Employee Ownership Trusts In Canada: Plan Carefully To Avoid Unintended Tax Consequences

In the United States and the United Kingdom, an employee ownership trust ("EOT") is a common option for business owners seeking to transfer their business to employees or to establish an employee remuneration plan. In Canada, several different provisions of the Income Tax Act (the "ITA") may be applicable to a trust created for the benefit of employees depending on the specific facts and circumstances. As such, thoughtful planning is required in the implementation of such trusts in order to avoid unintended tax consequences. The decision McNeeley v. The Queen¹ illustrates perfectly the uncertainties employers and tax practitioners have to face when creating trust for the benefit of employees in Canada.