Tax Incentive Eligibility
ARE YOU ELIGIBLE FOR CANADA’S EMPLOYEE OWNERSHIP TRUST TAX INCENTIVE?
Complete this 1-minute quiz to find out whether you are eligible for the $10M EOT Capital Gains Tax Incentive.
REQUIREMENTS for the EOT Capital Gains Tax Incentive
Canada’s new Employee Ownership Trust (EOT) legislation includes a tax incentive that exempts up to C$10 million in capital gains when an owner sells at least 51% of their business to an employee trust. Many owners will qualify, but specific conditions apply.
Below is a clear summary to help you determine whether this incentive may apply to your situation.
Always consult a qualified advisor when assessing eligibility.
Owner
requirements
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Eligible Individuals
Individual owners are eligible. Even if shares are held through a personal trust or holding company, you may still qualify. Discuss with your advisor. Companies that sell other companies they own do not qualify.
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Active Involvement
The owner (or their spouse) must have been actively involved in the business for at least two years, either currently or previously. Passive shareholders do not qualify.
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Age Requirement
Owners must be at least 18 years old.
Key
CONSIDERATIONS
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Active Business Assets
The company’s value must come from assets used in an active business (consult your advisor for specific thresholds). Companies that hold primarily passive assets, such as real estate, are ineligible..
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Ineligible Companies
Professional corporations, as defined by the Federal Income Tax Act, do not qualify. This includes accountants, dentists, lawyers, medical doctors, veterinarians, and chiropractors.
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Employee Beneficiaries
At least 75% of employee beneficiaries in the new EOT must be Canadian residents.
Business Requirements
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Incentive Allocation
The C$10,000,000 incentive is per transaction, so owners must decide how to divide it among themselves.
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Combined Benefits
The C$10,000,000 EOT incentive can be combined with the lifetime capital gains exemption of C$1,250,000 to increase the total benefit.
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AMT Exemption
The EOT tax incentive is exempt from Alternative Minimum Tax (AMT) and will not be reduced by AMT calculations.
SEE IF YOU’RE ELIGIBLE
Quickly determine if your (or your client’s) business qualifies for the EOT tax incentive in Canada with this straightforward, easy-to-follow flowchart.
