What is the Employee Ownership Trust (EOT) Capital Gains Exemption?
The Employee Ownership Trust is a structure where a trust holds shares of a company for the benefit of its employees. In Canada, a temporary $10 million exemption on capital gains realized from the sale of a business to an EOT or worker cooperative was introduced in the 2023 Fall Economic Statement, applying to transactions completed between 2024 and the end of 2026. (budget.canada.ca)
Spring 2026 Update: Making It Permanent
In the Spring Economic Update 2026 (tabled April 28, 2026), the Canadian government proposed to remove the 2026 expiry date, making the exemption permanent. (budget.canada.ca) Subsequently, Bill C-30, the Spring Economic Update 2026 Implementation Act, received Royal Assent on June 18, 2026, enshrining this exemption permanently into law. (wealthprofessional.ca)
Why This Matters: Strategic Benefits & Impact
- Succession certainty: Business owners can now plan exits to EOTs without worrying about legislative expiry.
- Employee wealth-building: Workers share in ownership and value creation, strengthening morale and retention.
- Flexible structure: EOTs and co-ops provide options different from traditional sales to private parties.
- Tax savings example: Owner of a company sells for $5 million qualifying shares—capital gains taxed much lower or not at all with the exemption, versus regular inclusion in income.
Practical Considerations & Eligibility Checklist
| Requirement | Detail |
|---|---|
| Qualifying business | Must be an eligible business where employees benefit; meets related criteria for EOT or worker co-op. |
| Vendor conditions | Seller must be an individual (not a trust) disposing of shares (or interest) under specific rules. |
| Holding rules | EOT/co-op must maintain status; any disqualifying events could reverse benefits. |
| Capital gains limit | The exemption applies up to $10 million in capital gains. |
Actionable Steps for Business Owners & Advisors
- Assess whether EOT or worker co-op is right for your business: think about size, structure, governance, and employee engagement.
- Get valuation and legal opinions early: ensure your business qualifies and structure is compliant.
- Plan for timing: while exemption is permanent, closing sales may take time; early planning avoids rushed compliance.
- Employee communication: transitions involving employee ownership often require change management and clarity.
- Stay updated on regulations: technical rules around EOTs—related party tracing, timeline requirements—can affect tax outcomes.
Bottom Line
With the permanent capital gains exemption for business sales to EOTs and worker co-ops, owners now have a more predictable toolkit for succession planning. This policy not only supports worker ownership but strengthens community-based business continuity—good for people, good for tax policy.