Group calls on Ottawa to come through with EOTs

Says Employee Ownership Trusts create stronger, more resilient economy

Group calls on Ottawa to come through with EOTs

A newly launched coalition is calling on the federal government to keep its commitment to introduce Employee Ownership Trusts (EOTs) into the Income Tax Act.

The Canadian Employee Ownership Coalition (CEOC) claims that last year, Ottawa committed to introduce a new, dedicated EOT to give retiring business owners more incentive to sell to their employees — but it has not yet released draft proposals or legislation.

These trusts encourage employee ownership of a business, and facilitate the transition of privately owned businesses to employees.

"Business owners across the country, including me, have a strong desire to eventually sell our businesses to our hard-working employees," says Tim Masson, coalition steering committee member and CEO of Toronto-based Raise Recruiting. "It's nearly impossible to do this in Canada, because the right policies and incentives aren't yet in place. Unlike the U.S. and the U.K., Canada lacks a trust structure and tax incentives to make this sort of business succession plan viable."

Proven record

The coalition is calling on the federal government to use Budget 2023 to introduce a dedicated EOT, remove tax barriers to employee ownership by adopting the U.K.'s approach of a Capital Gains Tax exemption and introduce clear, simple rules that protect taxpayers and employees.

The group says EOTs are a tool for creating a stronger, more resilient economy and building middle-class wealth, which has been proven in different countries.

“There’s going to be hundreds of companies that are going to do this, over the next five to 10 years, [with] thousands of employees creating millions of dollars of wealth,” Jon Shell, managing director and partner at Social Capital Partners in Toronto, previously told Canadian HR Reporter.

Keen to sell

Over three-quarters (76 per cent) of small business owners are looking to put an end to their employer status within the next decade, reports the Canadian Federation of Independent Business (CFIB).

However, less than one in 10 business owners (nine) have a formal business succession plan in place, finds the survey of 2,479 small business owners from Canada, conducted June 27 - Aug. 17, 2022.

“Not having a formalized succession plan could result in lost jobs, bankruptcies or loss of stability for the business,” said Laure-Anna Bomal, Research Analyst at CFIB and one of the authors of the report. “A majority of business owners rely on the sale of their business to fund their retirement. If they can’t sell their business, they’d have to delay their retirement. That adds another stress to the owner, their family and employees.”

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