A recent change in federal tax policy may have long-term implications for how Canadian businesses approach succession planning.
As part of its spring economic update, the federal government confirmed that a temporary tax incentive related to Employee Ownership Trusts (E.O.T.s) will become permanent. The change gives greater certainty to a business ownership model that has so far seen limited uptake in Canada.
A POLICY SHIFT FOCUSED ON SUCCESSION
The E.O.T. incentive was introduced in January 2024 and allows businesses to claim a capital gains tax exemption of up to $10 million when selling their company to an Employee Ownership Trust. The exemption was originally temporary, with an end date of 2026.
By making this incentive permanent, the government has removed a timeline restraint that had made some owners hesitant to start a succession process that can take a year or more to complete.
“The E.O.T. is really good legislation. It just hasn’t had a chance to breathe,” said Chad Friesen, CEO of Friesens Corporation, a company with a long history of employee ownership. “The government has now created a longer runway for this initiative to breathe.”
EMPLOYEE OWNERSHIP AS AN ALTERNATIVE EXIT
Under an E.O.T. structure, a business is sold to a trust that holds shares on behalf of employees, typically financed over time using future company earnings. Employees become beneficiaries by virtue of employment, without purchasing shares individually.
Supporters of this approach point to its potential to preserve local ownership, maintain business continuity, and offer employees a share in company performance.
At Friesens, Employee-Owners receive annual dividend distributions. “To become a beneficiary of that trust, you simply have to be an employee of the company,” Friesen said. He added that employees do not face the same downside risk as traditional shareholders.
LIMITED ADOPTION, GROWING INTEREST
Despite the introduction of formal E.O.T. legislation, only a small number of Canadian companies have completed transitions to date. Examples include Brightspot Climate in Vancouver, Grantbook in Toronto, and Taproot Community Support Services in Western Canada.
Advocates of the model, including business leaders and investment groups focused on employee ownership, have argued that long-term policy certainty is key to broader adoption. The permanent tax incentive addresses that concern by allowing owners more time to evaluate whether employee ownership fits their succession goals.
AN ADDITIONAL OPTION FOR CANADIAN BUSINESS OWNERS
As many privately held Canadian businesses approach ownership transition, the permanent E.O.T. tax incentive adds another option to an already complex succession landscape.
While employee ownership will not suit every business, the policy change provides greater certainty for owners, employees, and advisors considering whether the model aligns with long-term goals around continuity, governance, and community impact.
Source: Adapted from reporting by Falice Chin, The Hub, April 30, 2026