Owners usually compare offers by the headline price. With an employee ownership trust on the table, the headline price is the wrong number to compare. The two routes are taxed so differently that a lower EOT price can leave you with more money than a higher price from a competitor — and a higher price from a competitor can still be the better deal once you account for when the money arrives.
The numbers below are illustrative. They use 2026 Ontario top marginal rates and assume the shares qualify for both exemptions. Your own figures need your accountant.
The worked example: $8 million gain, two routes
Assume an Ontario resident owns all the shares of an operating company with a nominal cost base and sells them for $8 million. The shares are qualified small business corporation shares, and the sale to the trust meets the conditions in section 110.61 of the Income Tax Act.
| Sale to an outside buyer | Sale to an EOT | |
|---|---|---|
| Capital gain | $8,000,000 | $8,000,000 |
| Exemption claimed | Lifetime capital gains exemption, about $1,250,000 | EOT exemption, $8,000,000 (limit $10,000,000) |
| Gain left to tax | $6,750,000 | $0 |
| Taxable at the 50% inclusion rate | $3,375,000 | $0 |
| Regular tax at 53.53% | about $1,807,000 | $0 |
| Alternative minimum tax in year of sale | Usually below regular tax | Roughly $600,000, recoverable over 7 years against future regular tax |
| When you are paid | Mostly at closing, sometimes with an earn-out or holdback | Mostly over 7–10 years from company profits |
The EOT figure for alternative minimum tax deserves a word. Since 2024, AMT counts 30% of a gain sheltered by the lifetime exemption or the EOT exemption. On an $8 million exempt gain that adds $2.4 million to the AMT base, and federal and Ontario AMT on that, after the basic AMT exemption, lands somewhere around $600,000. AMT is a prepayment rather than a final tax: you can claim it back over the next seven years to the extent your regular tax exceeds your AMT in those years. A seller who receives interest on a vendor note, or other income, will often recover much of it. A seller with very little taxable income afterwards may not recover all of it.
How much more an outside buyer has to pay
Every extra dollar an outside buyer pays is a capital gain taxed at about 26.8% (half of 53.53%). To leave you with the same after-tax amount as the EOT, the buyer has to cover the $1.8 million tax difference grossed up for that rate:
$1,807,000 ÷ (1 − 0.268) ≈ $2,470,000
So an outside offer of about $10.5 million, all cash at closing, is roughly equivalent after regular tax to an $8 million EOT sale. Any AMT you do not fully recover narrows that gap. So does the fact that the EOT pays you over a decade, with credit risk attached.
Discounting for time and risk
Cash at closing is worth more than the same cash over ten years, and a buyer’s cheque carries no risk that the business has a bad patch. An EOT seller is effectively lending most of the price to the business and being repaid from its profits — the mechanics are set out in how an employee ownership trust pays the seller.
A rough way to compare is to discount the EOT payments at the interest rate you would want for lending to a company of that size and risk. If the vendor note pays interest at a market rate, much of that discount is already compensated. If it pays a low rate, the EOT’s present value falls, and the outside buyer’s premium needed to match it falls with it.
The differences that are not tax
| Outside buyer | Employee ownership trust | |
|---|---|---|
| Price | Negotiated; a strategic buyer may pay for synergies | Fair market value, supported by an independent valuation; trustees cannot overpay |
| Due diligence | Extensive, often months | Lighter; the buyer already knows the business |
| Confidentiality | Competitors and staff may learn of the sale process | Kept within the company until announced |
| After closing | Usually a transition period, then out | Seller can stay involved but cannot control the company or the trust |
| Risk after closing | Indemnities, holdbacks, earn-out disputes | Repayment risk on the note; 24-month disqualification risk on the exemption |
| Staff and legacy | New owner decides | Business stays independent, run for the employees |
The 24-month point matters. If the trust stops qualifying within 24 months of the sale, the seller’s exemption is deemed never to have applied. The EOT explainer covers the disqualifying events and who bears the tax afterwards.
When an outside buyer still wins
The gain is very large. The EOT exemption is capped at $10 million per business. On a $30 million gain the exemption covers a third of it, and the comparison turns mainly on price and timing.
A strategic buyer is paying well above fair market value. A competitor that can strip out duplicated costs may pay a premium a trust cannot match, because the trustees can only pay what the business is worth on its own.
You need the money now. An EOT seller should plan on most of the price arriving over seven to ten years.
The business cannot carry the debt. If the company’s free cash flow will not repay the note within about 15 years, the EOT is not financeable at the price you want.
When the EOT wins
The EOT tends to come out ahead for a profitable, owner-managed company with a gain under $10 million, a capable management team, stable cash flow, and an owner who would rather not run a public sale process. Those are also the businesses outside buyers often value conservatively, because so much of the value walks out the door with the founder — the EOT keeps the people who carry it.
How to run the comparison properly
Get a valuation first. Then model both routes on the same page: after-tax proceeds, timing of receipt, interest on any note, AMT and its recovery, and the risk you are left carrying. The guide to minimising capital gains on a sale covers the other planning tools, such as multiplying the lifetime exemption through a family trust, that can change the outside-buyer column. The employee ownership trust page explains how the firm runs EOT sales.
Most owners start by asking whether an EOT can match a buyer’s price. On a gain under $10 million the question is usually the reverse.
Common questions
Is selling to an employee ownership trust better than selling to a buyer?
It depends on the price, the size of the gain and how quickly you need the money. On a gain under $10 million, the EOT exemption can remove regular tax entirely, so an outside buyer may need to pay roughly 30% more to leave you with the same after-tax amount. The EOT usually pays over seven to ten years.
How much tax do I save selling to an EOT in Ontario?
On an $8 million gain on qualifying shares, regular tax on a third-party sale after the lifetime capital gains exemption is roughly $1.8 million at 2026 Ontario top rates. On a qualifying EOT sale the regular tax can be nil, although alternative minimum tax of roughly $600,000 may be payable and is recoverable over seven years.
Does alternative minimum tax apply to the EOT exemption?
Yes. Since 2024, 30% of a gain sheltered by the EOT exemption is included in the AMT base. Any AMT paid can be carried forward for seven years and recovered against regular tax that exceeds AMT in those years.
Can I use the lifetime capital gains exemption and the EOT exemption together?
They are separate deductions with separate conditions. Whether and how both can apply to one sale depends on the facts and the structure, and needs specific tax advice before the deal is signed.
Does an EOT pay less than a third-party buyer?
Often, in headline terms. Trustees can pay only fair market value supported by a valuation, while a strategic buyer may pay a premium for synergies. The after-tax and timing comparison is what decides which is better.
What if my capital gain is more than $10 million?
The EOT exemption covers up to $10 million per business. Gain above that is taxed normally, although the capital gains reserve on an EOT sale can spread it over up to 10 years.
Is the EOT exemption permanent?
Yes. Bill C-30 received Royal Assent on 18 June 2026 and removed the end-of-2026 sunset.