Entity Setup
Maximizing the Employee Ownership Trust Exemption in Canada
With recent changes, business owners can permanently access a $10 million capital gains exemption by selling to an Employee Ownership Trust (EOT) or workers cooperative—here’s how to plan and benefit.
By NomadicTax Research Team • 5-8 min read • May 13, 2026
## 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](https://www.pwc.com/ca/en/services/tax/budgets/2026/2026-federal-spring-economic-update.html?utm_source=openai))
## 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](https://www.pwc.com/ca/en/services/tax/budgets/2026/2026-federal-spring-economic-update.html?utm_source=openai))
- 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
1. **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.
2. **Plan timing**: If exit is near, ensure that documents are signed and shares transferred after **April 28, 2026** to trigger permanent exemption.
3. **Value documentation**: Proper valuation and asset attribution are critical when filing to avoid unexpected audits.
4. **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](https://www.pwc.com/ca/en/services/tax/budgets/2026/2026-federal-spring-economic-update.html?utm_source=openai))
- 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.