How to Start a Manufacturing Company in Ontario
The complete step-by-step guide to starting a manufacturing business in Ontario. Covers incorporation, CCA classes for production equipment, SR&ED tax credits, Clean Technology ITC, environmental permits, zoning, WSIB, insurance, inventory accounting and manufacturing-specific tax planning. Written by a licensed Ontario CPA.
Step 1: Incorporate Your Manufacturing Company
Every manufacturing business in Ontario should incorporate before leasing a facility, purchasing equipment or taking its first production order. Manufacturing carries significant liability exposure: product liability claims, equipment-related workplace injuries, environmental contamination and supply contract disputes. A corporation is a separate legal entity that shields your personal assets from these risks.
Beyond liability protection, manufacturing businesses benefit more from incorporation than almost any other industry because of the tax deferral on retained earnings. A CCPC pays 12.2% combined tax on the first $500,000 of active business income. Manufacturing companies routinely reinvest profits into equipment, inventory and facility upgrades. Keeping those funds inside the corporation at 12.2% instead of paying personal rates of 29% to 53.53% means significantly more capital available for production investment.
At $250,000 net income with $150,000 retained in the corporation, the annual tax deferral is approximately $28,890. Over five years, that is $144,450 reinvested in production equipment, raw materials and facility improvements instead of paid to CRA as personal income tax.
| Factor | Sole Proprietorship | Corporation (CCPC) |
|---|---|---|
| Liability protection | None. Personal assets at risk from product liability, workplace injuries and environmental claims. | Separate legal entity. Personal assets protected (director liability for unremitted payroll, HST and environmental liabilities still applies). |
| Tax rate on net income | 20% to 53.53% Ontario personal rates | 12.2% on first $500,000 active business income |
| Tax deferral at $250,000 net income | $0 | $28,890 per year |
| Equipment financing | Personal guarantee. Higher rates. No CCA optimisation. | Corporate credit profile. Equipment loans in corporation's name. CCA Class 53 at 50%. |
| SR&ED eligibility | Available but limited | 35% refundable credit for CCPCs on first $2M of eligible expenditures |
| LCGE on future sale | Not available | Up to $1,016,836 per shareholder on qualifying CCPC shares |
| Incorporation cost through Gondaliya CPA | N/A | $35 federal or $335 Ontario (all-inclusive) |
Incorporate Your Manufacturing Company for $35
Federal incorporation includes government fee, NUANS, Articles, minute book and CRA registration.
Step 2: Secure a Manufacturing Facility and Confirm Zoning
Before signing a lease or purchasing a facility, confirm that the property is zoned for manufacturing use by your municipality. Operating a manufacturing business in a commercially or residentially zoned property is illegal and can result in closure orders, fines and lease termination.
| Requirement | Details | Where to Apply |
|---|---|---|
| Municipal zoning confirmation | Confirm the property is zoned for industrial or manufacturing use (M1, M2 or equivalent in your municipality). Certain manufacturing types (food processing, chemical, welding) may have additional zoning restrictions. | Municipal planning department |
| Building permit (if renovating) | Any structural changes, electrical upgrades, HVAC modifications or plumbing work require a building permit before construction begins. | Municipal building department |
| Fire safety plan | Manufacturing facilities must file a fire safety plan with the local fire department. Includes fire extinguisher placement, emergency exits, hazardous material storage and evacuation procedures. | Local fire department |
| Accessibility compliance (AODA) | Ontario manufacturers must comply with the Accessibility for Ontarians with Disabilities Act for customer-facing areas and employment practices. | Ontario Ministry for Seniors and Accessibility |
Lease Negotiation for Manufacturers: Manufacturing leases are fundamentally different from retail or office leases. Negotiate for adequate electrical capacity (three-phase power for CNC machines, welders and compressors), floor load capacity (for heavy equipment), ceiling height (minimum 16 feet for most manufacturing), overhead door access for shipping and receiving, and clear zoning confirmation in the lease. A five-year manufacturing lease on a 5,000 sq ft industrial unit in the GTA ranges from $60,000 to $100,000 per year net. The lease deposit and build-out are typically your second-largest startup cost after equipment.
