A Win for the Worker Co-op Sector in the Canadian Budget!

By Hazel Corcoran

The federal budget 2024 announced that sales of businesses to worker co-operatives would be eligible for a capital gains tax exemption of up to $10 million!  This was previously announced for employee ownership trusts (EOTs), and CWCF with the support of Co-operatives and Mutuals Canada has strongly advocated the addition of worker co-ops to create a level playing field.  This measure is designed to encourage business owners to sell to employee-owned firms including EOTs and worker co-operatives.  It is wonderful to see the federal government recognize the potential of employee ownership, especially in light of the huge number of business owner retirements which are already occurring and expected to accelerate.  We greatly appreciate the leadership of Social Capital Partners in effectively advocating for EOTs, and in supporting CWCF’s efforts to have worker co-operatives included. 

A worker co-operative would generally need to meet the definition set out under the Canada Cooperatives Act.  CWCF will advocate that worker co-ops which meet the definition in provincial and territorial co-operative legislation should also be eligible.  As long as the relevant requirements are met, this would allow an individual to claim a capital gains exemption on selling the shares of a business to a worker co-operative.  A qualifying business transfer would also be eligible for the 10-year capital gains reserve and the 15-year exception to the shareholder loan and interest benefit rules which were announced in Budget 2023.  Additional details of the proposed Income Tax Act amendments will be released in the coming months. 

The relevant section is on p. 14 of the Budget’s Tax Measures, Supplementary Information.