To align with global tax standards and curb base erosion and profit shifting (BEPS), the Canada Revenue Agency (CRA) has introduced the Excessive Interest and Financing Expenses Limitation (EIFEL) rules. These rules aim to ensure that corporations and trusts pay their fair share of taxes by limiting the deductibility of interest and financing expenses.
The following is a summary of the information provided by the CRA. Please refer to their webpage for further information and updates.
What Are the EIFEL Rules?
The EIFEL rules cap the amount of net interest and financing expenses (IFE) that certain entities can deduct from their taxable income.
Net IFE = Interest and Financing Expenses – Interest and Financing Revenues
The cap is based on a percentage of Adjusted Taxable Income (ATI):
- 40% for tax years starting October 1, 2023 to December 31, 2023
- 30% for tax years starting January 1, 2024 and onward
Entities may also elect to use a group ratio based on consolidated financial statements.
Who Is Affected?
The rules apply to:
- Corporations or trusts with interest and financing activities
- Entities with interests in controlled foreign affiliates (CFAs)
- Members of partnerships with relevant financial expenses or revenues
Who Is Exempt?
Certain entities are excluded from EIFEL rules, including:
- Canadian-controlled private corporations with less than $50 million in taxable capital
- Entities with net IFE of $1 million or less
- Standalone Canadian entities with limited foreign ties and non-arm’s length financing
Filing Requirements
Affected entities must file Schedule 130 with their corporate tax return.
Additional information:
