Canada is approaching one of the largest transfers of business ownership in its history. According to a January 2023 report from the Canadian Federation of Independent Business, 76% of small business owners plan to exit their business within the next ten years, and more than $2 trillion in business assets are expected to change hands as a result. Only 9% of those owners have a formal succession plan in place.

Alberta is not exempt from this trend. The province’s economy is built on privately held companies in energy services, agriculture, construction, transportation, professional services and manufacturing, many of them founded by owners who are now approaching retirement. The CFIB found that retirement is the top reason for exit, cited by 75% of respondents, which suggests that timing is being driven by demographics rather than by market conditions.

The federal tax landscape for these transitions has also changed in 2024. The Lifetime Capital Gains Exemption was increased to $1.25 million for dispositions on or after June 25, 2024, new rules for Employee Ownership Trusts took effect on January 1, 2024 with a temporary $10 million capital gains exemption, and a proposed increase to the capital gains inclusion rate has not yet been enacted. Each of these affects what an owner keeps after a sale.

This article sets out what the ownership transition means for Alberta business owners, how the current tax measures shape the choice between family, employee and third-party exits, and why the planning horizon should be measured in years rather than months.

Key Takeaways

• CFIB research shows 76% of Canadian small business owners intend to exit within a decade, yet only 9% have a formal succession plan
• The Lifetime Capital Gains Exemption rose to $1.25 million for dispositions on or after June 25, 2024, improving after-tax outcomes for qualifying share sales
• Employee Ownership Trusts offer a temporary $10 million capital gains exemption for qualifying sales between 2024 and the end of 2026
• The proposed increase to the capital gains inclusion rate is still pending, so owners should plan for more than one possible tax outcome
• Owners who begin preparing several years before an exit tend to have more buyer options, cleaner transactions and stronger negotiating positions

The Scale of the Coming Transition

The CFIB numbers describe a wave rather than a trickle. Over $2 trillion in business assets across Canada are held by owners who expect to exit within a decade, and the reasons they give are overwhelmingly personal, with retirement leading the list at 75%. In Alberta, where a large share of the mid-market was built by founders over the past several decades, many of those founders belong to the cohort now planning their departure.

The gap between intention and preparation is the striking part. With only 9% of owners holding a formal succession plan, the vast majority are approaching the most significant financial event of their lives without a documented strategy. That gap has consequences for valuation, for the pool of available buyers and for the continuity of the business itself.

The CFIB also asked owners what matters most. Protecting employees was cited by 90% of respondents as the most important factor, while 84% wanted the highest possible price and 84% wanted the right buyer. Those priorities are not always compatible, and reconciling them is the central task of succession planning.

Who Will Buy? Family, Employees and Third Parties

The CFIB found that 49% of owners plan to sell to an unrelated buyer, 24% to family members and 23% to employees. Each path carries a different mix of price, certainty and continuity. Third-party sales to strategic or financial buyers generally offer the highest valuation and the cleanest exit, but they also bring the most rigorous due diligence and the greatest risk to the culture that owners say they want to protect.

Family transitions preserve legacy but often struggle with financing, since the next generation rarely has the capital to pay full value up front. Vendor take-back notes, staged share transfers and holding-company structures are common tools, and each has tax consequences that should be reviewed with advisors well before the transaction.

Employee sales occupy the middle ground. They tend to satisfy the 90% of owners who prioritize their staff, and the new Employee Ownership Trust rules have made the option materially more attractive from a tax standpoint. The trade-off is that employee buyers, like family, usually need the vendor to participate in the financing.

The Lifetime Capital Gains Exemption at $1.25 Million

For dispositions on or after June 25, 2024, the Lifetime Capital Gains Exemption is $1.25 million. It applies to qualified small business corporation shares and to qualified farm and fishing property, which makes it relevant to a large proportion of Alberta’s privately held companies and agricultural operations. The exemption shelters capital gains up to the limit from tax at the individual level.

Qualifying is not automatic. The shares must meet tests concerning the use of the corporation’s assets in an active business carried on primarily in Canada, both at the time of sale and over a holding period. Companies that have accumulated passive investments, excess cash or real estate not used in the business may need a purification process to qualify, and that process takes time.

The exemption is also personal rather than corporate, which means that family members who hold shares may each be able to claim it if the structure allows. The details depend on individual circumstances, and owners should seek advice from their tax advisors before assuming that the full benefit is available.

Employee Ownership Trusts: A New Tool With a Deadline

How the Structure Works

An Employee Ownership Trust is a trust that holds shares of a business on behalf of its employees. The rules governing EOTs took effect on January 1, 2024, and they allow an owner to sell a controlling interest to a trust that holds the shares for the benefit of the workforce, with the purchase typically financed over time from the company’s own cash flow and vendor financing.

The $10 Million Exemption

Qualifying sales to an EOT are eligible for a capital gains exemption of up to $10 million. This is a significant incentive, particularly given the alignment between an employee exit and the priorities that the CFIB survey identified. The exemption is available for qualifying dispositions from January 1, 2024 to December 31, 2026, so it is currently a temporary measure.

Planning Around the Window

Because the exemption is scheduled to expire at the end of 2026, owners who are drawn to the structure cannot afford to wait. Establishing a trust, arranging financing, satisfying the qualifying conditions and completing a sale can take many months for most businesses. An owner who has not started by 2025 may find the window closing before the transaction is ready.

The Inclusion Rate Question and Planning Under Uncertainty

Budget 2024 proposed raising the capital gains inclusion rate from one-half to two-thirds effective June 25, 2024, for individuals on annual gains above $250,000 and for all gains realized by corporations and trusts. The measure has not yet been enacted, and its final form and timing remain subject to the legislative process. Owners should treat it as proposed rather than settled, and their advisors will be watching for developments.

The same budget also proposed a Canadian Entrepreneurs’ Incentive, which would reduce the inclusion rate to one-third on up to $2 million of eligible gains, phased in over time. Like the inclusion rate change, it is a proposal at this stage. Taken together, the measures illustrate how quickly the after-tax outcome of a sale can shift and why planning around a single assumed tax rate is risky.

The practical response is to model an exit under more than one tax scenario and to identify the structures that perform well regardless of which prevails. The LCGE and the EOT exemption both operate independently of the inclusion rate, which makes them valuable anchors in an uncertain environment. Tax and legal advice specific to the owner’s situation is essential.

Starting the Plan Now

Succession planning begins long before a buyer is identified. The first steps are to clarify the owner’s personal objectives, to obtain a realistic sense of value and to identify the gaps between the business as it is and the business a buyer will pay for. Clean financial statements, documented processes, a management team that can operate without the founder and a clear picture of customer concentration all add value regardless of the exit path.

The tax measures introduced in 2024 reward preparation. Qualifying for the LCGE may require restructuring, an EOT sale requires time to set up and any response to the inclusion rate proposal depends on knowing the numbers. Owners who engage their accountants, lawyers and M&A advisors early give themselves the widest range of options.

The CFIB data suggests that most Alberta owners share the same hopes for their exit: a fair price, the right buyer and a secure future for their employees. Those outcomes are achievable, but rarely by accident. At Pragma Capital, we encourage owners to treat succession as a strategic project with a multi-year timeline, not a transaction to be arranged when retirement is already at the door.