October 08 2026
For years, sell-side advisors in Canada have worked from a familiar menu: a strategic sale, a private equity deal, a family transfer, or a management buyout. Since June 2024, there has been another option: the Employee Ownership Trust (EOT).
With the $10 million capital gains exemption for EOT sales made permanent in the April 2026 federal budget, EOTs are now a lasting part of the Canadian succession landscape.
With a large number of business owners approaching retirement, the traditional succession options don't always line up: a strategic or private equity sale can mean layoffs, relocation, or a loss of the culture and values the owner built the business around; family succession isn't always possible, as the next generation may lack the desire or the skill set to take over; and a management buyout may not be feasible, either because the managers aren't interested in taking on ownership or because they can't secure the financing to do so.
In an EOT transaction, the owner sells a controlling interest in the company to a trust held for the benefit of employees. Employees do not pay anything for the shares or take on personal debt. The trust acquires the shares, and the purchase price is paid over time, from the company's future profits. The model is well established in the UK and the US. In Canada it is still new, and relatively unknown to advisors.
Key points
Valuation. The trust pays fair market value (FMV), supported by an independent valuation.
Financing. Most EOT deals combine senior debt with a significant vendor take-back. The legislation recognizes this. It extends the capital gains reserve to 10 years and allows up to 15 years to repay certain shareholder loans. Structuring the repayment schedule so the business can service it without being starved of capital is central to a successful deal.
Tax. Eligible vendors can exempt up to $10 million in capital gains, shared among the vendors, if holding-period and active-business conditions are met. This exemption can substantially close the gap between an EOT offer and a higher headline price from a third party. Comparing net after-tax proceeds, rather than headline price, often changes the conversation with a client.
Governance. The trust must hold a controlling interest. It must benefit all qualifying employees, and distributions must follow a set formula based on factors such as pay, hours worked, and length of service. Former owners and related persons cannot make up more than 40% of the trustees or of the company's board. Owners who want to remain involved can do so, but not in control.
When an EOT is a good fit
EOTs work best for profitable businesses with stable, predictable cash flow, a capable management team ready to lead without the founder, and an owner who is flexible on timing and cares about what happens to the company after the sale. They are not a fallback for businesses that can't find a buyer. In many cases, the best approach is to model an EOT alongside the other exit options so the client can compare them properly.
Building expertise across the profession
Because the structure is so new in Canada, professional knowledge is still catching up with the legislation. Advisors who understand EOTs now will be well placed as more owners ask about them. For those who want to learn more, Employee Ownership Canada's 2026 conference in Vancouver (October 20–22) brings together advisors, owners, and employee-owned companies, with sessions for both newcomers and experienced practitioners. One-day tickets are available. Details are at www.employee-ownership.ca/conference.
About Rachel Bachmann
Rachel Bachmann is a co-founder at NovelONDE, a firm dedicated to EOT design, tax and culture, and a leading voice on employee ownership in Canada and Europe. After founding Akiri Consultants, an employee-owned consultancy, in 2019, she went on to be Chair of the Board of Employee Ownership Canada from 2022 to 2024. During that time, she was a key member of the coalition that advocated for Canada's 2024 EOT legislation that secured the $10 million capital gains exemption. Today she dedicates much of her time to advocacy and education work on the topic of employee ownership. She is available to give conferences and support educational initiatives across the country, focusing particularly on Quebec and the Maritimes.
