Machinery is repaid with after-tax dollars, so the rate is the whole game
Equipment debt does not care about deductions; it wants cash. Profit retained in a corporation at the small-business rate leaves nearly twice as much of every dollar available for principal payments as the same profit taxed at a sole proprietor's top marginal rate — which is why capital-hungry shops tend to incorporate earlier than service businesses of the same revenue.
| The question | Incorporated shop | Sole proprietorship |
|---|---|---|
| Tax on the first $500,000 of active profit | About 12.2% combined in Ontario | Your personal marginal rate, up to 53.53% |
| Left from a profit dollar to repay the CNC | Roughly 88 cents | As little as 46 cents |
| Who signs the builder contract and equipment lease | The corporation — personal guarantees can narrow as the file matures | You, personally, every time |
| A failed install or deficiency claim | Lands on the corporation first | Lands on you — shop and house alike |
| Selling the shop one day | A share sale can shelter up to $1.25 million per shareholder under the LCGE | Asset sale only; no share exemption exists |
The deferral is not forgiveness: whatever you draw for the household is taxed personally when drawn. The advantage lives in the years profit stays inside, buying capacity.
A corporation also gets to pick its fiscal year-end, and a shop should pick deliberately. Set it in the quiet season rather than mid builder rush, and the inventory count, the work-in-progress cut-off and the deposit reconciliation all happen when the benches can spare the attention.
Builder programs onboard corporations
Winning channel work is partly paperwork. A builder's or general contractor's vendor package wants a legal name, an HST number, a WSIB clearance certificate and an insurance certificate that all match one entity — and under Ontario's Construction Act, the 10% holdback and any lien rights attach to whichever entity signed the contract. Set the corporation up before the first vendor file opens and every certificate is issued once. Incorporate mid-relationship and each account gets re-papered as a new vendor while invoices wait in the queue.
The first-week checklist is short but ordered: a corporate bank account before the next client deposit lands, so customer money never touches a personal account; the HST account before the first invoice; a payroll account before the first bench hire; WSIB registration before an installer sets foot on a site. Each item is trivial on day one and a cleanup project retroactively.
Already running the bench personally? Roll it in, don't sell it in
An existing sole proprietorship's machines, racked inventory, jigs and goodwill can usually move into a new corporation on a tax-deferred section 85 rollover rather than a taxable sale — with the lender's consent obtained first wherever equipment is financed, since security follows the asset. Register the corporation for HST immediately: cabinet sales are fully taxable at 13%, the $30,000 small-supplier threshold disappears inside the first kitchen or two anyway, and early registration recovers the input tax credits on the fit-out — the booth, the wiring for the machines, the racking and the first sheet order.
Shares built for the day someone wants the shop
Shops with a CNC, a trained bench and a builder book get bought. The $1.25 million lifetime capital gains exemption only helps if the shares qualify when the offer arrives: substantially all of the corporation's assets in active business use, with surplus cash swept out rather than parked. Deposit money tied to open jobs is working capital; investment balances that pile up beyond the shop's needs are what put qualification at risk, and a holding company — often also the right owner for the industrial unit itself — keeps them out of the operating company. The share classes are also where family enters the picture: a spouse who genuinely works in the shop, on drawings, scheduling or the books, can hold shares from day one far more cleanly than shares gifted the year before a sale. We set the classes up at incorporation, and the ongoing hygiene lives with Tax Planning & Advisory.
Our Incorporation engagements handle the articles, the share structure, the minute book and the CRA program accounts, quoted in writing after a free 15-minute discovery call. If the shop is in Mississauga or anywhere in the GTA, start at contact before the next contract needs a name on it.
