Tax Planning
Permanent Capital Gains Breaks for Employee-Owned Businesses: What Sellers Need to Know
Canada’s Spring Economic Update 2026 makes permanent the capital gains exemption for business sales to Employee Ownership Trusts (EOTs) or worker co-operatives. This article explores eligibility, tax planning strategies, and what business owners must do to benefit.
By NomadicTax Research Team • 5-8 min read • July 16, 2026
## What is the Employee Ownership Trust (EOT) Capital Gains Exemption?
Under recent tax changes in **Bill C-30**, the federal government has **made permanent** the exemption for up to **CA$10 million** in capital gains realized when a qualifying business is sold to an Employee Ownership Trust or a worker co-operative. Previously, this was a temporary incentive expiring at the end of **2026**. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
### Who qualifies?
To use this exemption, certain conditions must be met:
- The business being sold must be a **Qualifying Business (QB)** — for example, a Canadian-controlled private corporation (CCPC) meeting the criteria under subsection 248(1). ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2023-made-canada-plan-strong-middle-class-affordable-economy-healthy-future/employee-ownership-trusts.html?utm_source=openai))
- The buyer must be an Employee Ownership Trust (EOT) or a worker cooperative corporation. The trust must be irrevocable, resident in Canada, and established for the benefit of current/former employees. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
- Distributions from trusts and governance structures must meet criteria for fair treatment, minimum employee votes, etc. ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2023-made-canada-plan-strong-middle-class-affordable-economy-healthy-future/employee-ownership-trusts.html?utm_source=openai))
### Key tax planning strategies for business owners
- **Timing the sale**: Since the exemption is now permanent, sellers can plan transfers **after 2023** without worrying about expiry at end-2026. However, it's ideal to assess when the corporate entity qualifies and all structure requirements are in place. ([budget.canada.ca](https://budget.canada.ca/update-miseajour/2026/report-rapport/tm-mf-en.html?utm_source=openai))
- **Structuring ownership**: Use trusts or cooperative ownership models, but ensure compliance with all conditions (e.g. irrevocable trust, benefit eligibility, fair voting rights, minimum employee beneficiary ratios). Non-compliance can result in clawbacks. ([canada.ca](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2023-made-canada-plan-strong-middle-class-affordable-economy-healthy-future/employee-ownership-trusts.html?utm_source=openai))
- **Loan arrangements for share purchase**: If the EOT or coop borrows to purchase shares, there may be **tax-beneficial rules** under subsection 15(2.51) if it's a loan solely to facilitate the business transfer, repaid within 15 years. ([canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/folio-1-shares-shareholders-security-transactions/income-tax-folio-s3-f1-c1-shareholder-loans-debts.html?utm_source=openai))
### Examples
- A family business owner sells their company (QB) to an EOT in 2026, realizes CA$8 million in capital gains. Instead of being taxed on that entire gain, **none** of the capital gains is taxed up to the CA$10 million exemption. The employees now own the business through the trust.
- If a cooperative wants to buy the business, and meets coop-ownership criteria, that also qualifies.
### Important implications & takeaways
- Permanence reduces urgency—owners can now plan well in advance rather than rush before a deadline.
- Financial, legal, and advisory costs for structuring must be weighed against tax savings and value of keeping business ownership within employees.
- Workers including current/former employees gain access to value and benefit from the growth they helped create.
## Actionable steps for businesses
1. **Review your corporate structure**: Is your business a CCPC? Is it eligible as a QB under current definitions?
2. **Evaluate EOT or cooperative format**: Work with legal and tax advisors to set up governance, eligibility, and trust terms correctly.
3. **Consider loan terms**: If you plan to finance via trust, ensure repayment arrangements meet rules (e.g. 15-year repayment for certain trust loans).
4. **Check other tax policies**: Combine this exemption with other incentives (e.g. immediate expensing of eligible greenhouse buildings, see article on green investment).
Establishing a business sale to employees can be a win-win: reward founders, align employee interests, and unlock tax savings.