How employee-owned businesses could shake up Canada’s business scene

Employee ownership trusts are here to stay. That’s a good thing

THE CANADIAN FEDERATION of Independent Business released a weighty stat in a report last month, suggesting the amount of Canadian small business assets that are likely to change hands could amount to more than $2 trillion over the next decade, with 76 per cent of small business owners planning on making exits, most due to retirement.

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Who might be licking their chops, looking to gain ownership? Investors, family members and other businesses of course, but another group is also starting to factor into the picture: employees.

In its recent spring economic update, the federal government made permanent a tax incentive that could make that a reality for more employees, offering business owners who sell their companies to Employee Ownership Trusts (EOT) — an ownership structure that holds shares on behalf of the company’s employees — a “juicy tax incentive” that would exempt them from up to $10 million in capital gains tax if they transfer the business to an EOT.

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“It’s perfect timing given all the forces we’re facing,” said Jon Shell, chair of Social Capital Partners, speaking to The Peak. “One day, hundreds of thousands of Canadians will look back at this as the reason that they now own a share of their businesses.”

Tax incentives to promote EOTs first appeared in the federal budget in 2023, but uptake has been slow, largely because the expected wave of business exists hasn’t arrived yet. “This is really good legislation, it just hasn’t had a chance to breathe,” Chad Friesen, CEO of printing company Friesens Corporation told The Hub.

Proponents frame the EOT structure as one that makes sense at a time of heightened national anxiety about who owns our assets, what role large corporate ownership should play in business ownership and how to spur productivity when there’s a sense that doing so won’t benefit the average worker.

One such proponent is former Alberta premier Jason Kenney, who has been a (somewhat unexpected) fan of this kind of ownership.

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“There is a caricature of a big, anonymous and distant pool of capital — like private equity firms and pension funds — that buys up often smaller, medium-sized businesses, many of them originally family enterprises, and then just stripping their assets, laying people off, moving jobs overseas,” he told The Hub.

Others see it as good old fashioned economic nationalism.

“One of the primary reasons why politicians love these is a sovereignty argument, right?” noted Shell. “So, if a Canadian company were to sell to an employee ownership trust, that company remains Canadian and owned by Canadians.” Kieran Delamont