Step 3: Obtain Environmental Permits and Approvals
| Permit or Approval | When Required | Issuing Authority | Timeline |
|---|---|---|---|
| Environmental Compliance Approval (ECA) | Required for air emissions, noise emissions, waste disposal, sewage works or industrial water discharge that exceed EASR thresholds | Ontario Ministry of the Environment, Conservation and Parks (MECP) | 3 to 12 months (complex applications take longer) |
| Environmental Activity and Sector Registry (EASR) | Lower-risk activities that fall below ECA thresholds but still require registration. Covers standby generators, small-scale air emissions and stormwater management. | MECP online registry | Self-registration, immediate |
| Hazardous waste generator registration | Any manufacturer producing hazardous waste (solvents, oils, chemicals, plating solutions) must register as a generator. | MECP | Online registration, 2 to 4 weeks |
| Municipal sewer use by-law compliance | Discharge of industrial wastewater to the municipal sewer system requires a sewer use agreement and may require pre-treatment. | Municipal works department | 4 to 12 weeks |
| Noise assessment (if near residential) | Manufacturing facilities near residential areas may require a noise impact assessment demonstrating compliance with NPC-300 guidelines. | MECP (reviewed as part of ECA) | Included in ECA process |
Environmental Liability Pierces the Corporate Veil: Unlike most business liabilities, environmental contamination can result in personal liability for directors and officers under Ontario's Environmental Protection Act. If your manufacturing facility contaminates soil, groundwater or neighbouring properties, MECP can issue cleanup orders against the corporation and its directors personally. Environmental insurance and proper waste management are not optional for Ontario manufacturers.
Step 4: Register with CRA (HST, Payroll, Corporate Tax)
| CRA Account | Key Details for Manufacturers |
|---|---|
| GST/HST account | Register before purchasing equipment or raw materials. HST on domestic sales at 13% (Ontario). Exports of manufactured goods are zero-rated (0% HST, full ITCs claimable on all Canadian inputs). Register early to claim ITCs on pre-production equipment and facility costs. |
| Payroll account (RP) | Required before paying any employee. Manufacturing companies with shift workers must process payroll accurately across day, evening and night shifts with correct overtime calculations under the Employment Standards Act. |
| Corporate income tax (RC) | T2 due 6 months after fiscal year-end. Balance owing due 2 months (3 months for CCPCs with prior-year income under $500,000). Manufacturing-specific schedules include CCA (Schedule 8), SR&ED (T661) and Clean Tech ITC. |
CRA Registration Included Free with Every $35 Incorporation
We register your Business Number, HST, Payroll and Corporate Tax accounts as part of your incorporation.
Register for HST Before You Buy Equipment: Ontario manufacturers should register for HST immediately at incorporation, before purchasing any production equipment, raw materials or facility improvements. Every dollar of HST paid on pre-production purchases (13% on equipment, supplies, professional fees, renovation costs) is recoverable as an ITC. A $300,000 equipment purchase without HST registration means $39,000 in unrecoverable HST. Register first, buy second.
Step 5: Understand CCA Classes for Manufacturing Equipment
Capital Cost Allowance is the single most valuable tax deduction for Ontario manufacturers. The CCA class determines how quickly you can deduct the cost of production equipment against taxable income. Classifying equipment correctly at the time of purchase is critical because CRA audits manufacturing CCA claims at a higher rate than most other industries.
