Business Structure & Strategic Growth

$10M EOT Capital Gains Exemption Permanent: Bill C-30

By July 10, 2026 No Comments
capital gains exemptioncapital gains exemption
This article is for informational purposes only and does not constitute tax or financial advice. Consult a qualified accounting professional before making any tax or financial decisions.

Quick Answer

Yes. As of June 18, 2026, the $10 million capital gains exemption on the sale of a qualifying Canadian business to an employee ownership trust (EOT) or a worker co-operative is permanent. Bill C-30 (the Spring Economic Update 2026 Implementation Act) removed the December 31, 2026 sunset date. The exemption is capped at $10 million per qualifying business transfer, must be shared among all vendors on that transfer, and still requires the trust to meet CRA qualifying conditions for at least 10 years after closing.

— The $10 million exit route just became permanent

Every year, another wave of Ontario business owners crosses the threshold from operator to seller. For the last three years, one of the most promising exit routes came with a ticking clock: the capital gains exemption for selling to an employee ownership trust was scheduled to disappear on December 31, 2026.

That clock just stopped.

Bill C-30, the Spring Economic Update 2026 Implementation Act, received Royal Assent on June 18, 2026. Buried in its Income Tax Act amendments is the change owners had been asking for: the $10 million capital gains exemption on a qualifying sale to an employee ownership trust is now a permanent feature of Canadian tax law. If you are part of Canada’s great wealth transfer, that shift changes both what your options look like and how long you have to think about them.

$10Mcapital gains exemption cap
June 18, 2026Bill C-30 Royal Assent
51%+minimum share transfer to trust
10 yearsqualifying-status monitoring window

— Quick Start: pick your path

If you are an Ontario business owner thinking about the next five to ten years, the permanent EOT exemption changes what is on the table. Which of the three paths below matches you decides how quickly you should be picking up the phone.
Path A · Retiring owner-manager, 55+

Permanence matters most to you. An EOT sale now sits alongside private-equity and strategic-buyer offers as a stable, tax-advantaged option. Read the qualifying conditions section carefully.

Path B · Partner group in a professional CCPC

You may qualify if your practice is a Canadian-controlled private corporation and passes the active business test. The shared-cap rules matter: the $10 million is per business transfer, not per partner.

Path C · Growing SME founder, exit years away

Bookmark this. The 10-year qualifying period rewards runway. Now is the time to explore business succession planning options rather than waiting until the year of sale.

— What actually changed on June 18, 2026

Bill C-30 amended Income Tax Act section 110.61 to remove the sunset date on the $10 million capital gains exemption for qualifying sales to employee ownership trusts. The exemption is now available on qualifying dispositions on an ongoing basis, not just for the 2024 through 2026 tax years as originally legislated.

The exemption was introduced in Budget 2023 as a three-year pilot. It came into force on January 1, 2024 and was scheduled to expire at the end of 2026. That short window created a real planning problem: an EOT sale typically takes 12 to 18 months to close.

Bill C-15 (Royal Assent March 26, 2026) tightened the technical rules for how the exemption is calculated. Bill C-30 then made the regime permanent by removing the sunset date. Together, they give owners a settled framework to plan around. For the broader context, see our overview of the broader capital gains landscape.

ClearWealth Accounting Advisors
The road to a permanent EOT exemption
From Budget 2023 pilot to permanent tax law — the three-year legislative arc.
March 28, 2023
Budget 2023 — framework announced
The federal government tables Budget 2023, introducing the Employee Ownership Trust legislative framework.
January 1, 2024
$10M exemption in force
Income Tax Act section 110.61 comes into force. Exemption available only for the 2024 through 2026 tax years.
March 26, 2026
Bill C-15 Royal Assent
Bill C-15 enacts technical amendments to the calculation of and eligibility for the $10M capital gains exemption.
April 28, 2026
Bill C-30 tabled at First Reading
The Spring Economic Update 2026 Implementation Act receives First Reading in the House of Commons.
June 18, 2026
Bill C-30 Royal Assent — exemption made permanent
Statutes of Canada 2026, chapter 22. The December 31, 2026 sunset is removed. The $10M EOT capital gains exemption becomes a permanent feature of Canadian tax law.
December 31, 2026
Former sunset date
The exemption was originally scheduled to expire on this date. That deadline no longer applies.
Source: Parliament of Canada, Bill C-30 Royal Assent, June 18, 2026 (Statutes of Canada 2026, c. 22) · ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only.

