What Is the Employee Ownership Trust (EOT) Exemption?
The EOT regime allows business owners in Canada to sell their company to a trust that holds it for employees. Under this regime, the first $10 million of eligible capital gains on qualifying sales to EOTs or workers cooperatives can be exempted from tax. Previously a temporary measure through 2026, this exemption has now been made permanent effective for dispositions occurring after April 27, 2026. (pwc.com)
Who Qualifies?
To benefit, you must:
- Sell to a qualifying Employee Ownership Trust or workers’ cooperative,
- Ensure the sale occurs on or after April 28, 2026, when the permanent status starts, (pwc.com)
- Have capital gains from shares or assets of a business meeting all eligibility rules (e.g., operating business thresholds, trust structure, control, etc.).
How to Plan with Examples
| Scenario | Without EOT Exemption | With EOT Exemption |
|---|---|---|
| Owner sells business worth controlling assets $2 million gain, taxed at top rate ~27% | Pay ~$540,000 in tax | Benefit: ~$270,000 saved due to exemption on first $10 million gain |
| Owner plans exit with sale in next 1–2 years | No urgency—still qualifies as long as sale is after April 27, 2026 | Can structure now to meet EOT requirements to ensure eligibility |
Action Steps
- Set up a compliant EOT: Work with legal and tax advisors to ensure the trust meets definitions under the Income Tax Act and Budget 2025 rules.
- Plan timing: If exit is near, ensure that documents are signed and shares transferred after April 28, 2026 to trigger permanent exemption.
- Value documentation: Proper valuation and asset attribution are critical when filing to avoid unexpected audits.
- Cooperate with employees: EOTs may require ongoing obligations – consult employees and trustees early.
Tax & Estate Implications
- For the seller: immediate tax saving on capital gains; may affect estate planning if passing business interests indirectly.
- For the business: EOT ownership can enhance employee engagement, preserve business continuity.
- For employees: may receive indirect benefits like dividends without direct share ownership, depending on trust structure.
Key Takeaways
- Permanent capital gains exemption for employee ownership trust and workers cooperative sales now in place. (pwc.com)
- Applicable for gains up to $10 million.
- Timing and trust structure must align precisely with law.
- Offers compelling planning opportunity for owners seeking exit strategies that benefit employees as well as themselves.