| CCA Class | Rate | What Qualifies | Example Equipment |
|---|---|---|---|
| Class 53 | 50% declining balance | Manufacturing and processing (M&P) machinery and equipment acquired after 2025. Must be used primarily (over 50%) for M&P in Canada. | CNC machines, injection moulding, stamping presses, robotic welding cells, packaging lines, industrial 3D printers |
| Class 43 | 30% declining balance | Manufacturing and processing equipment not qualifying for Class 53 (acquired before 2026 or not meeting the "primarily" threshold). | General production equipment, compressors, conveyors, testing equipment used partially for M&P |
| Class 29 | 50% straight-line (25% year 1, 50% year 2, 25% year 3) | M&P equipment acquired before 2016 (legacy class, still relevant for existing assets). | Older production equipment still on the CCA schedule |
| Class 8 | 20% declining balance | Furniture, fixtures, non-production equipment, office equipment, general-purpose tools. | Office furniture, forklifts (non-production), shelving, general tools |
| Class 1 | 4% declining balance | Manufacturing buildings and facility structures. | Factory building, warehouse, loading docks (owned, not leased) |
| Class 13 | Straight-line over lease term | Leasehold improvements to a leased manufacturing facility. | Electrical upgrades, HVAC, floor reinforcement, overhead doors, ventilation systems |
| Class 12 | 100% | Tools, dies, moulds and jigs costing under $500 each. Also includes computer software. | Hand tools, cutting dies, inspection gauges, production software licences |
Immediate Expensing for CCPCs: The Immediate Expensing incentive allows Canadian-Controlled Private Corporations to write off up to $1.5 million in eligible capital property in the year of acquisition. For a manufacturer purchasing $500,000 in CNC equipment, this means the full $500,000 can be deducted against taxable income in year one instead of over multiple years using the standard CCA rate. This is the most powerful tax incentive available to Ontario manufacturers. We assess Immediate Expensing eligibility for every equipment purchase.
Step 6: Claim SR&ED and Clean Technology Tax Credits
| Tax Credit | Rate | What Qualifies for Manufacturers | Dollar Impact |
|---|---|---|---|
| SR&ED (Scientific Research and Experimental Development) | 35% refundable for CCPCs on first $2M of eligible expenditures | New product development, process improvement that involves technological uncertainty, prototype design, custom tooling development, material testing, production line optimisation with systematic investigation | $300,000 in eligible salaries and materials = $105,000 refundable credit |
| Ontario Innovation Tax Credit (OITC) | 8% non-refundable on eligible Ontario SR&ED expenditures | Provincial complement to the federal SR&ED. Applied in addition to the 35% federal credit. | $300,000 eligible = $24,000 additional Ontario credit |
| Clean Technology Investment Tax Credit | Up to 30% refundable | Zero-emission manufacturing equipment, battery assembly, EV components, clean energy generation and storage equipment, carbon capture systems | $200,000 in qualifying clean tech equipment = $60,000 refundable credit |
| Canada Digital Adoption Program (CDAP) | Grant up to $15,000 + interest-free BDC loan up to $100,000 | Digital technology adoption: ERP systems, MES (manufacturing execution systems), IoT sensors, automated quality control, AI-driven production planning | $15,000 grant + $100,000 zero-interest loan for digital transformation |
SR&ED Is Not Just for High-Tech: Many Ontario manufacturers assume SR&ED is only for software or biotech companies. This is incorrect. Any manufacturer conducting systematic investigation to resolve technological uncertainty qualifies. Developing a new welding technique, optimising a chemical formulation, designing custom tooling to reduce defect rates, or testing new materials for structural performance all qualify. The key requirement is that you faced a technological problem that could not be solved using standard industry knowledge and you conducted systematic experiments to resolve it. We assess SR&ED eligibility for every manufacturing client. SR&ED Assessment →
Step 7: Get Manufacturing Insurance and WSIB
| Insurance Type | Why Manufacturers Need It | Typical Annual Cost |
|---|---|---|
| Commercial general liability (CGL) | Covers bodily injury and property damage from manufacturing operations. Most landlords and customers require $2M to $5M minimum. | $2,000 to $8,000 |
| Product liability | Covers claims arising from defective products that injure customers or damage property. Essential for any manufacturer selling to consumers or OEMs. | $1,500 to $6,000 (depends on product type and volume) |
