Risk is the reason; tax pays for it
Trades often incorporate for the tax rate. General contractors should incorporate for the exposure, because a GC signs for everything: the sub's defective work, the schedule, the warranty, the site. A corporation makes the company, not you, the party to those contracts, so a project that goes wrong claims against corporate assets before it ever reaches your house. Insurance remains the first line of defence; the corporation is the second, and unlike insurance it has no exclusions page.
The tax case then pays for the structure many times over. But it is worth being precise about what the shield covers, because construction is the industry where the gaps are widest.
What the corporation does not protect
Three gaps matter, and anyone selling incorporation without mentioning them is not being straight with you:
- Personal guarantees. Banks, sureties and often major suppliers will want your signature beside the corporation's. The shield does not cover debts you guaranteed personally.
- The Construction Act trust. Money you receive on a project is trust money for the subs and suppliers who worked on it, and directors and officers who assent to a breach of that trust are personally liable. Using Job A's draw to float Job B is exactly the pattern the trust sections punish, corporation or not.
- Your own negligence. Incorporation does not shield personal wrongdoing, and it does not replace CGL and builder's risk coverage.
None of this argues against incorporating; it argues for running the corporation properly, with project cash handled as the trust it legally is. Books that track cash by job are not just good management here; they are how a director shows the trust was respected.
The tax case, side by side
| Question | Sole proprietor GC | Incorporated GC |
|---|---|---|
| Tax on profit | Your marginal personal rate, above 53% at the top in Ontario | About 12.2% on the first $500,000 of active profit; personal tax only on what you take out |
| Profit kept in the business | Taxed in full regardless | Funds equipment, holdback float and bonding capacity at pretax scale |
| A project claim | Reaches personal assets directly | The corporation answers first, subject to guarantees and trust liability |
| Selling one day | Asset sale, fully taxed | A share sale can shelter up to $1.25 million with the LCGE |
The deferral is the working number: roughly 40 percentage points of tax stay in the company on every retained dollar, and a contracting business consumes working capital, so retained dollars are never idle. The corporation only wins if you can afford to leave money in it. A GC drawing every dollar to live on gains far less, and we will say so at the free discovery call stage, not after the invoice.
Opco, holdco, and where the equipment lives
Once profit is being retained, the next question is where. Cash that stays in the operating company sits in front of construction risk, so the standard evolution is a holding company: the opco pays its profit up as tax-free intercorporate dividends, and the war chest accumulates behind the claims line instead of in front of it. Some contractors go a step further and hold major equipment in a separate entity that rents it to the opco, keeping the iron out of reach of project claims as well.
Structure also protects the exit. The $1.25 million lifetime capital gains exemption on a share sale requires the company to pass the active-business purity tests, and a corporation stuffed with passive cash fails them; a holdco is how retained wealth and LCGE purity coexist. If you incorporated years ago and the holdco question is arriving now, Corporate Restructuring is the same conversation done mid-flight.
Incorporating without breaking a live job
The mechanics are a sequence, and in construction the order matters more than usual: articles and share structure first, designed for a future holdco rather than rebuilt for one; then the CRA accounts, corporate tax, HST and payroll, plus the T5018 filing obligation that continues under the new entity; then WSIB, where construction registration is mandatory and your account has to follow the business; then municipal licensing, insurance and any contracts or bids that need to land in the corporation's name. Mid-project switches create exactly the payment-chain confusion the Construction Act exists to prevent, so we time the change to the gap between jobs.
Our Incorporation service runs that sequence end to end and pairs it with a first-year plan for owner pay and retained profit, quoted in writing after a free 15-minute discovery call. We work with contractors across Mississauga and the GTA.
