Excessive interest and financing expenses limitation rules

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Excessive interest and financing expenses limitation rules



























Form availability

The EIFEL schedules and forms are now available.

Updated: You are encouraged to file using the newly available schedules and forms. However, we will continue to accept Schedule 130 information and EIFEL elections by letter until April 1, 2025. Taxpayers are expected to complete and file using the prescribed schedules and forms from April 2, 2025, onwards.

For information on how to file using the schedules and forms, refer to: Filing your information and Supplemental instructions.

To receive up-to-date information related to the rules, sign up for our electronic mailing list: Electronic mailing list - Excessive interest and financing expenses limitation rules.

Filing exemptions

A corporation, trust, or partnership may be exempt from filing Schedule 130 under the excessive interest and financing expenses limitation rules if they meet specific conditions.

For more information, refer to: Filing your information.

The excessive interest and financing expenses limitation (EIFEL) rules limit the deductibility of interest and financing expenses by affected corporations and trusts.

The rules address concerns on base erosion and profit shifting (BEPS) to:

  • Bring Canada in line with other foreign jurisdictions, and
  • Make sure taxpayers pay their fair share of taxes

The rules apply to tax years starting on or after October 1, 2023.

On this page

What are the rules

The rules integrate with existing income tax provisions that allow for the deductibility of interest and financing expenses (IFE)Note 1.

The rules put a cap on net IFE. The net IFE is the excess of IFE over interest and financing revenues (IFR)Note 2.

: Option 1 of 2

The cap on net IFE is equal to a fixed ratio of adjusted taxable income (ATI)Note 3:

  • 30% for tax years starting on or after January 1, 2024
  • 40% for tax years starting on or after October 1, 2023, and before January 1, 2024

: Option 2 of 2

If an election is filed, the cap on net IFE is equal to an allocated group ratio amount which is determined using audited consolidated financial statements

Who the rules affect

The rules affect corporations or trusts with IFE or IFR, as well as corporations or trusts that:

Excluded entities

The rules do not affect a corporation or a trust that is an excluded entity. An excluded entityNote 6 for a tax year is defined in subsection 18.2(1) and generally includes:

  • A corporation that was a Canadian-controlled private corporation throughout the tax year and that has taxable capital employed in Canada of less than $50 million together with any associated corporations
  • A Canadian-resident corporation or trust that has aggregate net interest and financing expenses of $1 million or less either alone or together with other applicable taxpayers
  • A Canadian-resident corporation or trust that:
    • Is a standalone entity or a member of a group consisting only of Canadian-resident corporations and trusts
    • Carries on substantially all of its business, if any, undertakings, and activities in Canada and has limited ties to non‑resident persons
    • Has all or substantially all of its interest and financing expenses paid or payable to persons or partnerships that are not tax-indifferentNote 7 and that do not deal at arm’s length with the taxpayer or any member of the group

Filing your information

Schedule 130 is available for corporations, trusts, and partnerships on the CRA’s forms listed by number.

For additional guidance on completing certain parts of the schedules, refer to: Supplemental instructions for filing under the EIFEL rules.

For an overview on filing your information under the rules, review each of the following sections:

Corporations:

You must file T2SCH130 Excessive Interest and Financing Expenses Limitation (2023 and later tax years) of your corporation income tax return unless you are exempt. A corporation is exempt from filing T2SCH130 if it meets both of the following conditions:

The corporation is:

  • exempt from tax under section 149
  • an excluded entity
  • a financial institution group entityNote 8 that has determined its proportion under subsection 18.2(2) to be nil
  • a financial holding corporation that has determined its proportion under subsection 18.2(2) to be nil, or
  • a general partner that:
    1. holds less than a 1% share in a limited partnership
    2. holds no other property than its share in that limited partnership, and
    3. carries on no other business than that of the limited partnership

The corporation is not a party to an election under the rules.

How to file T2SCH130:

Until an electronic software version of the form is available for use, you must download and complete a PDF version of T2SCH130 and submit it using one of the following methods:

Using the T2 Attach-a-doc-service

The T2 Attach-a-doc service allows corporations to attach supporting documentation, such as certificates, when they file their T2 return or within 24 hours of filing. This service is not mandatory for certified software products. Some include it and others do not.

If you have questions on the availability of the service: contact the software product company.

Requirements for filing an attachment

You must have filed the initial or amended T2 corporate tax return electronically within the last 24 hours.