| Property insurance | Covers production equipment, inventory, raw materials and facility improvements against fire, theft, flood and vandalism. | $2,000 to $10,000 (based on insured value) |
| Equipment breakdown insurance | Covers mechanical and electrical breakdown of production equipment not caused by an external event. Standard property insurance excludes equipment failure. | $500 to $3,000 |
| Business interruption insurance | Replaces lost revenue during forced closure from fire, flood, equipment failure or supply chain disruption. | $1,000 to $4,000 |
| Environmental liability insurance | Covers cleanup costs, third-party claims and regulatory fines from accidental contamination. Not covered by standard CGL. | $1,500 to $5,000 |
| WSIB (workers' compensation) | Mandatory for Ontario manufacturers with employees. Covers workplace injuries. Manufacturing rates are higher than office or retail due to injury risk. | $3.00 to $8.00 per $100 insurable earnings (varies by NAICS classification) |
Step 8: Understand Manufacturing-Specific Tax Rules
| Tax Rule | What It Means for Manufacturers | Dollar Impact |
|---|---|---|
| HST on exports (zero-rated) | Manufactured goods exported outside Canada are zero-rated (0% HST). You do not charge HST to international customers but claim full ITCs on all Canadian inputs (raw materials, equipment, utilities, rent). | A manufacturer exporting $500,000 in goods claims $40,000+ in annual ITCs with no HST collected on exports |
| HST on domestic sales | Manufactured goods sold within Ontario are taxable at 13%. Inter-provincial sales follow place-of-supply rules (generally 5% GST for goods shipped to non-HST provinces). | Configure invoicing and accounting software for correct HST per province of delivery |
| Inventory valuation | Raw materials, work-in-progress and finished goods must be valued at the lower of cost or net realisable value at year-end. The inventory valuation method (FIFO, weighted average) must be consistent year to year. | Incorrect inventory valuation overstates or understates COGS, directly changing taxable income |
| Employee vs. contractor classification | CRA's four-part test applies to production workers, machine operators and quality inspectors. Misclassification triggers retroactive CPP, EI and source deductions. | Reclassification of 10 production workers at $45,000 each = $45,000+ in retroactive CPP/EI plus penalties |
| T5018 for construction manufacturers | Manufacturers that subcontract fabrication, installation or construction work must file T5018 subcontractor payment statements. $25/day penalty per statement for non-filing. | 20 subcontractors unfiled = up to $50,000 in penalties per year |
| Transfer pricing (exporters with related parties) | Manufacturers selling to or purchasing from related non-resident entities must price intercompany transactions at arm's length under Section 247. Contemporaneous documentation required. | 10% penalty on the transfer pricing adjustment amount for non-compliance |
Explore our dedicated support for manufacturing businesses, including setup, tax planning, and compliance guidance: Manufacturing Accounting & Tax Services
Step 9: Set Up Manufacturing Bookkeeping
| System | What to Set Up | Why |
|---|---|---|
| Cloud accounting software | QuickBooks Online or Xero. Configure chart of accounts for manufacturing: revenue by product line, raw materials (COGS), direct labour, manufacturing overhead, finished goods inventory, shipping. | Monthly bookkeeping, HST filing, inventory tracking, financial statements and T2 preparation flow from properly configured software. |
| Inventory tracking | Track raw materials received, WIP and finished goods shipped. QBO Advanced or a dedicated inventory system (inFlow, Fishbowl) integrated with your accounting software. | Accurate inventory valuation is required for T2 filing. CRA audits manufacturing inventory at year-end. |
| Job costing | Track costs by job or production order: raw materials, direct labour hours and machine time per order. | Job costing determines product profitability, pricing accuracy and COGS for each product line. |
| Bank account | Dedicated business chequing account. All revenue deposited. All expenses paid from business. No personal transactions. | CRA compares deposits to reported revenue. Mixed accounts trigger audits. |
| Receipt management | QBO Mobile or Xero Hubdoc. Photograph every raw material invoice, equipment receipt and utility bill within 48 hours. | Missing supplier invoices mean lost ITCs and unsupported COGS deductions on audit. |
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QBO or Xero setup, inventory tracking, HST filing, payroll and your annual T2 filed FREE.
