Entity Setup
How the Employee Ownership Trust Tax Exemption Becoming Permanent Shapes Succession Planning
With the Employee Ownership Trust (EOT) capital gains exemption now proposed to be made permanent, business owners have a new planning tool for exiting or transferring their business to employees.
By NomadicTax Research Team • 5-8 min read • April 29, 2026
## What is the Employee Ownership Trust (EOT) Tax Exemption?
The **Employee Ownership Trust Tax Exemption** allows individuals to shelter up to **CAD $10 million** of capital gains when selling their business to an employee ownership trust or qualified worker cooperative under certain conditions. Originally introduced as a temporary measure for dispositions after 2023 up to end-of-2026, the Spring Economic Update 2026 proposes to make it **permanent**. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/chap1-en.html?utm_source=openai))
## Why It Matters Now
- For business owners planning succession, selling to employees via an EOT retains business continuity, preserves culture, and avoids a buyer search.
- The tax relief helps reduce the sting of capital gains tax, preserving value for sellers or retiring founders.
- Worker cooperatives are now included under the permanent exemption proposal, expanding eligibility. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/chap1-en.html?utm_source=openai))
## Key Conditions and Rules
- The business must meet qualifying criteria (active business in eligible sectors; not just passive income).
- Dispositions must occur to an **Employee Ownership Trust** or **worker cooperative corporation**. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
- The exemption applies to individuals (not trusts) selling to these structures.
- For sales after 2023 up to end of 2026 it has been in place; the permanent change would eliminate the scheduled expiry. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
## Planning Strategies
- If you plan to sell before end-of-2026, ensure all qualifying requirements are satisfied now to benefit under the existing temporary measure.
- Lawyers and accountants should review ownership structure and corporate documents to align with trust requirements.
- Employee ownership trust models should be evaluated for governance, funding, and alignment toward long-term sustainability.
- Consult on valuing the business carefully—capital gains exemptions depend on proper valuation, asset mix, and eligibility.
## Example Scenario
**Scenario:** Jane owns a tech firm valued at CAD $8 million. She wishes to retire in 2025 and sell to employees. Under the temporary EOT exemption, the entire capital gain would be sheltered.
If Jane waits until 2027, without permanent status, the exemption may lapse, exposing the gain to full inclusion. But with the permanent exemption, eligible sales beyond 2026 will still attract relief.
## Actionable Steps Right Now
- Evaluate whether your business qualifies as an active business in an eligible sector.
- Consider employee ownership or the establishment of a worker co-op if you're planning transition.
- Obtain legal advice to set up an EOT structure (trust deed, governance, funding).
- Update financial records and valuations to ensure that when a sale occurs, documentation is robust.
- Monitor legislative progress so you're ready for full implementation when permanent status becomes law.