Most founders believe there are two ways out of a business: sell it to a stranger, or hand it to family. There's a third, and this summer Ottawa quietly made its biggest tax break permanent. On a recent solo episode of Real with Ritesh, I walked through the employee ownership trust - what it is, why Canada just locked in a $10 million capital gains exemption for using it, how the deal actually gets financed, and the very real catch that means it isn't for everyone. Here's the breakdown, the data, and the full episode.
- An employee ownership trust (EOT) buys a controlling stake in your company on behalf of every employee - who pay nothing personally - and the business itself funds the purchase over time
- Bill C-30 received Royal Assent on June 18, 2026, making permanent the exemption on the first $10 million of capital gains from a qualifying EOT sale; it had been set to expire at the end of 2026 (NCEO, 2026)
- The trade-off: you finance the sale yourself and get paid from profit over as long as 15 years, instead of a lump sum from an outside buyer (Doane Grant Thornton, 2024)
- In September 2025, Taproot Community Support Services moved 100% ownership into an EOT, turning 750 staff into equal owners of a $54.3M-revenue company (The Globe and Mail, 2025)
- US data on the older ESOP model shows employee-owners hold about 45% more household wealth than comparable workers, but an EOT only works if the business throws off steady, predictable profit (NCEO)
What an Employee Ownership Trust Is
An employee ownership trust is a trust that buys a controlling stake in a company and holds it for the benefit of every employee. The model is not experimental. As of 2025, about 2,470 UK businesses were owned this way, employing roughly 358,000 people, and Canada copied the British rules almost directly (Employee Ownership Canada; Employee Ownership Association UK data, 2025).
Here's the mechanic that trips people up. Employees don't each get a share certificate. The trust owns the shares as one block, and each employee is a beneficiary - their slice is calculated from tenure, pay, and hours worked. Trustees, at least a third of them employees, handle governance. When someone leaves, they don't take equity with them.
Think of it as selling to a buyer who already knows the business cold, will never relocate it, and has every reason to keep it healthy. That's the pitch. The reason it stayed obscure in Canada until now is that the tax break behind it had an expiry date, and no founder plans a multi-year succession around a rule that might vanish.
This matters because the buyer pool is thin. In my last piece on Canada's succession tsunami, the CFIB's number stood out: 54% of retiring owners say the hardest part of leaving is finding anyone to take over. An EOT is a buyer you already employ.
Why Canada Made the $10M Break Permanent
On June 18, 2026, Bill C-30 received Royal Assent and made permanent the exemption on the first $10 million of capital gains from a qualifying sale to an employee ownership trust (NCEO, "Canada Makes Employee Ownership Trust Tax Incentive Permanent," 2026). Until then, the exemption only applied to sales in 2024, 2025, and 2026.
That expiry date was the whole problem. Setting up an EOT takes months of legal work and years of preparing people to lead. Advisers reported that owners simply wouldn't start a process built around a benefit scheduled to disappear. Making it permanent removes the one objection that had nothing to do with whether an EOT was a good fit.
The tax picture is genuinely large. The $10 million exemption stacks on top of the lifetime capital gains exemption, which sits near $1.28 million for 2026, and Canada also stretched the capital gains reserve to 10 years for these sales so the remaining tax can be spread out (Doane Grant Thornton, "Employee Ownership Trusts: A New Opportunity for Succession Planning," 2024).
One caveat worth stating plainly: the rules are strict, and a "disqualifying event" in the years after the sale can claw the exemption back. This is not a form you file and forget.
How the Trust Actually Gets Paid
You finance the sale yourself. In an EOT deal, the company lends the trust the purchase money, or the seller takes back a note, and the trust repays it out of future profits over a period that can run as long as 15 years (Doane Grant Thornton, 2024). Employees put in nothing.
This is the real trade-off, and it's bigger than the tax break. Sell to a private equity firm or a strategic buyer and you're often paid most of the price at closing. Sell to an EOT and you've swapped that certainty for a stream of payments that depends on the business continuing to perform without you.
Canada deliberately did not copy the US leveraged-ESOP structure, where a bank funds most of the purchase up front. Here, the company's own cash flow is the bank. That keeps deals simple and cheap to set up, but it puts the entire financing burden on one question: how reliable is the profit?
If a clean payout at closing is what you need - to retire, to fund the next venture, to diversify out of a single concentrated asset - an EOT fights you on all three. That's the case I made in The Founder's Exit Playbook, and it's why a trade sale or an acquisition by another operator is still the right answer for a lot of owners.
Taproot: Canada's Largest EOT
In September 2025, Taproot Community Support Services moved 100% of its ownership into an employee ownership trust, turning 750 staff into equal owners of a company that had booked $54.3 million in revenue the prior year (The Globe and Mail, "Taproot becomes Canada's largest employee-owned trust," September 2025). It was the first Canadian company to be entirely EOT-owned.
Taproot, based in Maple Ridge, B.C., provides support for adults with disabilities and vulnerable youth across three provinces. Roughly 30 long-serving employees had held shares directly before this. The rest couldn't buy in - the cost was too high for most staff - so the trust became, in CEO Mike Fotheringham's words, "the simplest way of transitioning ownership."
The financing followed the standard pattern: the trust took on debt to buy out the previous shareholders, and it repays that debt from company profits contributed back to the trust. The retiring owners got their exit; the workforce got the upside.
