According to the Canadian Federation of Independent Business, over 75% of Canadian business owners plan to exit their business within the next decade. As you prepare for this transition, understanding the options available to you during the sale of your business is crucial to ensure a harmonious and tax-efficient transfer of assets. Among these options, transfers to employee ownership trusts offer a unique solution that can help to support the long-term stability of your business and create potential tax savings.
Starting January 1, 2024, business owners can access significant tax benefits when selling a qualifying business to an employee ownership trust ("EOT") pursuant to a transaction (an "EOT Transaction") that constitutes a qualifying business transfer ("QBT"). Among other benefits, eligible vendors are entitled to receive a shared pool of up to $10 million in capital gains deductions (the "EOT Deduction").
This article will provide an overview of the eligibility requirements for the $10 million EOT Deduction and an outline of the various benefits of EOT Transactions. We have also included diagrams for a sample pre-closing structure illustrating where an EOT Transaction could be implemented and a sample post-closing structure illustrating how the EOT Transaction could be funded.
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