Selling your business to your employees through a trust
The $10 million capital gains exemption on a sale to an employee ownership trust is now permanent. What the trust is, and how a sale to it qualifies and pays out.
An employee ownership trust is a trust that buys control of a Canadian company and holds it for the employees. Since Bill C-30 received Royal Assent on June 18, 2026, the first $10 million of capital gains on a qualifying sale to one is permanently exempt. The trust pays the owner from company profits, typically over many years.
What changed in June
Bill C-30, the Spring Economic Update 2026 Implementation Act, received Royal Assent on June 18, 2026. One of its measures makes the $10 million capital gains exemption on a sale to an employee ownership trust permanent.
The exemption first covered sales in the 2024 to 2026 tax years and was due to lapse after 2026. Section 110.61 of the Income Tax Act now reaches every qualifying sale made after 2023, with the end date removed. It is one of several rule changes since 2024, listed with their dates in what changed for sellers between 2024 and 2026.
The same bill made the matching exemption for sales to a worker cooperative permanent. An owner whose successor is the staff can now plan the transfer over as many years as it needs. A successor who is your child falls under separate rules, covered in selling a business to your children.
What an employee ownership trust is
An employee ownership trust, or EOT, is an irrevocable trust resident in Canada that controls a company for the benefit of its employees. The staff own the business through the trust, and the company’s earnings fund the purchase.
The beneficiaries are the company’s employees. The trust may also keep former employees as beneficiaries if its terms allow. A probationary period of up to 12 months can apply before a new hire joins.
Every beneficiary’s share follows one formula applied to all of them. The law lets that formula count hours worked and pay, with pay capped. Length of service is the other permitted measure.
Each trustee has an equal vote, and at least one third must be current employees. If any trustee was appointed outside an employee election in the last five years, 60 percent or more must be at arm’s length from the sellers.
A seller who claims the exemption is excluded from the beneficiaries, and so is anyone related to that seller.
When a sale qualifies
The exemption applies only to a qualifying business transfer, a term the Act defines. Section 110.61 adds conditions for the seller. Together they come to the tests below.
| Test | What the Income Tax Act asks |
|---|---|
| Control | The trust, or a company it wholly owns, acquires control of your company at the sale |
| Active business | Immediately before the sale, all or substantially all of the company’s asset value comes from assets used principally in an active business |
| 24 month holding | For the 24 months before the sale, only you or people related to you owned the shares, and more than 50 percent of their value came from active business assets |
| Your involvement | For any 24 month period before the sale, you or your spouse were actively engaged in the business on a regular, continuous and substantial basis |
| Company type | A Canadian controlled private corporation; professional corporations are excluded |
| After the sale | You stay at arm’s length from the trust and the company, and any rights you keep fall short of control |
| Board seats | Former owners holding 50 percent or more before the sale may fill up to 40 percent of the board |
| Seller and trust | You are an individual aged 18 or over, and at least 75 percent of the beneficiaries are resident in Canada |
| Once per business | The exemption is available once for each business |
The control test rules out a sale of a minority stake. The trust has to come out of the transaction in control of the company.
How the $10 million is shared
The $10 million is a limit per qualifying business transfer. When two or more owners sell into the same transfer, they share one limit between them.
The sellers and the trust file a joint election, Form T24EOT, by the trust’s filing due date for the year of the sale. It states the total gain that may be exempt, up to $10 million, and each seller’s percentage.
The percentages can total 100 percent at most. Two founders splitting 60 and 40 could shelter up to $6 million and $4 million of gain. Each claims their share on Form T2048, on line 25395 of the return.
The trust exemption sits apart from the lifetime capital gains exemption. Where shares qualify for both, the CRA says a seller may claim both on one sale, the trust deduction first.
How the trust pays you
The trust begins with only the shares it is buying. The company passes its earnings up to the trust, which pays you. Law firm commentary expects sellers to receive their proceeds over many years.
Much of the price is therefore a form of vendor financing: you are paid out of the profits of the business you sold. Two rules in the Act are built around that.
A company loan to a shareholder normally has to be repaid within a year after the lender’s year end, or it enters the borrower’s income. A loan from your company to the trust, made solely to fund the purchase, gets 15 years to be repaid.
On your side, a gain paid out over time can be spread with a capital gains reserve. The usual reserve runs over five years. On a sale to an EOT it stretches to ten, with at least one tenth of the gain taxed each year.
The reserve matters for any gain above the exempt amount. It lets the tax on that gain follow the cash as it arrives.
What can undo the exemption
Two things count as a disqualifying event. One is the trust ceasing to qualify as an employee ownership trust. The other is a company tax year that opens with less than 50 percent of the share value coming from active business assets.
If either happens within 24 months of the sale, your exemption is withdrawn back to the date of sale. In the following eight years, the cost falls on the trust, which is deemed to realise a capital gain equal to the elected amount.
Together the two periods run ten years from closing. A separate rule against avoidance denies the exemption where the trust is used to pass the shares on to another buyer.
Against a sale to an outside buyer
| Employee ownership trust | Outside buyer | |
|---|---|---|
| Who funds the price | The company’s future profits, through the trust | The buyer’s own money and bank debt, with some vendor financing in smaller deals |
| When you are paid | Over many years | Mostly at closing |
| Tax relief on the gain | Up to $10 million per transfer, plus the lifetime exemption where the shares qualify | The lifetime exemption on a share sale where the shares qualify |
| Capital gains reserve | Up to ten years | Up to five years |
| Your role after | A board seat is possible, short of control | Whatever the buyer agrees |
An outside buyer pays from its own resources and may pay more for a business that fits its plans. A trust pays what the company’s profits can carry. Whether the tax saving closes the gap is a sum for your accountant.
An outside sale starts with a search, and a confidential sale typically takes six to ten months to close. A trust sale skips the search and puts the work into setting up the trust and its financing.
For the staff, the company stays their employer and they become beneficiaries of the trust that controls it. The employees piece covers what changes for them when the buyer is an outsider.
What to ask your accountant
- 01Ask whether your company meets the active business tests now and over the 24 months before a sale, since purifying a company of surplus cash takes time.
- 02The number that decides the deal is how fast company profits can repay the price once the business keeps the cash it needs.
- 03Owners selling together should agree the split of the $10 million before the joint election is drafted.
- 04If your shares also qualify for the lifetime exemption, both claims belong in the after tax comparison.
Questions owners ask
- Is the employee ownership trust exemption permanent?
- Bill C-30, which received Royal Assent on June 18, 2026, made the $10 million capital gains exemption on qualifying sales to an employee ownership trust permanent. It first covered the 2024 to 2026 tax years, and it now applies to every qualifying sale made after 2023.
- Can two owners each claim $10 million when selling to an employee ownership trust?
- The $10 million is one limit per qualifying business transfer, shared by every seller in it. The sellers and the trust set each person’s percentage in a joint election on Form T24EOT, and the percentages add up to 100 percent at most.
- How does an employee ownership trust pay the owner?
- The company passes its profits up to the trust, and the trust pays the seller over time. The Income Tax Act gives a loan from the company to the trust 15 years for repayment, and it lets the seller spread the taxable gain over ten years with a capital gains reserve.