— How an EOT sale compares to your other exit options

The EOT is one of three main exit paths for an Ontario SME owner. Each has a different tax profile, financing structure, and cultural outcome. The right route depends on what you value most: the highest cash offer, family continuity, or a legacy that keeps the business in the hands of the people who built it.
DimensionEOT saleFamily successor transferThird-party sale
Buyer typeEmployees, through a trustFamily memberStrategic buyer or private equity
Control at closingPasses to trusteesPasses to family memberPasses to buyer
$10M capital gains exemptionAvailable if QBT rules metNot availableNot available
Financing profileTypically vendor take-back noteOwner-financed or giftedCash or cash-plus-earnout
Typical timeline9 to 18 months12 to 24 months6 to 12 months
Employee impactOwnership stake and profit shareContinuity, no ownership stakeDepends on buyer strategy
10-year clawback riskYes, if trust ceases to qualifyNoneNone

Traditional buyers often pay more headline dollars. But once you factor in the tax savings, the culture you built, and the emotional weight of choosing your successor, the calculus shifts. For readers considering a family route, our guide to legacy planning in family businesses covers the other side.

ClearWealth Accounting Advisors
Ontario tax on a $10 million capital gain
Illustrative tax owed by an Ontario individual seller at the top combined marginal rate under three exit scenarios.
Regular sale
$2.68M
tax owed
LCGE claim
$2.34M
tax owed
EOT sale
$0
tax owed
Source: Illustrative figures using the 2026 Ontario top combined marginal rate of 53.53% and the 50% capital gains inclusion rate. Assumes a $1.25M LCGE for the QSBC scenario. Actual tax depends on individual circumstances. Data via Canada Revenue Agency · ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only.

— Step-by-step: structuring an EOT sale from decision to close

An EOT sale runs on a predictable six-step arc: confirm eligibility, prepare the corporation, set up the trust, execute the transfer, claim the exemption, and maintain qualifying status. Most deals close in nine to eighteen months, and the exemption is claimed on the vendor’s T1 in the year of sale.
  1. 1
    Confirm the business qualifies.Your company must be a Canadian-controlled private corporation, and at least 90% of the fair market value of its assets must be used in an active business carried on primarily in Canada.
  2. 2
    Valuation and purification.An independent business valuation sets the price the trust will pay. Purification (moving passive assets out) usually happens in the months before closing so the corporation meets the 90% active business test at transfer.
  3. 3
    Draft the trust deed and appoint trustees.Trustees must be Canadian-resident individuals or a licensed Canadian corporate trustee, and at least one-third must be current-employee beneficiaries with equal voting rights.
  4. 4
    Execute the qualifying business transfer.The vendor sells at least 51% of both the vote and value of the shares to the trust, typically financed with a vendor take-back note the trust repays from future earnings.
  5. 5
    Claim the $10 million exemption on the vendor T1.This is the tax step. The exemption offsets the capital gain that would otherwise be included in income in the year of sale.
  6. 6
    File the T3 trust return and maintain qualifying status for 10 years.The trust files annually with the CRA and must keep meeting the EOT conditions to avoid the clawback rules. For broader preparation, see getting your business sale-ready.
ClearWealth Accounting Advisors
Anatomy of an EOT deal: from decision to close
Typical 9 to 18 month timeline, with the professional workload at each stage.
Month 0
Start
Feasibility and valuation
Confirm the corporation is a CCPC. Engage an independent business valuator to establish fair market value.
Month 2
Prep
Purification and corporate reorganization
Move passive assets out of the operating company so the 90% active business test is met at closing.
Month 4
Trust
Draft trust deed and appoint trustees
Canadian-resident trustees, at least one-third employee-beneficiaries, equal voting rights.
Month 6
Finance
Financing model and vendor take-back terms
Structure the note the trust will repay from future earnings, typically over five to ten years.
Month 8
Close
Close the qualifying business transfer
At least 51% of vote and value transfers to the trust. Cash and note flow. Exemption claimed on the vendor T1.
Month 12
File
First T3 trust return filing
The trust files its first annual T3 with the CRA and reports beneficiary distributions.
Years 1 to 10
Monitor
Ongoing qualifying-status monitoring
Annual reviews of trustee composition, active business test, and CCPC status to preserve the exemption.
Source: Canada Revenue Agency, Employee Ownership Trusts guidance · ClearWealth Accounting Advisors · clearwealth.tax · For informational purposes only.