Before filing an attachment, make sure you have:

  • Your EFILE number and password to file, or a Web Access Code (WAC) for your corporation
  • The date and time of the T2 return you want to attach the document
  • The confirmation number of your T2 return

Follow these document requirements:

  • Limit the size of a single transmission to 150 MB. (This means you may have to make multiple transmissions to send documents that exceed the limit.)
  • Use one of the following file types for your documents: pdf, doc, docx, xls, xlsx, rtf, txt, jpg, jpeg, tiff, tif, xps.
How to attach documents to your T2 return
  1. Select "Attach-a-doc" from within the T2 software. (You have 24 hours to attach-a-doc to an electronically submitted T2 return.)
  2. You will need the date/time of the T2 return you want to attach the document to along with the confirmation number of the electronic transmission.
  3. Select a document type "Elections" from the drop-down menu list.
  4. Enter a description using 255 characters or less.
  5. Select "Submit/Transmit" and we will provide you with a confirmation.

Using Submit documents

If your software product does not provide the T2 Attach-a-doc service, you can submit Schedule 130 through My Business Account or Represent A Client using Submit documents.

  1. Select “No” when asked the following: Do you have a case or reference number?
  2. Select “Special Elections and Returns” as the topic
  3. Select “No” when asked the following: Do you have a SERS Electronic Filing Confirmation Number?
  4. Select “Supporting documentation” as the reason
  5. Select Form T2152A as the form type and the applicable account


Trusts

You must file T3SCH130 Excessive Interest and Financing Expense Limitation of your trust income tax return unless you are exempt. A trust is exempt from filing T3SCH130 if it meets both of the following conditions:

The trust is:

  • a bare trust that is not otherwise required to file an income tax return
  • exempt from tax under section 149
  • an excluded entity
  • a testamentary trust as defined in subsection 108(1), or
  • described in any of paragraphs (a), (a.1), (b), (d) or (e) of the definition of a trust in subsection 108(1)

The trust is not a party to an election under the rules.

How to file T3SCH130:

Using tax preparation software

You can file Schedule 130 with your trust income tax return if your certified tax preparation software product includes Schedule 130.

If your software product does not include Schedule 130, download and complete a PDF version of the T3SCH130 and submit it through Represent A Client using Submit documents.

Using Submit documents

Tax preparers and authorized representatives of trust administrators can access the Submit documents services online by logging into Represent a Client.

  1. Select “Submit documents” from the menu bar
  1. Select “No” when asked: Do you have a case or reference number?
  2. Select “Special Elections and Returns” as the topic
  3. Select “No” when asked: Do you have a SERS Electronic Filing Confirmation Number?
  4. Select “Send Special Election or Return form or supporting documentation” as the reason.
  5. Enter “T3SCH130” in the supporting documentation box


Partnerships

If your partnership is required to file a partnership information return, you have to file T5013SCH130 Partnership Interest and Financing Expenses and Interest and Financing Revenues with your partnership information return unless both of the following conditions are met:

All of your partnership’s members, including deemed members under subsection 18.2(12), are not required to file a Schedule 130 with their T2 or T3 return for the tax year that includes the end of the fiscal period of your partnership

Your partnership is not a party to an election under the rules.

If your partnership is not filing T5013SCH130 for a fiscal period, it must keep, with its records, written notification from each member identifying the reason it is exempt from filing a T2 or T3 Schedule 130.

How to file T5013SCH130:

Using tax preparation software

You can file T5013SCH130 with your partnership information return for the fiscal period if your certified tax preparation software product includes Schedule 130.

If your software product does not include T5013SCH130, download and complete the PDF version of T5013SCH130 and submit it through My Business Account or Represent A Client using Submit documents.

Using Submit documents

You can access the Submit documents services online by logging into My Business Account or Represent a Client.

  1. Select “No” when asked: Do you have a case or reference number?
  2. Select “More topics” as the topic
  3. Select “Submit supporting documents for Partnership Financial Return (T5013FIN)”

A partnership required to complete T5013SCH130 must, in addition, provide each member with detailed calculations of the relevant affiliate interest and financing expenses (RAIFE) and relevant affiliate interest and financing revenues (RAIFR) of any controlled foreign affiliate (CFA) of the partnership.

Making an election

Election forms are available for corporations, trusts, and partnerships on the CRA’s forms listed by number.

Election provisions

The rules contain several new election provisions that give you the opportunity to decide on an alternative tax treatment:

Excluded interest election

If a payment of interest or lease financing amount is made between two qualifying members of a group, you and the other member may be able to jointly elect to exclude the payment from IFE and IFR amounts.

Refer to the definition of excluded interest in subsection 18.2(1).

Election to transfer cumulative unused excess capacity

If you deduct less IFE than the maximum allowed, you may have excess capacity at the end of a tax year. In some circumstances, you can transfer the cumulative unused excess capacity (CUEC) to another group member by filing a joint election. That member may then be able to deduct additional IFE up to the amount of the received capacityNote 9.

