On November 21, 2023, the Government of Canada released its Fall Economic Statement. Among the measures included in the statement are improved tax incentives for Employee Ownership Trusts (“EOTs”). As discussed in our post from March 2023, EOTs are a mechanism that allows exiting business owners to sell their businesses to employees in a tax-efficient manner. While the Government had previously taken some steps to bring the EOT concept to Canada, these additional measures appear likely to make EOTs a genuinely practical option for many more Canadian businesses.

Specifically, in the Fall Economic Statement, the Department of Finance has proposed to exempt business owners from paying tax on the first $10 million in capital gains realized upon selling a business to an Employee Ownership Trust (subject to certain conditions). Like the previously announced EOT measures, this exemption is proposed to come into force as of January 1, 2024, but is initially planned to apply to only the 2024, 2025 and 2026 taxation years as the Government pilots the incentives.