Executive summary

The federal Spring Economic Update 2026 (SEU), tabled on 28 April 2026, signals that employee ownership trusts (EOTs) are set to become a permanent fixture.

More specifically, the federal government announced that the exemption on the first CA$10m of eligible capital gains realized on the sale of a business to an EOT, which was scheduled to expire for dispositions of shares occurring after 2026, will be made permanent. (For more on the tax measures included in the SEU, see EY Global Tax Alert, Canadian government tables Federal Spring Economic Update 2026, dated 30 April 2026.)

The proposal was subsequently included in Bill C-30, Spring Economic Update 2026 Implementation Act, which received first reading in the House of Commons on 29 April 2026. (For more information, see EY Global Tax Alert, Canada | Bill C-30 (Spring Economic Update 2026 Implementation Act) - key tax measures and effective dates, dated 1 May 2026.)

Background

In general terms, an EOT is a form of employee ownership in which a trust holds shares of a corporation for the benefit of the corporation's employees. This type of trust can be used to facilitate the purchase of a business by its employees without employees' having to pay directly to acquire the shares.

The 2023 federal budget proposed new rules to facilitate the creation and use of EOTs; however, take-up was limited. Though the concept of selling a business to a trust for the benefit of employees was appealing in principle, owners were cautious of certain limitations.

Subsequently, in the 2023 fall economic statement, a key incentive was introduced to provide a CA$10m capital gains exemption on the sale of a qualifying business to an EOT, subject to certain conditions. However, this incentive was a temporary measure scheduled to expire for dispositions of shares occurring after 2026. (For more information, see EY Global Tax Alert, Canada | Finance releases details on CA$10m capital gains exemption on sale to employee ownership trust, dated 21 May 2024.)

Although the CA$10m capital gains exemption was a significant incentive for business owners, the temporary nature of this incentive imposed a time constraint on tax planning strategies.

What this means for business owners

Making the CA$10m capital gains exemption permanent is an important policy shift that allows private business owners to expand their succession and exit planning options.

This announcement removes a significant timing constraint and allows EOT conversions to be evaluated as part of a broader, thoughtful succession strategy rather than as a transaction that must be completed before the sunset date.

As a result of this change, EOTs are more likely to feature prominently alongside traditional sale, family succession and management buyout options. For the right business, an EOT can offer:

• Meaningful tax efficiency
• A gradual, planned ownership transition
• Continued operational continuity
• Long-term employee alignment

Looking ahead

Though an EOT will not be the right succession fit for every business, this change effectively eliminates one of the main barriers that previously limited adoption.

Business owners considering an EOT should seek tax and legal advice to determine both eligibility for the available tax incentives and the suitability of an EOT as a long-term successor to the business.

For additional information on EOTs, including a brief review of the main features and key questions business owners should consider in assessing whether this alternative may be an effective succession planning tool, see the February 2026 edition of TaxMatters@EY.