What stands out to me is the type of business. Taproot is people-heavy, mission-driven, and steady - government-funded services don't swing wildly year to year. That's the profile an EOT suits. I'd be far more cautious advising a project-based agency or a business with two clients making up half the revenue.
Do Employee-Owned Firms Perform Better?
The evidence from the older US model is encouraging. Establishments that adopted an employee stock ownership plan after 2010 saw labour productivity rise 5.6% to 6.7% within a few years, and employee-owners hold roughly 45% more household wealth than comparable workers without ownership (NCEO, "Research Findings on Employee Ownership").
The same NCEO data set shows employee-owners earn about 23% more in wages and stay roughly three years longer in their jobs. During the 2020 downturn, employee-owned companies were three to four times more likely to keep staff on and far less likely to cut pay.
One honest qualifier. Some of that gap is selection, not causation - healthy, well-managed companies are the ones that can afford to sell to their employees. Ownership helps, but it doesn't turn a weak business into a strong one.
Who Should Not Use an EOT
An employee ownership trust is the wrong tool if your cash flow is lumpy or your margins are thin. The entire structure runs on steady, predictable profit repaying the seller over years, and lenders are often unwilling to bridge the gap on reasonable terms (BLG, "Employee Ownership Trusts," 2024; Canadian Tax Foundation, 2024).
It's also wrong if you need to be paid in full at closing, or if you're not willing to hand real control to trustees. High leverage on an unpredictable business doesn't just risk your payout - it risks the jobs the structure was meant to protect.
So who is it right for? A stable, profitable, people-centred business. An owner who has other liquidity and cares more about the company outliving them than about maximising the last dollar. A management team that's ready, or nearly ready, to run things.
With the incentive now permanent, expect Canada to start climbing its own version of that curve. The Globe and Mail has cited projections of as many as 750 employee-owned companies here within eight years.
Weighing an EOT Against a Straight Sale?
I work with founders on succession and exit strategy - which path fits the business, how to structure the deal and the financing, and how to get the team ready to run without you. If you're thinking about an exit in the next two years, let's map it out. And if you've already taken a company through an employee ownership trust, I'd like that story on Real with Ritesh.
Book a Strategy Call →Frequently Asked Questions
What is the $10 million EOT exemption in Canada?
It exempts the first CAD 10 million of capital gains from tax when an owner sells a qualifying business to an employee ownership trust. Bill C-30, which received Royal Assent on June 18, 2026, made it permanent after it was scheduled to expire at the end of 2026. It stacks on top of the roughly CAD 1.28 million lifetime capital gains exemption.
Do employees have to buy shares in an employee ownership trust?
No. Employees contribute nothing personally. The trust buys a controlling stake on their behalf, and employees become beneficiaries based on tenure, pay, and hours worked. The company itself lends the trust the purchase money, and the trust repays it out of future profits (Doane Grant Thornton, 2024).
How long does the seller wait to get paid in an EOT sale?
Usually years, not days. The company lends the trust the purchase price and repays the seller from profit over a period that can run up to 15 years. Canada also extended the capital gains reserve to 10 years for EOT sales, so the tax can be spread over that window (Doane Grant Thornton, 2024).
Can I still run my company after selling it to an EOT?
For a while, often yes, but control shifts to the trustees. At least one-third of trustees must be employee-beneficiaries, and no group tied to the former owner can hold more than 50% of the board. Many owners stay on as CEO or chair through the repayment period, then step back.
How many employee ownership trusts are there in Canada?
Very few so far. Analysts expect only a few dozen conversions in 2026, though the Globe and Mail has cited projections of as many as 750 employee-owned companies within eight years now that the tax incentive is permanent. The UK, which Canada copied, has about 2,470 (The Globe and Mail, 2025).
The employee ownership trust isn't a loophole, and it isn't a fit for every business. It's a real third option that Canada just made permanent, sitting between selling to a stranger and handing the keys to family.
If your company is stable and profitable, if your team is close to ready, and if you care about what the business becomes after you leave, it deserves a serious look - alongside a clear-eyed view of the years you'll spend getting paid.
For the buy-side of this same wave, see Canada's succession tsunami, and for the case for owning more than one business, Building a Portfolio of Businesses. Or book a strategy call and let's work through your exit.
Sources
- NCEO, Canada Makes Employee Ownership Trust Tax Incentive Permanent, retrieved 2026-09-08, 2026
- Doane Grant Thornton, Employee Ownership Trusts: A New Opportunity for Succession Planning, retrieved 2026-09-08, 2024
- The Globe and Mail, Taproot becomes Canada's largest employee-owned trust with 750 workers, retrieved 2026-09-08, September 2025
- National Center for Employee Ownership, Research Findings on Employee Ownership, retrieved 2026-09-08
- BLG, Employee Ownership Trusts: Business Succession Alternative for Private Businesses in Canada, retrieved 2026-09-08, February 2024
- Canadian Tax Foundation, The Path to Employee Ownership: Overcoming Barriers with Capital and Collaboration, retrieved 2026-09-08, 2024
- CFIB, Succession Tsunami: Preparing for a Decade of Small Business Transitions in Canada, retrieved 2026-09-08, January 2023
- Employee Ownership Canada; Employee Ownership Association (UK) employee ownership data, retrieved 2026-09-08, 2025
