The Joint Committee notes that adjusted taxable income for EIFEL purposes may have to be computed iteratively where non-capital losses are being used

Comments made by the Joint Committee to CRA (the ILBD) primarily on EIFEL interpretive or administrative matters included the following:

• Although there are many instances in which a family trust could be treated as the ultimate parent of a private Canadian group, a consolidated audit is rarely done at the family trust level – and preparing financial statements would entail significant complications, e.g., accounting for direct ownership by family members in the parent company as minority interests; CRA should consider relief through permitting the uppermost corporation in the group to be treated as the ultimate parent.
• Given that the group ratio is calculated for a consolidated group for a “relevant period”, where a corporation was incorporated or acquired, or disposed of, during a year, will it be eligible for the group ratio where its financial results are included in the consolidated financial statements for the portion of the year that it is an eligible group entity?
• Schedule 130 should accommodate taxpayers that become subject to the EIFEL rules being able to recognize a balance of cumulative unused excess capacity (CUEC) without the need for amending the three preceding tax returns.
• The calculation and application of non-capital losses where the EIFEL limitations are engaged (including a potential iterative computation under para. (h) or (i) of element B of the “adjusted taxable income” (ATI) definition) was summarized as follows (with these points being illustrated in numerical examples), with requested confirmation of CRA’s agreement:

i. A non-capital loss from another taxation year that was not used to reduce taxable income to zero when determining ATI and the IFE [interest and financing expense] denial ratio for the year, may be used to further reduce taxable income for a denial for IFE under subsection 18.2(2), a partnership IFE add-back under paragraph 12(1)(l.2) or an adjustment for relevant affiliate IFE under subclause 95(2)(f.11)(ii)(D)(I), or subclause 95(2)(f.11)(ii)(D)(II) that created additional taxable income following the EIFEL computations;

ii. Where the amount of the loss claimed in the circumstances described in (i) above results in an iterative adjustment to ATI under either of paragraphs (h) or (i) of ATI; to the extent of embedded EIFEL attributes as described in variable J of paragraph (h) or to the extent of the 25% of the additional non-capital loss claimed against the IFE denial in the case of a specified pre-regime loss under paragraph (i) of ATI; the ATI will be increased and the IFE denial reduced. This will occur on an iterative basis until the amount of the IFE denial equals the amount of the loss from the other year that is needed to bring taxable income to zero.

iii. Despite the fact that no tax (or a lower amount of tax) is payable in the circumstances described in (i) above, the arising RIFE [restricted IFE] may be carried forward and recovered as a deduction in computing taxable income in a future year, where there is either excess capacity in the year or a transfer of CUEC received from an eligible group entity; and

iv. In the circumstances described in (iii) above, any RIFE recoverable in a future year in excess of the taxable income, will result in a non-capital loss for the year in which the RIFE is recovered.

Neal Armstrong. Summaries of Joint Committee, “Summaries of Feedback on the EIFEL Administration”, 2 November 2024 Joint Committee Submission to the International and Large Business Directorate, under s. 18.21(1) – ultimate parent, relevant period, s. 18.2(1) – CUEC, ATI - B - (h).