— Do you actually qualify? The CRA checklist

To claim the $10 million exemption, both the transaction and the trust must meet a specific set of conditions in the Income Tax Act. There are seven main tests, and all must be satisfied at the time of the sale and, for most, during the 24 months leading up to it.
  • →Your corporation is a Canadian-controlled private corporation at the moment of transfer.
  • →At least 90% of the fair market value of the corporation’s assets is used in an active business carried on primarily in Canada.
  • →You and any related parties have owned the shares for at least 24 months before the sale.
  • →The trust acquires at least 51% of both the vote and value of the corporation’s shares in the transaction.
  • →All trustees are Canadian-resident individuals or a Canadian corporation licensed as a trustee.
  • →All trustees have equal voting rights on trust decisions.
  • →At least one-third of the trustees are beneficiaries who are current employees of the business.

If any one of these tests fails, the exemption does not apply. Because the qualifying period includes the 24 months before sale, planning often has to begin two years out. For related trust compliance, see trust reporting rules for Canadian trustees.

— The 10-year window: disqualifying events and clawback risk

The exemption is not final on the day of sale. For 10 years after closing, the trust must continue to meet the EOT qualifying conditions. If it stops qualifying (a disqualifying event) the previously exempted capital gain can be brought back into income and taxed.

A disqualifying event typically means the trust ceases to be a qualifying EOT. Examples include control of the corporation moving back out of the trust, the trustee composition falling out of compliance, or the active business test failing.

The tax recovery works in a split way. If the disqualifying event happens in the first 24 months, the exempted gain is generally added back to the vendor’s income. After that, the trust typically bears the tax. That split is why an EOT sale is not a sign-and-forget transaction. Ongoing monitoring (trustee compliance, T3 filings, active business test) is part of the deal for a full decade.

— Common mistakes owners make with EOT deals

Owners often walk into an EOT conversation with reasonable-sounding assumptions that turn out to be wrong. Six of the most common:

  • →Assuming the $10 million exemption is per vendor. It is per qualifying business transfer and must be shared among all vendors on that transfer.
  • →Triggering the transfer before purification. If passive assets still push the corporation past the 90% active business test on closing, the exemption is not available.
  • →Forgetting the trustee composition rules. Fewer than one-third employee-beneficiary trustees means the trust fails one of the qualifying conditions.
  • →Structuring vendor financing so the seller keeps effective control. Real control has to pass to the trust for the transaction to count as a qualifying business transfer.
  • →Skipping the 10-year monitoring plan. The exemption is at risk for a full decade after closing, and the CRA does not send automatic compliance reminders.
  • →Ignoring section 84.1 anti-avoidance rules. These can recharacterize a capital gain as dividend income if the transaction is not structured carefully.

For a broader lens on tax planning before you sell, see small business tax saving strategies.

