Entity Setup
Entity Setup: Employee Ownership Trusts Made Permanent & Corporate Options
Employee ownership trusts are now permanent in Canada—here’s what that means for business sales, structure, and future tax benefits.
By NomadicTax Research Team • 5-8 min read • July 26, 2026
## What Is an Employee Ownership Trust (EOT)?
An **Employee Ownership Trust (EOT)** is a vehicle through which a company can transfer ownership to a trust that holds shares on behalf of employees. Historically, this setup has been used internationally to align employee incentives, support succession planning, and offer tax advantages.
## Recent Change: EOT Exemption Becomes Permanent
Spring Economic Update 2026 confirms the government’s intention to make the recently introduced **EOT capital gains exemption permanent**. Previously a temporary measure, it applies to qualifying dispositions of shares **between 2023 and end of 2026**, and now is proposed to be ongoing. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
### Example Scenario
Imagine you own a tech firm and sell shares to an EOT in late 2024. With the exemption, the capital gains tax you’d normally pay on that transaction may now be deferred or substantially reduced if conditions are met.
## Key Requirements to Qualify
- The disposition of shares **must be to an EOT or worker cooperative** corporation. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
- Timing matters: while exemption started earlier, now permanent, eligibility requires compliance with any future regulatory rules.
- Share structure, employees’ representation, and governance likely require careful planning and legal structuring.
## Strategic Implications for Business Owners
- If you plan to retire or exit your business, transferring to an EOT could provide a smoother transition while preserving legacy and potentially obtaining tax benefits.
- Employee buy-in may become more feasible with the EOT holding ownership on behalf of the workforce.
- Investors or potential acquirers should check how permanent exemption affects valuation, future tax liabilities, and exit strategies.
## Related Corporate Tax Relief Measures
- Accelerated Capital Cost Allowance (CCA) rates now available for **low-carbon liquefied natural gas (LNG)** facilities (Class 47 equipment 50%, Class 1 buildings 10%) if emissions intensity is ≤ 0.20 tCO₂e per tonne LNG produced. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
- Also, **Investment Tax Credit for Carbon Capture, Utilization, and Storage (CCUS)** enhanced to include storage via enhanced oil recovery, though at reduced credit rates. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/07/government-launches-consultation-on-draft-legislation-for-various-tax-measures.html?utm_source=openai))
## Action Plan
1. Consult legal and financial advisors to examine whether your business qualifies as an EOT or worker co-op.
2. Assess share valuation and management transfer arrangements ahead of transition.
3. Document and structure employee governance, profit sharing, and trust terms carefully to comply with evolving tax rules and ensure transparency.
4. For companies in energy or emissions-intensive sectors, evaluate eligibility for the CCA and CCUS tax credits to integrate into your capital investment planning.
With the EOT exemption now permanent, entity setup decisions have gained stability—and opportunities to align tax savings with employee ownership are stronger than ever.