability first, tax second, credibility third

A flooring company's largest risks are a failed floor and an unpaid builder. Moisture in a slab that buckles a hardwood install, a tile job that cracks across a poorly prepared subfloor, a Tarion warranty claim the builder passes down the chain: these are claims against whoever signed the contract. A corporation puts the entity between those claims and your house, subject to the usual limits, namely personal guarantees you sign for suppliers and lenders, director liability for unremitted source deductions and HST, and your own negligence. Insurance still does the heavy lifting; the corporation decides who the defendant is.

Tax comes second because it only helps when you leave money in the business. Active income up to the $500,000 small business limit is taxed at a combined federal and Ontario rate of 12.2 percent inside a Canadian-controlled private corporation, against personal marginal rates that reach the low fifties. If every dollar comes out to pay the mortgage, the saving is small; if you are funding a second crew, a van or showroom stock from profits, it is substantial. Our answer on whether to incorporate in Ontario walks through the general math.

Credibility is the reason owners underrate. Builders, general contractors and commercial property managers screen vendors on entity type, insurance certificates and WSIB clearance, and a numbered Ontario corporation with a proper certificate of insurance clears that screen more easily than a sole proprietor's registered business name.

What WSIB and the builder require of a new flooring corporation

Incorporating does not remove you from WSIB; in construction it can bring you in. Executive officers of construction corporations fall under mandatory coverage, with one exception: a single executive officer who does no construction work can be exempted by filing the proper form. If you are on your knees laying tile, you are covered and your earnings are insurable. The corporation needs its own WSIB account before it works for anyone but a homeowner, and a clearance certificate against that account before a builder pays the first invoice.

The builder's vendor package will also ask for a certificate of commercial general liability insurance naming the builder, the corporation's HST number, and often a signed subcontract that references the Construction Act's holdback and prompt-payment terms. We sequence the setup so all of these exist on day one, rather than discovering a missing clearance when the first cheque is already late.

Moving an existing business into the corporation

If you have been operating as a sole proprietor, the van, the wet saw and nailers, the showroom stock and the goodwill of your builder relationships all move into the new corporation. Transferring them at fair market value would trigger tax on accumulated gains and recaptured depreciation; a section 85 rollover defers all of it by electing a transfer price between cost and fair value, with the corporation issuing shares in exchange. Our answer page on how a section 85 rollover works covers the election. Alongside it we open a new HST account under the corporation's business number, close the proprietorship's, and register the new WSIB and payroll accounts. The accounts do not transfer, and invoices issued under the wrong number are a common early mistake.

Paying yourself from a flooring corporation

The owner of a flooring company is usually also its best installer or its only estimator, and the pay decision has a payroll angle that a pure investor's corporation does not. Salary creates RRSP room, CPP contributions and, because you are a covered executive officer doing construction work, WSIB insurable earnings. Dividends avoid CPP and WSIB premiums but build no RRSP room and no CPP entitlement. Most owners land on a mix set once a year against the profit forecast, revisited when a spouse joins the business or a second shareholder comes in. Salary paid to a spouse who runs the showroom or the books is deductible if it is reasonable for the work done.

Ontario or federal, and the annual calendar

For a company installing floors across the GTA, an Ontario corporation is the default: it is simpler, and extra-provincial registration is unnecessary unless you open a location outside the province. Federal incorporation protects the name nationally and costs a little more in annual compliance. Once the corporation exists, the yearly rhythm is a T2 six months after year-end, an Ontario annual return, HST filings on the frequency assigned, T5018 slips for sub crews, T4 or T5 slips for the owner, and the minute-book resolutions that record dividends and director decisions. The filing side is covered on our flooring tax services page; the setup service is on our incorporation and compliance page.

Source: Government of Ontario — Construction Act, R.S.O. 1990, c. C.30.