— Frequently asked questions

Is the $10 million EOT capital gains exemption really permanent now, or could it be reversed?

Yes. Bill C-30 amended the Income Tax Act to remove the December 31, 2026 sunset date and received Royal Assent on June 18, 2026. A future government could legislate a further change, but as of today the exemption has no built-in expiry.

Do I have to sell my whole business to my employees, or just part of it?

You must transfer at least 51% of both the vote and value of the corporation’s shares to the trust for the transaction to count as a qualifying business transfer. Many EOT deals move 100%, but a majority-stake sale can qualify if the other conditions are met.

If my business partner and I sell together, do we each get $10 million tax free?

No. The $10 million exemption is per qualifying business transfer, not per vendor. All shareholders selling in the same transaction share the cap in an allocation you agree on. For a two-partner sale, that could mean $5 million each or another split.

How do I actually get paid when I sell to my employees since they rarely have that kind of cash?

Most EOT sales are financed with a vendor take-back note the trust repays over five to ten years out of the business’s future earnings. The vendor also has a 10-year capital gains reserve, double the usual five, to spread any taxable portion over the note.

What counts as a disqualifying event and how does the 10-year clawback work?

A disqualifying event means the trust stops meeting one of the EOT conditions, such as control moving back to the seller or the active business test failing. If it happens in the first 24 months, the vendor generally pays the recovered tax. After that, the trust typically bears it.

Does Ontario provincial tax also exempt the gain, or just the federal portion?

Ontario personal income tax generally follows the federal calculation of taxable capital gains. An amount exempted federally under section 110.61 is typically also excluded from Ontario tax on the same disposition. Quebec residents should check separately, as Quebec computes provincial tax on its own return.

Is a Canadian EOT the same as an American ESOP?

They are cousins, not twins. Both put company shares into a trust that benefits employees, but the Canadian EOT is a trust structure under Canadian tax law with the $10 million exemption attached. American ESOPs run under U.S. ERISA and Internal Revenue Code rules.

How long does it typically take to set up and close an EOT sale?

Most EOT sales run nine to eighteen months from the decision to explore to closing. Valuation and purification take the first few months, drafting the trust deed and appointing trustees comes next, and the closing is followed by the first T3 filing.

Planning your exit? Let’s map it out

At ClearWealth Accounting Advisors, we help Ontario business owners model all three exit routes side by side — EOT sale, family transfer, and third-party sale — so the numbers drive the decision.

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This article is for informational purposes only and does not constitute tax or financial advice. Tax rules change frequently and can apply differently depending on your specific circumstances. Consult a qualified accounting professional before making any tax or financial decisions.

Sources & References

  1. Parliament of Canada. Bill C-30 (Spring Economic Update 2026 Implementation Act), Royal Assent June 18, 2026. https://www.parl.ca/DocumentViewer/en/45-1/bill/C-30/royal-assent
  2. Parliament of Canada. Bill C-30 First Reading (Statutes of Canada 2026, chapter 22). https://www.parl.ca/Content/Bills/451/Government/C-30/C-30_1/C-30_1.PDF
  3. Library of Parliament. Legislative Summary of Bill C-30. https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/LegislativeSummaries/451C30E
  4. Canada Revenue Agency. Employee Ownership Trusts (EOT) overview. https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2023-made-canada-plan-strong-middle-class-affordable-economy-healthy-future/employee-ownership-trusts.html
  5. Department of Finance Canada. Canada Strong For All: Spring Economic Update 2026. https://budget.canada.ca/update-miseajour/2026/report-rapport/pdf/update-miseajour2026-eng.pdf
  6. Department of Finance Canada. Budget 2023: A Made-in-Canada Plan. https://www.budget.canada.ca/2023/pdf/budget-2023-en.pdf
  7. Canada Revenue Agency. Canadian income tax rates for individuals. https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html
  8. Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), section 110.61. https://laws-lois.justice.gc.ca/eng/acts/i-3.3/