Step 10: Budget Your Manufacturing Startup Costs
| Expense Category | Small Shop (2,000 sq ft) | Mid-Size (5,000 sq ft) | Large Facility (15,000+ sq ft) |
|---|---|---|---|
| Incorporation and CRA registration | $35 | $35 | $35 |
| Facility lease deposit (first/last + security) | $15,000 | $35,000 | $80,000 |
| Facility build-out and renovation | $20,000 | $60,000 | $200,000 |
| Production equipment | $50,000 | $200,000 | $750,000 |
| Raw materials (initial inventory) | $10,000 | $30,000 | $100,000 |
| Environmental permits and compliance | $2,000 | $5,000 | $20,000 |
| Insurance (first year) | $5,000 | $15,000 | $40,000 |
| Licensing, zoning and fire safety | $1,500 | $3,000 | $8,000 |
| Working capital (3 months operating) | $30,000 | $80,000 | $250,000 |
| ERP/inventory software and IT setup | $2,000 | $8,000 | $25,000 |
| Total estimated startup cost | $135,535 | $436,035 | $1,473,035 |
10 Mistakes New Ontario Manufacturers Make
| # | Mistake | Consequence |
|---|---|---|
| 1 | Not incorporating before purchasing equipment | Personal liability for product claims, workplace injuries and environmental contamination. No SBD deferral on equipment investment profits. |
| 2 | Not registering for HST before buying equipment | $39,000 in unrecoverable HST on a $300,000 equipment purchase. Register first, buy second. |
| 3 | Classifying M&P equipment under Class 8 (20%) instead of Class 53 (50%) | A $200,000 CNC machine at Class 8 generates $40,000 first-year CCA. At Class 53, it generates $100,000. Lost deferral: $60,000. |
| 4 | Not claiming SR&ED on product development and process improvement | Most manufacturers never claim SR&ED because they assume it is only for "high-tech." The 35% refundable credit on eligible R&D is the most under-claimed incentive in Ontario manufacturing. |
| 5 | Ignoring environmental permits until MECP issues a compliance order | MECP orders are retroactive, expensive and can result in facility closure and personal director liability. |
| 6 | Leasing a facility without confirming manufacturing zoning | Forced relocation, lease liability on a property you cannot use and potential municipal fines. |
| 7 | No inventory tracking system from day one | Inaccurate COGS, incorrect year-end inventory valuation, HST filing errors and a T2 that does not reflect actual profitability. |
| 8 | Misclassifying production workers as independent contractors | CRA four-part test reclassification with retroactive CPP, EI, source deductions and escalating penalties. |
| 9 | Not carrying product liability insurance | A single defective product claim can produce a six-figure settlement. No insurance means the corporation and potentially the directors absorb the full cost. |
| 10 | No bookkeeping or job costing system in the first year | $5,000+ year-end cleanup, missed ITCs on raw materials, inaccurate product pricing and a T2 filed late with penalties. |
Avoid Every Mistake on This List. Start With a CPA.
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Launch Checklist for Ontario Manufacturing Companies
- Corporation incorporated and Certificate of Incorporation received
- CRA Business Number registered (HST, Payroll, Corporate Tax)
- Manufacturing facility zoning confirmed with municipal planning department
- Building permit obtained (if renovating)
- Environmental Compliance Approval or EASR registration completed (if applicable)
- Fire safety plan filed with local fire department
- Commercial general liability and product liability insurance in place
- Environmental liability insurance in place
- WSIB registration completed for all employees
- Business bank account opened, separate from personal
- QBO or Xero configured with manufacturing chart of accounts and inventory tracking
- Payroll system configured for all production employees with correct shift and overtime rules
- Receipt management system active (QBO Mobile or Hubdoc)
- SR&ED eligibility assessment scheduled with CPA for first year of operations
Frequently Asked Questions: Starting a Manufacturing Company in Ontario
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