What is the Employee Ownership Trust (EOT) Exemption?
The Employee Ownership Trust Tax Exemption allows individuals (other than trusts) to claim a capital gains exemption on up to CAD $10 million when they sell shares of a business to an Employee Ownership Trust or worker cooperative corporation.��(budget.canada.ca) This measure was introduced temporarily and was set to expire at the end of 2026.��(budget.canada.ca)
What's Changing: It's Permanent Now
Under the Spring Economic Update 2026, the Canadian government is making this exemption permanent. That means the rules will apply beyond the end of 2026 for all qualifying dispositions.��(budget.canada.ca)
Who Benefits and Under What Conditions
Eligible Parties:
- Business owners looking to sell or transition a business to an Employee Ownership Trust or worker cooperative; not trusts themselves.��(budget.canada.ca)
Key Conditions:
- Share disposition must be qualifying—which typically means a bona fide business transfer to the EOT.
- The exemption applies only to capital gains, not to other forms of income.��(budget.canada.ca)
- Businesses must meet any additional conditions established for EOT purposes under the Income Tax Act.��(dlapiper.com)
Practical Example
Sarah owns a manufacturing business. She sells it in 2027 to an EOT for CAD $5 million gain. Because the $10 million exemption is now permanent, she pays no capital gains tax on that entire gain—assuming she meets all qualifying criteria. Prior to this change, such a transaction in 2027 would have lost the exemption as it was expiring.�(budget.canada.ca)
Key Takeaways & Action Steps
- If you’re considering transferring ownership, assess your business now: Is it structured in a way that could qualify for an EOT? Are legal and financial advisors brought in early to plan documentation?
- If sale is likely before the EOT exemption’s previous expiration: still possible under old rules, but permanent status adds flexibility.
- Watch legislative details—how “qualifying disposition” is precisely defined, timing, and any compliance obligations.
By making the EOT exemption permanent, the government isn’t just offering a tax break—it’s promoting shared ownership, succession planning, and inclusive economic growth. Business owners who plan ahead can confidently explore EOTs as a powerful tool for long-term legacy and tax efficiency.