Section 18.2

Subsection 18.2(1)

Adjusted Taxable Income

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A

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

Creation of non-capital loss in carryback or carryforward year (pp. 18-19)

  • An example is provided where a portion of a non-capital loss that is...

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PWC, "Tax Insights: Excessive interest and financing expenses limitation (EIFEL) regime", Issue 2022-06, 15 February 2022

Double-deductions of non-capital losses

  • Item A in the ATI formula is reduced by the non-capital loss and net capital loss generated for the...

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D

B

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

No addback of terminal losses (p. 21)

  • Variable B of the ATI formula should include an addback for any terminal loss deduction under s. 20(16)...

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Paragraph (a)

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EY, "Proposed EIFEL rules", Tax Alert 2022 No. 13, 9 March 2022

Interest that is expressly permitted to be capitalized to resource pools is not added back (p. 4)

Variable B adds back a number of amounts so as...

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Paragraph (h)

C

Paragraph (b)

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EY, "Proposed EIFEL rules", Tax Alert 2022 No. 13, 9 March 2022

Circularity issue arising from the FTCs being affected by deductible interest and financing expenses (IFE), which cannot be determined until the...

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Paragraph (e)

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

Need to properly flow through trust attributes to corporate or trust beneficiaries (pp. 24-26)

  • Para. (e) of variable C reduces ATI by an amount...

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Eligible Group Entity

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Paragraph (a)

Excess Capacity

Excluded Entity

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Balaji Katlai, Hugh Neilson, "Canadian Inbound Investment: The EIFEL Trap?", International Tax Highlights (IFA Canada), Vol. 1, No. 2, August 2022, p. 7

25% threshold re non-resident equity rights (pp. 7-8)

  • From the perspective of a Canadian-controlled private corporation (CCPC) that has an active...

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PWC, "Tax Insights: Excessive interest and financing expenses limitation (EIFEL) regime", Issue 2022-06, 15 February 2022

Low de minimis threshold

  • The “excluded entity” definition in draft s. 18.2(1), which includes groups of corporations and trusts whose...

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Paragraph (b)

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

Other countries use higher and flexible safe harbour limits (pp. 7-8)

  • The de minimis exception in para. (a) for a taxpayer which, together with...

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Paragraph (c)

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Subparagraph (c)(i)

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Saira Bhojani, Eivan Sulaiman, "EIFEL Rules", Draft 2022 CTF Annual Conference paper

Entity-by-entity application of test (p.9)

  • The test of all or substantially all of the businesses, undertakings and activities of each eligible...

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

“Substantially all” test must be satisfied for each business (p. 9)

  • All or substantially all of “each” business of the taxpayer and of...

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Subparagraph (c)(ii)

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Saira Bhojani, Eivan Sulaiman, "EIFEL Rules", Draft 2022 CTF Annual Conference paper

Exceeding of $5M threshold even where small FA interest or stacking of FAs (p. 9)

  • The test of the total fair market value of all property of a...

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

Exclusion for FAs even with nominal income (pp. 9-10)

  • The exclusion for any foreign affiliate could apply, for instance, to a dormant foreign...

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Subparagraph (c)(iii)

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Kyle A. Ross, Trent J. Blanchette, "Issues with the ‘Excluded Entity’ Exception to the EIFEL Rules", Tax for the Owner-Manager, Vol. 23, No. 4, October 2023, p. 4

The third condition in the “domestic exception” in para. (c) of the definition of excluded entity is essentially that (1) no non-resident...

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Joint Committee, "Summary of Issues Raised with the Department of Finance in Respect of the Excessive Interest and Financing Expenses Limitation (EIFEL) Proposals", 22 March 2023 Joint Committee letter

Arbitrary nature of the (c)(iii) tests (pp. 4-5)

  • The s. (c)(iii) requirements for the “domestic” exception can cause an entity to qualify or...

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

Reason for specified shareholder exclusion (p. 10)

  • It is understood that the policy concern being addressed arises where interest or financing...

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Clause (c)(iii)(A)

Subparagraph (c)(iv)

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Excluded Interest

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Joint Committee, "Excessive Interest and Financing Expenses Limitation Proposals", 5 May 2022 Submission of the Joint Committee

Restriction to corps (pp. 14-16)

  • The excluded interest provision should be expanded to apply where either or both of the parties to a loan are...

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EY, "Proposed EIFEL rules", Tax Alert 2022 No. 13, 9 March 2022

Exclusion of excluded interest from interest and financing revenues/expenses (IFR/IFE) accommodates loss consolidations (p .4)

Excluded interest...

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PWC, "Tax Insights: Excessive interest and financing expenses limitation (EIFEL) regime", Issue 2022-06, 15 February 2022

General scope of excluded interest rules

  • The “excluded interest” rules depart from the 2021 federal budget proposals (which stated that...

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Interest and Financing Expenses

Interest and Financing Revenues

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Paragraph (g)

Relevant Affiliate Interest And Financing Expenses

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Joint Committee, "Summary of Issues Raised with the Department of Finance in Respect of the Excessive Interest and Financing Expenses Limitation (EIFEL) Proposals", 22 March 2023 Joint Committee letter

No RAIFE carve-out for ss. 95(2)(a) and 95(2)(a)(ii)(D) amounts (p. 14)

  • A controlled foreign affiliate’s interest and financing expenses...

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EY, "Revised EIFEL proposals", Tax Alert 2022 No. 43, 10 November 2022

Separate flow-up of relevant affiliate IFE or relevant affiliate IFR (p. 4)

  • The amounts that would be the interest and financing revenues (IFRs)...

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Relevant Affiliate Interest And Financing Revenues

Subsection 18.2(2)

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PWC, "Tax Insights: Excessive interest and financing expenses limitation (EIFEL) regime", Issue 2022-06, 15 February 2022

Unclear whether s. 18.2 applies to computing FAPI

  • It is unclear whether the rules apply to computing the income of a foreign affiliate, which is...

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John Unger, "Proposed Section 18.2: Limitations on Deducting Costs to Finance Foreign Affiliates", International Tax, CCH, December 2007, No. 37.

Subsection 18.2(3)

Administrative Policy

2008 IFA Round Table, Q. 10.

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Subsection 18.2(4)

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Saira Bhojani, Eivan Sulaiman, "EIFEL Rules", Draft 2022 CTF Annual Conference paper

Requirement for accuracy (p. 34)

  • Any over-designation, including an immaterial one, will invalidate a transfer of excess capacity under s....

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EY, "Revised EIFEL proposals", Tax Alert 2022 No. 43, 10 November 2022

Transferee can have a different functional currency or be a REIT (p. 7)

  • The EIFEL revisions have removed the requirement that cumulative unused...

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Paragraph 18.2(4)(c)

Subsection 18.2(9)

Subsection 18.2(12)