Refer to subsection 18.2(4).

Specified pre-regime loss election

If you are deducting a non-capital loss in the year, you must be able to support the IFE that is part of that loss because this IFE is added back when calculating your ATI. If the non-capital loss is from a tax year ending before February 4, 2022, you can elect to treat the loss as a specified pre-regime lossNote 10. You will then be able to add back 25% of the amount of non-capital loss deducted in the year when determining your ATI. This may apply if, for example, you no longer have documents to support the IFE.

Refer to the definition of specified pre-regime loss in subsection 18.2(1).

Group ratio rules election

You may be able to elect to use the group ratio rules. These rules use amounts reported on audited consolidated financial statements and may allow a greater IFE deduction.

Refer to subsection 18.21(2).

Fair value adjustments election

In the first year you elect to use the group ratio rules, you may also elect to exclude the fair value amount from your group ratio calculations.

If you make this election in the first year you make the group ratio election, it applies to any tax year that follows. You can only make this election in the first year you file the group ratio election.

Refer to the definition of fair value amount in subsection 18.21(1) and to subsection 18.21(4).

Election to forgo a foreign accrual property loss

If you have a foreign accrual property loss, you can elect to forgo this loss to avoid having to include expenses that gave rise to the loss in your IFE.

Refer to clause 95(2)(f.11)(ii)(E).

Transitional rules election

You may be able to elect to use the transitional rules. These rules allow you to determine your excess capacity for the 3 years before the first year the EIFEL rules apply (pre-regime years). You can then carry forward this excess capacity and include it in your calculation of CUEC in the first 3 years the EIFEL rules apply.

Refer to transitional rules for section 18.2.

If you make an election under the transitional rules, you may, if it applies, elect to use the group ratio election, fair value adjustments election, or specified pre-regime loss election in the pre-regime years.

Election forms

Election forms
Number Title
T2224 Transitional Rules Election
T2225 Group Ratio Rules Election under subsection 18.21(2), and Fair Value Adjustments Election under subsection 18.21(4)
T2226 Election to Transfer Cumulative Unused Excess Capacity under subsection 18.2(4)
T2227 Excluded Interest Election Under subsection 18.2(1)
T2228 Specified Pre-regime Loss Election under subsection 18.2(1)
T2229 Election to forgo a foreign accrual property loss under clause 95(2)(f.11)(ii)(E)

How to file an election

Download and complete a PDF version of the election form.

For corporations

Submit your completed election form through My Business Account or Represent A Client using Submit documents.

  1. Select “No” when asked for case or reference number
  2. Select “Special Elections and Returns” as the topic and “Supporting documentation” as the reason.
  3. Select “No” when asked the following: Do you have a SERS Electronic Filing Confirmation Number?
  4. Select Form T2152A as the form type and the applicable account

If you are not filing electronically, mail the form to your tax centre. To determine your tax centre, refer to: Tax centres.

For trusts

Tax preparers and authorized representatives of trust administrators can access the Submit documents services online by logging into Represent a Client.

  1. Select “Submit documents” from the menu bar
  2. Select “No” when asked: Do you have a case or reference number?
  3. Select “Special Elections and Returns” as the topic
  4. Select “No” when asked: Do you have a SERS Electronic Filing Confirmation Number?
  5. Select “Send Special Election or Return form or supporting documentation” as the reason.
  6. Enter the applicable election form number in the supporting documentation box

If you are not filing electronically, mail the election form to your tax centre. To determine your tax centre, refer to: Where to file a trust return.

For partnerships

You can access the Submit documents services online by logging into My Business Account or Represent a Client.

  1. Select “No” when asked: Do you have a case or reference number?
  2. Select “More topics” as the topic
  3. Select “Submit supporting documents for Partnership Financial Return (T5013FIN)”

If you are not filing electronically, mail the election form to:

Prince Edward Island Tax Centre
275 Pope Rd
Summerside PE C1N 6A2


Information return requirement waived

If you have received capacity in a joint election under subsection 18.2(4), you are required to file an information return under subsection 18.2(6) within 6 months after the end of the calendar year.

However, we are not requiring the filing of this information return at this time.

Keeping records

Remember to keep all documents that support:

  • The deductibility of your IFE, and
  • Your determination of any exempt IFE

For more information on your responsibilities and the requirements associated with keeping records, refer to: Keeping records.

Related information

Avoiding penalties


Source of the rules

The bill containing the rules received royal assent on June 20, 2024.

The rules are contained in sections 18.2 and 18.21 of the Income Tax Act and are based on the Organisation for Economic Co-operation and Development’s BEPS Action 4 report.


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Date modified:
2025-03-31