Ottawa introduced employee ownership trusts in 2024 to help entrepreneurs exit their businesses by selling to employees.Sean Kilpatrick/The Canadian Press
Tiara Letourneau knows entrepreneurs want to sell their businesses to employees when they retire. But with the clock ticking toward the expiry of a key tax incentive that makes it easier and more profitable to do so, the M&A consultant said there’s a risk many won’t be able to follow through.
Ms. Letourneau, the co-founder and chief executive officer of Vancouver-based Rewrite Capital Advisors, estimates she’s spoken to roughly 100 company owners about employee ownership trusts (EOTs), a succession planning tool introduced by Ottawa in 2024 to help business owners who want to sell to their employees.
The complementary tax incentive that allows entrepreneurs to claim up to $10-million in tax-free capital gains spread out over a period of up to 10 years if they sell at least 51 per cent of their ownership stake to an EOT is set to expire on Dec. 31. Employee ownership advocates are calling on Ottawa to make it permanent.
Without clarity on the state of the capital-gains exemption, “it’s making it very difficult for owners to plan,” Ms. Letourneau said.
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When owners sell part or all of their shares in the company to an EOT, the trust holds that ownership stake on behalf of employees. When the business does well, employees are paid distributions from the trust.
But because the business owner is paid back out of the business’s profits, it can take months or years to receive all of the funds from the sale. In comparison, when business owners sell to another company, they can get their profits right away.
The higher capital-gains exemption for selling to an EOT is meant to make up for that waiting period by ensuring business owners keep more cash from the transaction.
“For most business owners [their business] is the largest asset for them and their family, it is their retirement package, it is everything they’ve worked towards,” Ms. Letourneau said, noting if they sell and get little in return on the day, “that’s a high insecurity feeling.”
The most recent federal budget made no mention of the tax exemption. Justine Janssen, interim head of Employee Ownership Canada, a national non-profit, said she expects the government will eventually make it permanent, “but we haven’t been told that explicitly.”
Experts, including Ms. Letourneau and non-profit organizations EOC and Social Capital Partners, said there’s more the government can do to make EOTs attractive.
The initial legislation prevented owners that had a holding company in their ownership structure from qualifying for the capital-gains exemption.
The government also planned to extend the capital-gains exemption to business sales to worker co-operative companies, but hasn’t passed the legislation to allow it.
Benoit Sabourin, a spokesperson for the Department of Finance Canada, said in an e-mail to The Globe and Mail that while the government “reviews the tax system on an ongoing basis, it would be inappropriate to speculate on any potential or prospective changes.”
Mr. Sabourin noted the bill to implement various federal budget measures, which includes legislation that would extend the tax exemption to the sales of businesses to worker co-operatives, and allow business owners with holding companies to benefit from the exemption clarified this, had its second reading on Dec. 10.
The bill is currently being considered by the Parliamentary Finance Committee; its third reading has not yet been scheduled.
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Employee ownership has always been a bit of a niche succession planning option. The reality is, most employees can’t afford to take an ownership stake in their employer.
Peter Deitz saw that when he was trying to exit Grantbook, a Toronto-based consultancy for the philanthropy sector that he co-founded. Grantbook initially set up an employee ownership plan where employees could buy into the company at various points.
“The reality of that plan was it created some inequities,” he said. “People with the cash available could participate, and others could not. It was not achieving the goal of broad-based employee ownership.”
Grantbook became Canada’s first EOT in February, 2025, allowing Mr. Deitz to exit the company and focus on his other entrepreneurship endeavours. Since then, three other companies have converted to EOTs, most recently Cambridge, Ont.-based Paradigm Transportation Solutions Ltd. in late January.
Ms. Janssen said she expects about 15 to 25 more transactions to go through in 2026.
Business sales generally take time, and EOTs have their own complexities, including extra governance planning and employee education. Companies and their advisers also typically need to line up debt financing from a bank so that owners can receive some cash up front for the sale.
Ms. Letourneau estimated that if a company was organized and focused, an EOT sale could happen within six or seven months. But typically, owners are looking at nine to 10 months or longer.
Uncertainty around the exemption has affected every company Ms. Letourneau works with. Either owners are rushing to complete the transaction before the end of the year to qualify, or are backing away entirely.
She said companies in the latter group typically include ones that have seen their valuations hit by the trade war, those that are still recovering financially after the pandemic, or where the owner had a health scare or other personal issue that delayed the sale.
Research from the United States and United Kingdom, where employee ownership is more common, has found the companies are more productive than their peers, experience more new customer growth and that employees tend to feel more financially secure. Just shy of one in 10 small businesses in the U.K. sold to an EOT in 2024.
Jon Shell, chair of Social Capital Partners, a non-profit that does public policy research around wealth inequality and employee ownership, said Canadian ownership improves overall growth and productivity.
“It’s a practical solution to a bunch of problems we’re currently focused on,” he said.
Grantbook’s Mr. Deitz speculated being able to sell to employees could also make owners feel more at peace with the transaction.
“I feel really, really good about where this all landed,” he said about his own sale. “I know it was the best decision for me and the company.”
