Manitoba Business Owners: Selling to Employees? Learn About the Employee Share Purchase Tax Credit

Succession planning, employee retention, and business growth are challenges that many Manitoba businesses face. The Employee Share Purchase Tax Credit (ESPTC) offers a practical solution to these challenges, combining financial incentives with opportunities for employee ownership.

During a recent meeting, I first learned about this program through the corporate legal team at MLT Aikins, whose detailed guidance shed light on how the ESPTC can benefit businesses and employees. This blog draws from their insights and information provided by the Manitoba Employee Share Purchase Tax Credit Program.

So What Is the Employee Share Purchase Tax Credit?

The ESPTC is a Manitoba tax credit program designed to encourage employees to buy shares in their companies through a government-approved Employee Share Ownership Plan (ESOP). This initiative supports several objectives, including:

• Driving business growth
• Facilitating family business succession
• Increasing employee participation in ownership

Eligible employees can claim a 45% tax credit on their share purchases, with the program structured into two main streams:

1. General Employee Ownership: Employees investing for general ownership purposes can receive a fully refundable tax credit of up to $27,000 annually, based on a maximum investment of $60,000.
2. Succession Planning and Buyouts: For cases involving business transitions or takeovers, employees may qualify for a tax credit of up to $202,500 annually on a maximum purchase of $450,000. The first $27,000 of the credit is refundable, with the remaining credit applicable to Manitoba personal income taxes over multiple years.

More details can be found on the MLT Aikins website here

‍

Why Should You Consider the ESPTC?

For Businesses

• Streamline Succession Planning: For family businesses or owners preparing to transition, this tax credit provides a path for employees to assume ownership while preserving the company’s legacy.
• Raise Capital Effectively: Offering shares to employees can help raise funds without relying on external investors.
• Improve Employee Retention: Employee ownership aligns workers' success with company growth, fostering loyalty and engagement.

For Employees

• Tax Benefits: The generous 45% tax credit reduces the financial burden of investing in the business.
• Ownership Opportunities: Employees gain a direct stake in the company's future.
• Shared Success: Ownership ties employees to the business's growth and achievements.

‍

Eligibility Criteria

For Businesses

To qualify, businesses must meet specific criteria:

• Be a Canadian-controlled private corporation with a permanent establishment in Manitoba.
• Operate as an active business generating revenue from ongoing operations.
• Have net assets below $10 million and gross assets under $25 million.
• Pay at least 25% of employee remuneration to Manitoba residents.

Certain industries, such as financial institutions and insurance companies, are excluded from the program.

For Employees

Only Manitoba residents employed by the business or its affiliates, including directors and officers, may participate. Shares must be purchased under a pre-approved ESOP.

What Is an ESOP?

An Employee Share Ownership Plan (ESOP) allows employees to acquire or receive shares in their company. To be eligible for the ESPTC, an ESOP must:

• Treat all eligible employees equally.
• Issue shares under a single class.
• Cap total equity raised at $10 million.
• Comply with the Income Tax Act (Manitoba).

Businesses must register their ESOP with the Manitoba government before issuing shares.

________________________________________

How to Get Started?

If the ESPTC aligns with your business goals, consult your professional advisors—such as legal, financial, or accounting professionals. For further reading, refer to the more detailed and expert writings from the legal team at MLT Aikins, accessible here

‍

^{This information has been prepared by Brandt Butt whois aPortfolio Manager and Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinionof iA Private Wealth. The information contained in this newsletter comes fromsources we believe reliable, but we cannot guarantee its accuracy orreliability. The opinions expressed are based on an analysis and interpretationdating from the date of publication and are subject to change without notice.Furthermore, they do not constitute an offer or solicitation to buy or sell anyof the securities mentioned. The information contained herein may not apply toall types of investors. ThePortfolio Manager and Investment Advisor can open accounts only in the provinces in which they are registered.}

^{iA Private Wealth Inc. is a member of the CanadianInvestor Protection Fund and the Canadian Investment Regulatory Organization.iA Private Wealth is a trademark and business name under which iA PrivateWealth Inc. operates.}

^‍

^‍

‍

‍

‍

‍

‍