Construction is the backbone of British Columbia's economy. From the Lower Mainland's condo towers to the Okanagan's residential developments to Northern BC's resource infrastructure, incorporated construction companies drive growth in every region of the province.
The owners of those companies share a common profile: they started with a truck and a trade ticket, built the business over 15 to 25 years, reinvested most of the profits back into the company, and now hold a corporation worth $1 million to $10 million — with most of that value sitting as retained earnings, equipment, and land.
They also share a common blind spot. Almost none of them have been shown what happens to that corporation the day they die.
Construction companies present the highest estate tax risk of any industry in BC, for three compounding reasons.
Reason 1: Heavy retained earnings. Construction is a capital-intensive business. Profitable companies accumulate retained earnings to finance equipment purchases, carry receivables, bond jobs, and bridge cash flow between project milestones. A company grossing $5 million annually with healthy margins can accumulate $2 to $4 million in retained earnings over 15 years — all of which inflates the fair market value of the shares.
Reason 2: Appreciating hard assets. Unlike a consulting firm or medical practice where value is primarily goodwill, construction companies hold tangible assets that appreciate or retain value: excavators, cranes, trucks, trailers, concrete equipment, and — critically — land. Many construction companies own the commercial lots where they store equipment, stage materials, or operate offices. That land has appreciated dramatically in BC over the past decade.
Reason 3: Nominal cost base. Most construction company owners incorporated for $1,000 or less. Their adjusted cost base on the shares is essentially zero. When the corporation is worth $3 million and the ACB is $1,000, the deemed capital gain at death is $2,999,000. There is almost no cost base to shelter any of the gain.
These three factors combine to create the highest-exposure scenario in estate planning: a high-FMV corporation with a near-zero ACB and significant illiquid assets that cannot be quickly converted to cash.
Consider a typical scenario. A 58-year-old general contractor in Surrey incorporated his construction company 20 years ago. The company's current fair market value:
Retained earnings: $1,800,000
Equipment (net of depreciation): $600,000
Commercial land (yard and office): $500,000
Goodwill and contracts: $100,000
Total FMV: $3,000,000
ACB of shares: $1,000
Under subsection 70(5), the deemed capital gain at death is $2,999,000.
Without post-mortem planning:
Capital gains tax (terminal return): $802,233
Deemed dividend on share redemption: $1,466,211
BC probate on the estate: approximately $41,450
Total: $2,309,894
His family keeps $690,106 of a $3 million company.
With a pipeline strategy:
Capital gains tax (terminal return): $802,233
Deemed dividend: $0 (eliminated by pipeline)
BC probate: approximately $41,450
Total: $843,683
His family keeps $2,156,317.
The difference: $1,466,211.
Here is where construction companies face a problem that professional corporations and service businesses do not.
When a construction company owner dies and the estate needs $800,000 to $2.3 million within six months to pay CRA, where does the cash come from?
The retained earnings may not all be liquid — much of it is tied up in receivables, work-in-progress, and deposits on materials. The commercial land cannot be sold in six months without accepting a distressed price. That leaves the equipment.
Construction equipment sold under estate liquidation conditions typically fetches 40 to 60 cents on the dollar compared to fair market value. An excavator worth $250,000 on the open market might sell for $120,000 at a forced sale. A fleet of trucks worth $400,000 might bring $200,000.
Worse: selling the equipment dismantles the company's ability to operate. The ongoing contracts require that equipment. The employees who operate it have no work without it. The contracts themselves may have performance bonds that are voided if the company can no longer perform.
The estate does not just lose money on the equipment sale. It loses the entire going-concern value of the business — the contracts, the relationships, the reputation, the employees. A 20-year-old company is reduced to a liquidation event.
This is the scenario that corporate-owned life insurance is specifically designed to prevent.
Strategy 1: Pipeline planning
A pipeline eliminates the deemed dividend layer entirely. The estate creates a new corporation, sells the shares to it at FMV, and the new corporation extracts the retained earnings from the original company through inter-corporate dividends — tax-free under Section 112.
For the $3M construction company above, this saves $1,466,211. The pipeline requires proper will drafting, an executor who understands the process, and professional coordination between the estate's accountant and lawyer. It should be planned before death, even though it is executed after.
Strategy 2: Estate freeze
An estate freeze under Section 86 or 85(1) locks the current value of the corporation on preferred shares. All future growth passes to the next generation on new common shares. This makes the Section 70(5) tax bill predictable: if you freeze at $3 million today, the deemed disposition at death is on $3 million regardless of how much the company grows afterward.
For construction companies that are growing — winning larger contracts, expanding crews, acquiring more equipment — the freeze is particularly valuable. A company worth $3 million today could be worth $6 million in 10 years. Freezing now cuts the future tax bill in half.
The freeze also enables LCGE multiplication if the common shares are held through a family trust. Four adult beneficiaries can each claim their $1,250,000 LCGE, sheltering up to $5 million in capital gains.
