Entity Setup
Entity Setup Strategies: Employee Ownership Trusts & Co-operatives Under New CGE Exemption
Permanent $10M capital gains exemption for transfers to employee ownership trusts or worker co-operatives opens avenues for business owners to structure succession effectively—here’s how to evaluate and implement.
By NomadicTax Research Team • 5-8 min read • July 3, 2026
## What Changed in Policy
- Under **Bill C-30**, the government has made **permanent** the **$10 million capital gains exemption (CGE)** for qualifying transfers to **employee ownership trusts (EOTs)** and **worker co-operatives**. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/06/legislation-passes-to-implement-measures-from-the-spring-economic-update-2026.html?utm_source=openai))
- This measure supports **business succession planning**, enabling owners to transfer shares without incurring large gains tax, while preserving operations locally. **Important eligibility criteria** need to be met.
## What Owners Should Consider Before Entity Setup
1. **Determine if your business qualifies**
- Must be a *qualifying small business corporation or property* under existing farm / fishing / small business criteria.
- Structuring must meet trust or cooperative rules.
2. **Plan the transfer timing**
- Transfers under Bill C-30 are effective immediately; ensure structuring for trust or coop is in place when transferring.
3. **Assess valuation and impacted gains**
- Obtain a qualified appraisal of shares.
- Confirm gain eligible under the CGE. \$10 million is substantial but must align with net gain after liabilities, costs, etc.
4. **Legal & tax compliance steps**
- Draft shareholder agreement, trust deed or coop bylaws that conform to legal provisions for employee ownership or co-operatives.
- Engage tax counsel/accountant to ensure transfers don’t violate anti-avoidance or other tax rules.
## Example Scenario
*Ahmed* owns a tech startup with \$8 million in capital gains built up over years. He wants to retire, but keep employees engaged. By setting up an **Employee Ownership Trust**, Ahmed can transfer his shares into the EOT. Because \$8M < \$10M exemption threshold, the transfer incurs **no federal capital gains tax** (assuming all eligibility criteria are met). Employees receive benefits without Ahmed having to liquidate the business.
If his business had \$12M in gains, the first \$10M would be exempt; the \$2M in excess would be subject to standard capital gains treatment.
## Risks & Alternative Structures
- If the business fails to qualify (e.g., improper trust structure or coop rules), CGE exemption could be denied.
- State provincial taxes may still apply—federal exemption doesn’t erase provincial liability.
- Other structures like family trusts or conventional share sales may still be better in some cases.
## Action Plan for Business Owners
- Begin conversations early with your team and legal advisors.
- Ensure legal documentation is ready for trusts or cooperatives.
- Valuate your business accurately now, before market shifts.
- Consider phased ownership if entire transfer at once isn’t feasible.
**Bottom line**: The new permanent CGE exemption creates a unique opportunity for succession and employee-ownership models. With careful planning, you can leverage it to align business, tax, and social goals.