Updated: August 24, 2023
Certain corporations and trusts should be aware of the proposed excessive interest and financing expenses limitation (EIFEL) rules1 to understand potential impacts to their business. Under these rules, the tax-deductible amount of interest and financing expenses (IFE) could be restricted. The Department of Finance (Finance) released updated draft legislation, which includes several changes, like a new requirement for taxpayers to file a prescribed form with their tax return to support the deductibility of their IFE, and an election after the EIFEL rules take effect allowing taxpayers to count their three pre-EIFEL regime taxation years towards their IFE deduction capacity. These proposed changes were released on August 4, 2023 and if enacted, the rules will be effective for taxation years starting on or after October 1, 2023 (revised from January 1, 2023 as originally proposed).
The EIFEL rules were originally introduced in Budget 2021, consistent with similar rules introduced in other G20 jurisdictions, based on the OECD’s “Base Erosion and Profit Shifiting” (BEPS) initiative2.
1. Proposed new sections 18.2 and 18.21 of the Income Tax Act (the Act).
2. BEPS refers to the Inclusive Framework on Base Erosion and Profit Shifting led by the OECD and the G20 group of nations. EIFEL is based on the objectives recommended under Action 4 of the BEPS project.
Once enacted, the EIFEL rules will have a significant impact on financing decisions and the tax compliance obligations of certain taxpayers. These rules are complex—but we can help you navigate them.
Contact your local advisor or reach out to us here.