Strategy 3: Corporate-owned life insurance
The corporation purchases a permanent life insurance policy on the owner's life. At death, the death benefit is received by the corporation tax-free. The excess of the death benefit over the policy's adjusted cost basis is credited to the Capital Dividend Account. The CDA balance can be distributed to the estate as a tax-free capital dividend under Section 83(2).
This creates the exact liquidity the estate needs — inside the corporation, available immediately, without selling a single piece of equipment or a single lot.
For the $3M construction company with a pipeline strategy, the estate needs approximately $843,000 in total tax. A $900,000 whole life policy purchased at age 48 might cost $18,000 to $24,000 annually in premiums — paid with after-tax corporate dollars at the lower corporate tax rate. Premium estimates are illustrative and vary by insurer and health classification. By the time the owner reaches 70, the policy's cash surrender value has also grown as a corporate asset.
Strategy 4: Buy-sell agreement with partners
Many construction companies have two or more shareholders — often the original partners who started the business together, or a senior employee who was given equity.
A funded buy-sell agreement ensures that when one partner dies, the surviving partners (or the corporation) purchase the deceased partner's shares at a predetermined price, funded by corporate-owned life insurance on each partner's life.
Without a funded agreement: the deceased partner's spouse inherits shares in a company she may not understand, cannot operate, and does not want to be part of. The surviving partners are now in business with someone who wants cash, not equity. The negotiation happens during grief, under time pressure, with CRA's tax clock running.
With a funded agreement: the insurance pays out, the shares are purchased, the spouse receives fair value in cash, the surviving partners retain full ownership, and the company continues operating without disruption.
For construction companies where the business value depends on the owners' relationships with builders, suppliers, and subtrades, this continuity is the difference between a company that survives and one that does not.
The $1,250,000 Lifetime Capital Gains Exemption requires the shares to qualify as qualified small business corporation shares. The 90% active business asset test at the time of death is the critical hurdle.
Construction companies commonly fail this test for one reason: excess cash and passive investments. A company that accumulated $1.8 million in retained earnings may have $600,000 sitting in a savings account or GIC — passive assets that do not qualify as active business assets.
If passive assets exceed 10% of the corporation's total FMV, the shares fail the QSBC test and the entire $1,250,000 LCGE is lost. At BC rates, that costs $334,000 in tax savings.
The solution is purification: moving passive assets out of the corporation before death. This can be done through a combination of dividend payments, bonus payments, intercompany loans to a holding company, or purchasing active business assets (equipment, materials, land used in the business).
The critical point: purification must be done before death. If your corporation fails the 90% test at the moment of death, the LCGE is unavailable regardless of how the company operated in prior years.
The spousal rollover under subsection 70(6) defers the deemed disposition if the shares pass to a surviving spouse. No tax on the first death. But for construction companies, the deferral creates a unique operational problem.
The surviving spouse now owns shares in a construction company she likely cannot operate. The employees, subcontractors, suppliers, and clients have relationships with the deceased owner — not the spouse. The company's bonding capacity may be affected. The safety certifications, trade licenses, and contractor registrations may need to be transferred or reissued.
Even if the company continues operating (perhaps with a trusted foreman or superintendent running day-to-day operations), the spouse faces a choice: operate a business she does not understand, or sell the shares and trigger the deferred tax at that point.
Deferral without a funded plan is not a strategy. It is a postponement that makes the problem larger and more complicated.
Most construction company owners have a good relationship with their accountant. Annual tax filings, GST/HST remittances, T4 slips, corporate tax planning — the accountant handles it all.
But the annual accounting engagement does not typically include estate risk analysis. Your accountant is not sitting down once a year and saying: "Here is what your corporation is worth today. Here is what Section 70(5) would cost your family if you died this year. Here is how that number has changed since last year. And here is whether your current planning — your will, your insurance, your corporate structure — is adequate."
That conversation is the gap NE Capital fills. We do not replace your accountant. We work alongside them. We quantify the exposure they do not have time to calculate in your annual engagement, and we coordinate the insurance solution they cannot provide.
If you own an incorporated construction company in BC, your Section 70(5) exposure exists whether you know it or not. The Legacy Scorecard estimates that number in 90 seconds. Or book a free 15-minute review and we will walk through your specific situation — your company value, your cost base, your existing planning, and the strategies that apply.
The equipment, the land, the contracts, the reputation — everything you built over 20 years. It all depends on what happens in the six months after you die. Make sure your family is ready for that.
This article is educational and does not constitute tax, legal, or financial advice. Tax calculations use confirmed 2025–2026 BC rates. Capital gains inclusion rate: 50%. BC top combined capital gains rate: 26.75%. BC non-eligible dividend rate: 48.89%. Consult qualified professionals for advice specific to your situation. NE Capital operates under NE Financials Inc. Insurance products provided through World Financial Group.