Seventy-six per cent. That’s the number of Canadian business owners who anticipate retiring in the next decade and must now explore what’s next for their company.

With the federal budget just around the corner, the government is in a unique position to help these owners protect their businesses, look after their workers and preserve their legacies with the implementation of employee ownership trusts, in which businesses are essentially sold to staff.

I understand the government may be finalizing regulations and amendments needed to enact these trusts, fulfilling a commitment made in the 2022 budget. As a supporter of the newly formed Canadian Employee Ownership Coalition, and in light of the proven benefits to society of employee ownership, I urge the government to seriously consider including a capital gains tax exemption for business owners in its trust model.

This would remove a significant barrier to the creation of the trusts. It also reflects the results of the government’s recent consultations with stakeholders.

Typically, when entrepreneurs retire, they can sell their company to any interested party or transfer their business to a family member. Sometimes, a sale may involve a foreign takeover or a merger with some other entity. In other words, some of Canada’s most successful and vibrant small- and medium-sized enterprises could be swept up by foreign interests and, even worse, jobs could leave the country.

Another option that is gaining traction in many business circles — and becoming increasingly more appealing — is the idea of employee ownership trusts.

In broad strokes, employee ownership is when a company’s employees own shares in the company’s stock. The trusts are a form of employee ownership designed for succession, where an owner sells a majority of a company to employees all at once. Company shares are bought through a trustee, using borrowed money to buy these shares at fair market value. These shares are then distributed over time to all employees — not just executives — at no cost to workers.

But selling shares to employees through an employee ownership trust requires an owner to provide much of the financing themselves. Rather than sell to an outside investor or competitor and get fully paid upfront, the owner takes on more risk and is paid over a much longer period.

In both the United Kingdom and the United States, politicians of all stripes have decided that the outcomes of employee ownership are so good that they need to be encouraged and facilitated. The Canadian government has also been watching what’s going on abroad.

With the American and British models, owners who sell a substantial portion of their company to employees have access to capital gains tax incentives. This works as a tax deferment for business owners, so that the employees — who received their shares free — will eventually pay taxes when they sell them. Therefore, at no long-term cost to the state, the Canadian government could encourage this new path to wealth-building for workers, most of whom may be low-income earners and would never otherwise have access to business ownership.

Thanks in part to the capital gains tax waiver introduced in 2014, business sales to workers in the United Kingdom have increased from about 10 per year to approximately 300 in 2021.

The benefits of legislating employee ownership trusts into Canada’s Income Tax Act are plentiful. When businesses are sold to their employees, it supports local economies, protects jobs and contributes to employee wealth. In this age of increasing affordability challenges, building wealth for Canadian workers is a great way of mitigating inequality.

I spent more than three decades in banking, mostly in commercial banking, prior to my appointment to the Senate. In my experience, one common denominator for entrepreneurs was the value they attributed to their employees, who become like family. For many mom-and-pop shops, employees are the heart and soul of the company and many stick around through the highs and lows.

For many retiring business owners, selling their business is a very difficult decision — heartrending even. They want to secure their legacy and ensure their business continues to thrive. Employee ownership trusts can help achieve these goals and they provide an added incentive to employees to work hard and innovate.

The trusts are a win-win for business owners and employees. With appropriate incentives, they have the potential to help Canadian businesses and our workforce thrive over the long term.

Senator Tony Loffreda represents the Shawinegan division of Quebec.

A similar version of this article was published in the February 28, 2023 edition of The Globe and Mail.