Why they sink father's boat?

I think it's probably because the father was found dead in the water, whether he fell over and drowned, had a stroke or something and fell into the water, or whatever. I guess they wanted his boat to sort of follow him to his watery resting place. Also, sinking the boat created an obstacle for the South Shell company the diggers were competing with, as now this big broken up boat was sunk in the South Shell's private digging area, for them to get boats hung up on it and nets stuck and stuff, which the protagonist diggers found highly amusing and as a form of revenge :)

semi viking funeral.

It's possible they buried his boat and his remains in the restricted area because before the area was claimed and restricted, those waters were his territory for years. Obviously they were giving the middle finger to the faceless corporation who stripped the men of their business, but I also think it was a way of metaphorically taking back their territory; In particular, his father's territory. He was laid to rest in the very place he lived.
This is a great question, onemako. After all, the father's character and the events surrounding his death and burial were left open to interpretation. That's one of the things I liked about this film. The development of the characters and events weren't wrapped in a neat little package and tied with a bow. Life doesn't do that for you either.