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Tax Planning in Canada 2026: Leveraging the Employee Ownership Trust Exemption

Permanent changes to the capital gains tax exemption for Employee Ownership Trusts open new planning opportunities for small businesses looking to transfer ownership to employees.

By NomadicTax Research Team · 5-8 min read

What is an Employee Ownership Trust (EOT)?

An Employee Ownership Trust is a legally established entity that owns a company on behalf of its employees. When a business owner sells their shares to an EOT, certain tax benefits can apply if specific requirements are met.

What changed in Spring Economic Update 2026?

  • The 2026 Spring Economic Update confirms that the capital gains exemption on qualifying share dispositions to an EOT will be made permanent, replacing the 2024–2026 temporary period. (pwc.com)
  • The current rules and requirements for qualifying businesses and EOTs remain unchanged. (dlapiper.com)

Who benefits most?

  • Business owners looking to transition ownership without selling to external investors.
  • Employees who gain indirect ownership, which can promote loyalty, retention, and long-term growth.

Practical steps for planning now

  1. Evaluate your business’s eligibility: Ensure you meet EOT criteria (e.g. majority owned by a trust that benefits employees). Consult professional advice where needed.
  2. Plan your timing: Since the exemption is now permanent, there’s flexibility—but earlier planning still helps with succession and growth strategies.
  3. Set up an EOT properly: Legal structure, trust documentation, and employee benefits must align with CRA rules.
  4. Consult tax advisors: For maximizing the exemption, particularly with capital gains and income splitting.

Example Scenario

Sarah owns 100% of a manufacturing business. She wants to retire and sell to employees. Under the permanent exemption:

  • If Sarah’s shares qualify under the EOT rules, her capital gains from this sale could be exempt from tax up to the $10 million limit set by the policy.
  • The business transitions to employee ownership, and employees may benefit from profit-sharing, job security, and morale—all while Sarah avoids a sale to outside investors.

Key takeaways

  • The exemption’s permanence means long-term planning becomes more predictable.
  • Now is a good time for business owners to explore EOTs, especially for succession planning.
  • Keep in mind other related changes (e.g. reporting, trust rules) that could affect how the exemption is applied.

Sources

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