30 October 2025 Internal T.I. 2025-1068441I7 - EIFEL – RAIFE and IFE, Var. A & B

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the limitation rule in subclause 95(2)(f.11)(ii)(D)(I) applies to the CFA’s relevant affiliate interest and financing expenses (which generally refers to the affiliate’s interest and financing expenses obtained by subtracting variable B from variable A determined without regard to paragraph (j)), or to amounts each of which would be determined for variable A (without regard to paragraph (j)) in the definition of interest and financing expenses for the CFA?

Position: The limitation rules of subclause 95(2)(f.11)(ii)(D)(I) applies to amounts each of which would be determined for variable A (without regard to paragraphs (h) and (j)) in the definition of interest and financing expenses for the CFA.

Reasons: Wording of the Act.

							October 30, 2025

Yu Wang  								HEADQUARTERS
Senior technical specialist					Income Tax Rulings Directorate
Legislative Application Section 2				Yannick Roulier
Domestic Tax Division
International and Large Business Directorate	

									2025-106844

EIFEL – RAIFE and IFE, variables A & B

This is in response to your correspondence of June 10, 2025, wherein you asked for our views with respect to subclause 95(2)(f.11)(ii)(D)(I) of the Income Tax Act, which relates to the application of the excessive interest and financing expenses limitation ("EIFEL") rules in determining a controlled foreign affiliate's income or loss from property, non-active businesses and non-qualifying businesses.

Unless otherwise stated, all references below to statutory provisions are references to provisions of the Income Tax Act.

Background

T2 Schedule 130, Excessive interest and financing expenses limitation, was recently developed by the Canada Revenue Agency (“CRA”) in order to facilitate compliance with the EIFEL regime. Its Part 2M relates to amounts determined under clause 95(2)(f.11)(ii)(D), and the first table of that part relates to the determination of amounts in respect of a controlled foreign affiliate (“CFA”) that are not deductible under subclause 95(2)(f.11)(ii)(D)(I). The column 2 of that table requires filers to report amounts determined for variable A in the definition of interest and financing expenses (“IFE”) for the CFA.

On May 13, 2025, you received an e-mail from an external stakeholder suggesting there was an error in the column 2 mentioned above. Based on the wording of subclause 95(2)(f.11)(ii)(D)(I), the requestor submitted that this column should instead refer to any amount that is included in the CFA’s relevant affiliate interest and financing expenses, as defined in subsection 18.2(1) (“RAIFE”).

You asked our views on whether the provision in subclause 95(2)(f.11)(ii)(D)(I) that:

no deduction shall be made in respect of any amount that is included in the affiliate’s [RAIFE] …, to the extent of the proportion of that amount that is determined by the first formula in subsection 18.2(2) in respect of the taxpayer for the taxpayer year,

results in this EIFEL rule applying to the CFA’s RAIFE (which generally refers to the affiliate’s IFE obtained by subtracting variable B from variable A (footnote 1) ), or to amounts each of which would be determined for variable A in the definition of interest and financing expenses for the CFA.

See the Appendix for the current version of subclause 95(2)(f.11)(ii)(D)(I) as well as the definition of RAIFE.

Comments

For the reasons stated below, T2 Schedule 130, Part 2M, column 2 of the first table appropriately only requires the reporting of certain amounts determined for variable A in the definition of IFE for the CFA. In this respect we recommend that this column mention the following: “Amount determined for variable A (excluding amounts under paragraphs (h) and (j)) in the definition of IFE for the affiliate”.

The limitation rule of subclause 95(2)(f.11)(ii)(D)(I) refers to the CFA’s RAIFE for a taxation year, but this reference needs to be read carefully. The provision states that no deduction shall be made in respect of any amount included in the CFA’s RAIFE.

RAIFE generally refers to the CFA’s IFE, which is determined by subtracting variable B from variable A.

Amounts that are included in variable A of the IFE definition are amounts in respect of which a deduction is taken.

The limitation rule of subclause 95(2)(f.11)(ii)(D)(I) does not apply to a net amount of RAIFE totalling all the amounts to be considered in computing a CFA’s IFE, but only to certain amounts included in variable A of the IFE definition.

In addition, there is an implicit requirement that an amount be deductible by the affiliate in determining an amount described in subparagraph 95(2)(f)(ii) for a taxation year of a foreign affiliate of a taxpayer in order for it to be subject to the limitation rule stated in subclause 95(2)(f.11)(ii)(D)(I). This also carves-out from the application of that limitation rule amounts that are included in paragraph (h) of variable A of the IFE definition, as these amounts are deductible at the partnership level.

In contrast, amounts included in variable B of the IFE definition are of income nature, and are generally not subject to limitation under the EIFEL rules.

This interpretation is consistent with the functioning of the main operative rule of the EIFEL regime in subsection 18.2(2), which denies a deduction for a portion (determined under the formula in that subsection) of each of a taxpayer’s IFE described in any of the paragraphs (a) to (g) and (i) of the description of A of that definition.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period, for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be e-mailed to: ITRACCESSG@cra-arc.gc.ca. In such cases, a copy will be sent to you for delivery to the taxpayer.

We trust that these comments will be of assistance, and thank you for your enquiry.

Yours truly,

Charles Taylor
Section Chief
For Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

Appendix – Relevant Provisions

The current version of subclause 95(2)(f.11)(ii)(D)(I) reads as follows:

“(D) if the foreign affiliate is a controlled foreign affiliate of the taxpayer at the end of the taxation year, and the taxpayer is not an excluded entity (as defined in subsection 18.2(1)) for its taxation year (referred to in this clause as the "taxpayer year") in which the taxation year ends,

(I) notwithstanding any other provision of this Act, no deduction shall be made in respect of any amount that is included in the affiliate's relevant affiliate interest and financing expenses (as defined in subsection 18.2(1)) for the taxation year, to the extent of the proportion of that amount that is determined by the first formula in subsection 18.2(2) in respect of the taxpayer for the taxpayer year, and (…)”

The current version of the definition of relevant affiliate interest and financing expenses under subsection 18.2(1) reads as follows:

“relevant affiliate interest and financing expenses of a controlled foreign affiliate of a taxpayer (determined as though the definition taxpayer in this subsection did not include the words "or a partnership") for an affiliate taxation year means, subject to subsection (19), the total of all amounts (other than an amount that is deductible in computing any income or loss of the affiliate that is included in computing the affiliate's income or loss from an active business because of paragraph 95(2)(a) or an amount that is described in clause 95(2)(a)(ii)(D) and treated as nil for the purposes of determining an amount for A or D in the definition foreign accrual property income in subsection 95(1)), each of which would be the affiliate's interest and financing expenses (determined without regard to paragraph (j) of the description of A in the definition interest and financing expenses) for the affiliate taxation year for the purposes of determining, in respect of the taxpayer for the affiliate taxation year, each amount referred to in subparagraph 95(2)(f)(i) or (ii), if

(a) the references in the definition interest and financing expenses to "in the absence of this section" were read as references to "in the absence of clause 95(2)(f.11)(ii)(D)"; and

(b) clause 95(2)(f.11)(ii)(A) were read without regard to the reference to subsection 18.2(2).”

End of document

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 In this context, variable A needs to be determined without regard to paragraph (j), as when computing RAIFE, although for many purposes the calculations are as if the affiliate is resident in Canada, it is not treated as having foreign affiliates. For simplicity, the balance of this memo will not refer again to the paragraph (j) adjustment.