What Is the Employee Ownership Trust (EOT) Exemption?
The Employee Ownership Trust exemption, made permanent in June 2026 via Bill C-30, allows qualifying business transfers to employee ownership trusts or worker co-operatives to benefit from a capital gains exemption on up to $10 million in gains. This measure is designed to support succession planning, local business continuity, and shared prosperity. (canada.ca)
Who Qualifies and How It Works
- Qualifying Transfer: The business owner sells their shares or assets to an EOT or worker co-operative, meeting certain criteria regarding ownership structure and control.
- Max Gain Exempted: Up to $10 million in capital gains. This is permanent, not a temporary pilot.
- Holding Conditions: The trust or cooperative must meet rules around employee benefits, governance, and ongoing ownership stakes.
- Timing: Because the law is now enacted, future transfers can rely on this for succession planning.
Actionable Tips for Small Business Owners
| Step | What to Do | Considerations / Concrete Example |
|---|---|---|
| Early Evaluation | Assess whether your business qualifies: legal structure, financials, employee trust options | Example: A family-owned machining shop valued at $8M might shift ownership gradually to employees to keep under the exemption cap. |
| Legal and Governance Setup | Create or convert into an EOT or worker co-operative, ensure trust deed or cooperative bylaws reflect required governance | Engage a tax advisor and lawyer to draft the trust/co-op documents. |
| Valuation Planning | Get accurate valuation of shares/assets to ensure you capture full exemption without overpricing | If the business appraises at $12M, only $10M of gain is exempt—plan accordingly. |
| Timing the Sale | Coordinate the transfer when the exemption is most beneficial, possibly aligning with retirement or exit | If planning retirement in 2027, transfer in late 2026 might allow for tax planning around other income. |
Potential Pitfalls and Compliance Issues
- Failing to meet ongoing trust/co-op rules could disqualify exemption and lead to full taxation.
- Overlooking provincial tax implications: capital gains exemptions often interact differently with provincial taxes—must coordinate federal and provincial.
- Risk of valuation disputes: CRA may challenge valuations higher than market.
Why This Matters
This exemption doesn’t just save taxes—it supports stability in communities dependent on small or mid-sized businesses. Owners contemplating retirement now have an alternative to selling out entirely: transferring ownership to employees while benefiting from tax relief. It also fosters shared wealth, retention of local jobs, and more resilient businesses.
Final Takeaway: If you’re considering succession in your business, explore the EOT pathway—get your valuation, legal structure, and timing right to maximize the $10 million federal exemption while satisfying all conditions.