My grandfather used to say: “When one door closes, another always opens.” He was a wise man – but a terrible cabinet maker. Whether you’re a cabinet maker, or own a business of a different kind, you likely realize that a few tax doors have closed in recent years. But the 2023 federal budget tabled last week did open another door that could help with your business succession planning. I’m talking about Employee Ownership Trusts , which will come into effect on Jan. 1, 2024.
Further, employees don’t put up any cash to purchase the shares you’ll be selling to the EOT. The cash needed by the EOT to purchase your shares will typically come from the business itself over time, paid as dividends, or a loan, to the EOT.It’s important to know that an EOT must acquire a controlling interest in your company.
As a final tax benefit, trusts are normally subject to a 21-year rule that deems the trust to have sold its assets every 21 years, but an EOT will not be subject to this rule.