The federal government’s recent announcement that it will make the employee ownership trust tax exemption permanent is a major incentive for employers to transition their businesses to employee ownership, says Elspeth Murray, director of the centre for entrepreneurship, innovation and social impact at Queen’s University’s Smith School of Business.
In the recent spring economic update, the federal government announced it would make the tax exemption permanent for employers that sell their businesses to employees as an EOT. Previously, in 2024, the government introduced a temporary tax exemption of up to $10 million in capital gains from the sale of an EOT.
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“[The fact that the] temporary legislation has now been made permanent is terrific [because] selling to employees is a great exit option,” says Murray. “It’s great for business owners and for wealth distribution to the people who make all of these businesses ultimately successful.”
Following an EOT tax incentive introduced in the U.K., there was a groundswell of transitions to employee ownership, she said, noting she expects a similar response in Canada. “In the U.K. — which has had the EOT structure in place for some time — the tax incentive has really made a difference in terms of business owners contemplating employee ownership and thinking about the payoff [they] might obtain by selling to employees versus selling to private equity or a competitor.”
EOTs also solve many problems related to employee ownership that often exist with options like employee stock ownership plans, adds Murray. “There’s a governance structure in place that makes it less cumbersome to keep track of shares, employees or owners and they benefit through either dividends or other payouts as part of the trust. So it’s good for business owners and it’s good for employees’ [financial well-being].”