Why Succession Planning in Canada Matters Now in 2025 More Than Ever
As we move into the latter half of 2025, succession planning has become a defining issue for Canadian business owners. For many entrepreneurs, the business is more than an asset, it’s a cornerstone of their retirement plan, a family legacy, and a key contributor to their community.
Yet, despite its significance, formal business succession planning in Canada remains alarmingly underdeveloped. According to the Canadian Federation of Independent Business (CFIB), over $2 trillion in business assets are expected to change hands within the next decade, and 76% of small business owners plan to exit their businesses. But only 9% have a formal succession plan in place.
At WealthCo, we believe this represents not just a planning gap, but a wealth preservation opportunity. Whether you're considering a sale, a family transition, or an employee buyout, understanding the evolving landscape and acting early can help protect what you’ve built.
What’s Driving the Exit Wave and What’s Getting in the Way
In CFIB’s national survey, retirement remains the top driver of business exits (75%), followed by burnout (22%) and a desire to step back from responsibilities (21%). These motivations align closely with what we hear from our clients, particularly those aged 50+, who often balance running their business with family obligations, estate planning, and lifestyle goals.
Yet the obstacles remain familiar and deeply personal:
54% struggle to find a suitable successor
43% can’t confidently value their business
39% say their business is too dependent on them to transfer smoothly
And following the financial and emotional toll of the COVID-19 pandemic, nearly 40% of owners have altered their exit timeline, some delaying due to lower valuations, others accelerating due to stress or health concerns.
These are not just financial challenges. They are emotional, operational, and strategic decisions that require foresight, communication, and often, professional guidance.
Capital Gains Tax in Canada for 2025
One of the most significant shifts for entrepreneurs is the planned increase in the capital gains inclusion rate. Originally slated to take effect June 25, 2024, this change would require individuals to include two-thirds of capital gains over an annual $250,000 threshold in their taxable income (up from the current 50% inclusion rate). Corporations and most trusts would face a 66.67% inclusion rate on all capital gains, with no threshold. However, in January 2025 the federal government announced a deferral of this measure’s implementation to January 1, 2026. Until then, the capital gains inclusion rate remains at 50%, meaning only half of any capital gain is taxable.
What That Means for Business Sales:
Share sales exceeding the $250,000 threshold will result in higher personal tax
Asset sales, often used in acquisitions, will not qualify for the most favorable treatment
Multi-year sales or phased transitions (common in family transfers) may now see higher taxes without grandfathering provisions
If your business sale is expected to exceed the exemption limits, a proactive tax strategy can help structure the deal for optimal after-tax value.
What Business Owners Should Know About LCGE and CEI in 2025
What is The Lifetime Capital Gains Exemption (LCGE) in 2025?
Still one of the most powerful tax planning tools, the LCGE allows qualifying business owners to shelter up to $1.25 million in gains on the sale of qualified small business corporation (QSBC) shares in 2025. However, to benefit:
The business must be active and Canadian-controlled
The sale must be structured as a share sale, not an asset sale
Passive assets (e.g. real estate or investments) may need to be “purified” first
What is The Canadian Entrepreneurs’ Incentive (CEI)?
Phased in starting in 2025, the CEI allows an additional $2 million in capital gains to be taxed at a reduced inclusion rate down to 33.33%. But the eligibility is restrictive:
Owner must hold at least 5% voting shares for 3+ years
The business must operate in approved sectors (excluding finance, real estate, consulting, medicine, and others)
Rules are complex, and planning is essential
For many high-net-worth owners, particularly in professional or service sectors, the CEI may not apply, but alternatives may still be available.
Employee Ownership Trusts (EOTs): A New Succession Tool for Canadian Businesses
Introduced in 2024 and still evolving in 2025, Employee Ownership Trusts in Canada are gaining attention as a tax-efficient exit option. Here's how they work:
Owners sell a majority (50%+) of the company’s shares to a trust held for the benefit of employees
The first $10 million in capital gains is tax-free if the sale closes before December 31, 2026
The purchase price is typically paid out over time, funded by the business’s future cash flow
EOTs May Be Ideal For:
Business owners without family successors
Entrepreneurs prioritizing employee retention or community continuity
Owners seeking a gradual exit without a third-party buyer
However, challenges remain particularly around financing, governance, and the deferred nature of the payout. If you’re considering this path, 2025 may be your window to begin structuring the deal.
Family Business Transfers in Canada: More Viable, Still Complex
Legislation passed in recent years has leveled the playing field for family business transitions in Canada. Thanks to Bill C-208, business owners selling to children or grandchildren can now access the same tax treatment as third-party sales, provided certain conditions are met.
The Catch? Complexity.
To qualify, owners must pass a 12-step “genuine transfer” test that assesses:
Who manages the business
The timeline of ownership change
Intent to operate vs. flip the business
These tests are especially challenging when:
Parents stay on in advisory or partial leadership roles
Multiple children are involved
Illness or unexpected events affect control
Getting it wrong could disqualify the sale from favorable tax treatment, so clarity and documentation are critical.
Strategic Considerations for Canadian Entrepreneurs and HNW Families in 2025
Regardless of how you plan to exit, your succession strategy should address more than tax. At WealthCo, we help business owners align exit strategies with broader life goals: family wealth, philanthropy, retirement income, and cross-border planning.
Too many owners begin succession conversations when they’re ready to retire. We recommend engaging 2–5 years ahead, ideally when you’re still growing the business, not winding it down.
Closing Thoughts: Your Exit is a Starting Point for the Next Chapter
The business succession landscape in Canada has changed, and the rules are only becoming more nuanced. Whether you’re planning to exit in two years or ten, the best time to start aligning your tax, family, and wealth strategy is today.
If you're unsure how these changes may impact your exit, or want clarity on which strategy fits your situation, reach out to your advisor. A thoughtful plan now can help protect your hard-earned wealth and the legacy you've built.
Disclaimer: This article is for informational purposes only and is not intended to provide legal, accounting, tax, or financial advice. The information contained herein is based on legislation, regulations, and interpretations available as of the time of writing and may be subject to change. Readers should not act on this information without seeking professional guidance tailored to their individual circumstances. Any references to tax treatments, exemptions, or planning strategies are general in nature and may not apply to all business owners. Eligibility for these programs depends on a variety of factors, including corporate structure, ownership history, and business activities. Please consult your advisor or tax professional before implementing any business succession or tax planning strategies.
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