A federal tax incentive that owner-managers across Alberta, British Columbia and Ontario have been watching since 2024 just got a lot more useful for long-range planning. The $10 million capital gains exemption available when an eligible owner sells their business to an employee ownership trust (EOT) — or to a worker cooperative — was set to expire for any sale completed after December 31, 2026. Bill C-30, the Spring Economic Update 2026 Implementation Act, received Royal Assent on June 18, 2026, and removed that expiry date entirely. The exemption is now a permanent feature of the Income Tax Act rather than a three-year window that was about to close.
For an owner thinking about an exit, that single change is significant: it means a sale to an EOT no longer has to be rushed to beat a deadline, and it can be evaluated on its own merits as one succession option among several, on whatever timeline actually suits the business and the buyer.
Source: Canada.ca — Legislation passes to implement measures from the Spring Economic Update 2026 and Parliament of Canada — LEGISinfo, Bill C-30 (45-1), rel="noopener nofollow" target="_blank".
What actually changed, and when
This is a two-step story, and keeping the steps straight matters for anyone citing dates to a client:
- 2024 — the exemption was created, with a sunset. The EOT structure and the $10 million exemption were legislated through the 2024 Budget Implementation Act, which received Royal Assent on June 20, 2024. As enacted, the exemption applied only to qualifying business transfers occurring between January 1, 2024 and December 31, 2026 — a deliberate time-limited pilot.
- 2026 — the sunset was removed. The Spring Economic Update, tabled in Parliament on April 28, 2026, proposed making the exemption permanent. That proposal became law when Bill C-30 received Royal Assent on June 18, 2026. From that point, a qualifying sale to an EOT or an eligible worker cooperative completed at any time — not just before the end of 2026 — can access the exemption.
Nothing about the underlying qualifying conditions changed. What changed is that the clock stopped running.
The reference layer: what qualifies, and for how much
| Item | Detail |
|---|---|
| Maximum exemption | $10 million of capital gain, shared among all individuals selling shares in the same qualifying transfer |
| What's exempted from | The capital gain realized on the disposition of shares of a qualifying business to an EOT or an eligible worker cooperative corporation |
| Prior sunset | Dispositions after December 31, 2026 would not have qualified |
| Current status | No sunset — permanent as of Royal Assent, June 18, 2026 |
| Seller engagement test | The individual (or their spouse/common-law partner) must have been actively engaged in the business on a regular, continuous basis for at least 24 months before the sale |
| Ownership test | For the 24 months before the sale, the shares must not have been owned by anyone other than the individual or persons/partnerships related to them |
| Active business test | More than 50% of the fair market value of the corporation's assets must be used principally in an active business carried on in Canada |
| EOT residency test | At the time of the transfer, at least 75% of the trust's beneficiaries must be resident in Canada |
| Stacking | The $10 million EOT exemption is separate from, and can be claimed alongside, the Lifetime Capital Gains Exemption on qualified small business corporation shares, which stands at $1,275,000 for 2026 (indexed annually) |
| AMT treatment | The exempted gain is subject to a 30% inclusion rate for Alternative Minimum Tax purposes, matching the treatment already applied to LCGE-sheltered gains |
Sources: Canada.ca — Spring Economic Update 2026: Key Measures and Canada Revenue Agency — Line 25400, Capital gains deduction, rel="noopener nofollow" target="_blank".
A seller who clears both the EOT test and the standard small-business-share test on the same disposition can, in principle, shelter well over $11 million of combined gain — the $10 million EOT exemption plus the 2026 LCGE limit — subject to meeting each test independently.
The edge case that actually decides most deals: disqualifying events
The exemption is not unconditional once the sale closes. The legislation includes anti-avoidance "disqualifying event" rules that look forward from the date of the transfer:
- Within 36 months of the sale: if the EOT loses its status as an EOT, or if less than 50% of the fair market value of the business's assets is attributable to an active business carried on in Canada at the start of two consecutive taxation years, the exemption is retroactively denied to the individual who claimed it. The EOT itself becomes jointly and severally liable with the individual for the resulting tax.
- More than 36 months after the sale: the same kind of disqualifying event instead causes the EOT to realize a deemed capital gain equal to the amount that was originally exempted — the individual's exemption is not reopened, but the trust picks up the tax cost.
In practice, this means the three years immediately following a qualifying sale are the period where the structure has to hold together — the trust has to remain a genuine EOT, and the underlying operations have to stay a genuine active business. A sale that is really an attempt to extract tax-free value from a business that is quietly being wound down will not survive this test.
Who this helps, and who it doesn't
This remains a narrow tool aimed at a specific kind of exit, not a general tax break:
- It helps an owner of a Canadian-controlled private corporation who is prepared to transfer control to the employees collectively, through a trust, rather than to a third-party buyer, a family successor, or a competitor. It is most relevant where continuity — keeping the business, the brand and the jobs in the same community — matters as much as the sale price.
- It does not help a straightforward arm's-length sale to an outside purchaser, a sale structured as an asset sale rather than a share sale, or an owner who has not been actively engaged in the business for the required 24 months.
- It is now a permanent part of succession planning, which matters most for owners in their 50s and 60s who are mapping an exit three, five or ten years out and no longer need to treat 2026 as a hard deadline.
What to do with this now
- If an EOT sale was already on the table as an option before a self-imposed 2026 deadline, there is no reason to rush a decision that would otherwise benefit from more preparation time — the exemption will still be there.
- If an EOT structure has not yet been considered as part of a succession plan, the removal of the sunset is a reasonable prompt to put it on the list alongside a sale to a third party, an intergenerational transfer, or a management buyout.
- Anyone who completed — or is part-way through — a qualifying transfer before June 18, 2026 should confirm with their advisor whether the permanence change affects anything about their existing structure; for most, it simply removes a deadline that no longer applies.
- The 36-month disqualifying-event window is where structuring discipline matters most. Decisions made about the business's operations, assets and ownership in the first three years after the sale should be made with that clock in mind.
Key takeaways
- The $10 million EOT capital gains exemption is now permanent, following Bill C-30's Royal Assent on June 18, 2026. It no longer expires for sales completed after 2026.
- The qualifying conditions are unchanged: a 24-month ownership and active-engagement test for the seller, a majority-active-business test for the company, and a 75% Canadian-resident test for the trust's beneficiaries.
- It stacks with the Lifetime Capital Gains Exemption ($1,275,000 for 2026), so a qualifying seller can potentially shelter more than $11 million combined.
- Disqualifying events within 36 months of the sale can retroactively deny the exemption, with the EOT jointly liable for the resulting tax — the structure has to hold up, not just close.
RN Canada prepares personal and corporate tax returns and advises owner-managed businesses on succession and exit planning across Alberta, British Columbia and Ontario. If an employee ownership trust is on your list of exit options — or should be — our tax return preparation and advisory teams can help you work through whether the numbers and the timeline actually fit.