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EOT FOR ADVISORS
Learn more about Employee Ownership Trusts (EOTs), how they work, and how they can be the ideal solution for clients wanting to sell their businesses while preserving their legacy.
Save
them up to $2.5M in taxes
with a $10M capital gains exemption (until 2026).
Customize
their exit plan
to suit them, their company, and their team.
Preserve
their legacy
by helping them turn their employees into loyal co-owners.
What is an Employee Ownership Trust?
An Employee Ownership Trust (EOT) is a new succession option introduced in Canada based on successful models from the U.S. and UK. This structure enables you to sell the majority (at least 51%) of your company to your employees at fair market value, paid out of future company profits.
The shares are then owned by the trust rather than by the employees directly. Your employees will benefit from your company's future success without you having to change the way your business is run.
So, instead of selling your business to a competitor or a private equity company that won’t continue your legacy the way you intended, an EOT makes it possible for you to leave your company in the hands of the people who helped build it while both you and your employees financially benefit from your exit.
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Learn the legislation
The Employee Ownership Trust (EOT) was introduced through the government’s Fall Economic Statement Bill 2023 (C-59) and became law with Royal Assent in June 2024.
To incentivize this transition, the government’s Budget Bill 2024 (C-69) established a $10 million Capital Gains Tax exemption specifically for owners who sell their businesses to an EOT.
This exemption, which also received Royal Assent in June 2024, is available for the 2024, 2025, and 2026 tax years.
The Canada Revenue Agency (CRA) has created a useful Employee Ownership Trust overview document, which includes important details such as eligibility requirements and tax treatment.
Read the full article
HOW TO IMPLEMENT AN EOT?
Preparing for an EOT
Think through whether an EOT is right for your client’s succession plan, company and employees.
Execute the Sale
Guide your client in establish the EOT with appropriate financing and trusted partners.
Guide the Transition
Ensure a smooth transition by helping your client plan to foster a sense of ownership among employees.
Learn more from our Employee Ownership Resources
Is an EOT right for you and your business?
Canadian Government Legislation Explainer
EOT: What they mean for Canadian business owners
frequently asked questions
1. What is an EOT, and how does it benefit my clients?
An Employee Ownership Trust (EOT) allows a trust to hold shares of a company for the benefit of its employees. This structure helps business owners facilitate succession planning while providing employees with ownership, potentially enhancing their engagement and productivity.
2. What are the criteria for a trust to qualify as an EOT?
For a trust to qualify as an EOT, it must be an irrevocable trust that meets several criteria: it must be a Canadian resident, exclusively benefit employees, have compliant trustees, and control shares of one or more qualifying businesses. There are other criteria that you can consult on the Eligibility page.
3. How are EOT beneficiaries and their interests determined?
The interests of EOT beneficiaries must be determined equitably based on factors like employment service, salary, and duration of employment. The trust must apply reasonable and fair criteria for both current and former employees to allocate income and capital interests.
4. What are the tax implications of selling a business to an EOT?
The first $10 million in capital gains from selling a business to an EOT is exempt from taxation for transactions occurring in the 2024, 2025, and 2026 tax years. In addition, owners can defer capital gains taxes over 10 years instead of 5 (subject to specific conditions).
Who is eligible for an EOT TAX INCENTIVE IN CANADA?
Most individuals who own shares in a Canadian business and who have worked in the company at some point in the past will qualify for the tax incentive if they sell a controlling interest in their company to an EOT. Consult your advisor to determine if you qualify.