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

The following supplemental instructions and guidance may assist corporations, trusts or partnerships to fulfil their filing obligations under the rules. All legislative references are to the Income Tax Act, unless otherwise noted. Follow each section below that applies to your corporation, trust or partnership.

For general information on the rules, refer to: Excessive interest and financing expenses limitation rules.

For additional information on the rules, refer to: Explanatory Notes Relating to the Income Tax Act and the Income Tax Regulations.

General instructions

Lease financing amount

The EIFEL rules under subsection 18.2(1) include the definition “lease financing amount” (LFA). A LFA must be included in interest and financing expenses (IFE) by the lessee or in interest and financing revenues (IFR) by the lessor, unless it is in respect of an “excluded lease” or an election has been filed to treat the LFA as “excluded interest”, both defined under subsection 18.2(1).

A LFA is intended to reflect the financing component of a lease payment. Before calculating the LFA, you must:

• Determine the fair market value (FMV) of the leased property at the time the lease began
  
  Under paragraph (a) of the definition, the lease is treated as a notional interest bearing loan received by the lessee at the time the lease began with a principal amount equal to the FMV of the leased property.
  
  In general, the FMV of the leased property is an integral part of a lease agreement, mutually agreed upon by both the lessor and lessee. Both parties should maintain accurate records and the FMV should be properly reflected in the financial statements.
  
  Where the FMV of the leased property for a particular historical lease is not available, the CRA may accept, for the purposes of calculating the LFA, a reasonable estimate of the FMV of the leased property.
  
  
• Determine the prescribed rate in effect at the time the lease began
  
  Under paragraphs (b) and (c) of the definition, lease payments are re-characterized as blended payments of principal and interest with the interest (which is the LFA) calculated in accordance with the prescribed rate in effect at the time the lease began, determined under section 4302 of the Income Tax Regulations.
  
  For instructions on determining the prescribed rates under section 4302, refer to: How to calculate Prescribed Interest Rates for Leasing Rules - Canada.ca
  
  For historical rates, going back to January 1957, refer to: Bank of Canada - financial market statistics as at Wednesday.
  
  For leases starting before January 1957, the CRA will accept the use of the implicit rate in the lease agreement rather than the prescribed rate.
  
  

• Example – LFA calculation
  

  Facts

  • A taxpayer (lessee) leases a property with a fair market value of $10,000.
  • The prescribed rate at the lease commencement date was determined to be 5%, compounded semi-annually, not in advance.
  • A monthly payment of $856 is scheduled at the end of each month.

  Analysis

  Since the payments are made monthly, the prescribed rate of 5% must be converted to an effective monthly rate, which, in this example is 0.412%.

  The LFA for each payment period is calculated by multiplying the principal outstanding at the beginning of the payment period by the effective monthly rate. For example, the LFA for payment period 1 is equal to $10,000 multiplied by 0.412% or $41.20. The LFAs for all 12 payment periods are shown in the table below:

  LFA payment periods

  Payment period	Lease payment	Principal paydown	Interest (LFA)	Principal outstanding
  -	-	-	-	$10,000
  1	$856	$815	$41	$9,185
  2	$856	$818	$38	$8,367
  3	$856	$821	$35	$7,546
  4	$856	$825	$31	$6,721
  5	$856	$828	$28	$5,892
  6	$856	$832	$24	$5,061
  7	$856	$835	$21	$4,226
  8	$856	$839	$17	$3,387
  9	$856	$842	$14	$2,545
  10	$856	$846	$10	$1,700
  11	$856	$849	$7	$851
  12Footnote *	$855	$851	$4	$0

  
  

  Footnotes

  Footnote *

  The final payment is $855 due to rounding.

  Return to footnote 1 referrer

Determining IFE, IFR and exempt interest and financing expenses

The expression “borrowing or other financing” appears in the definition of exempt interest and financing expenses in subsection 18.2(1) and in paragraph (e) of variable A and paragraph (a) of variable B of the definition of IFE in subsection 18.2(1). The expression “loan or other financing” appears in paragraph (d) of variable A and paragraph (a) of variable B of the definition of IFR in subsection 18.2(1).

The CRA is developing additional guidance to clarify the application of the provisions in which these expressions are used for purposes of computing IFE, IFR and exempt interest and financing expenses. Until this guidance is available, taxpayers should apply a textual, contextual and purposive approach to the application of these provisions, having regard to existing resources, including the explanatory notes, Income Tax Folio S3-F6-C1, Interest Deductibility, relevant rulings and interpretations, and Canadian jurisprudence.

Applying non-capital losses (NCLs) in the determination of adjusted taxable income (ATI)

The following information is relevant for taxpayers resident in Canada earning taxable income in Canada only.

ATI, defined in subsection 18.2(1), is a measure of a taxpayer’s earnings before interest, taxes, depreciation and amortization (EBITDA) calculated based on tax, rather than accounting, concepts. It is determined by the formula:

A + B – C

Variable A is the positive or negative amount determined by the formula D – E.

• Variable D is generally the taxpayer’s taxable income for the year (determined without regard to subsection 18.2(2), paragraphs 12(1)(1.2) and 111(1)(a.1) and clause 95(2)(f.11)(ii)(D)). Taxable income, as defined under subsections 2(2) and 248(1), includes the deductions from income claimed in respect of NCLs, capital losses and other amounts under section 111. Therefore, taxable income will be reduced if NCLs are carried forward or back from another taxation year, subject to the add-backs in paragraphs (h) or (i) in variable B of the definition of ATI.
• Variable E is generally a taxpayer’s NCL for the year.

Variable B provides various add-backs that effectively reverse the impact of certain deductions on the taxpayer’s adjusted taxable income. This commentary and the examples below focus on the add-backs contained in paragraphs (a), (h), and (i).

• Paragraph (a) adds back IFE for the year.
• Paragraph (h) adds back a NCL (other than a specified pre-regime loss as defined in subsection 18.2(1)) that is deducted under paragraph 111(1)(a) to the extent the NCL is attributable to deductions in respect of IFE, RIFE and other amounts in paragraphs (b) to (g) or (j) to (m) of variable B for the taxpayer’s loss year. This add-back is reduced, by any amounts described in paragraphs (a) to (f), (h) or (j) of variable C of the definition of ATI, and any inclusion in the taxpayer’s income under paragraph 12(1)(l.2) for the loss year.
• Paragraph (i) adds back 25% of a NCL from a taxation year ending before February 4, 2022, if an election has been filed to treat the NCL as a “specified pre-regime loss” as defined in subsection 18.2(1). If this election is made, the add-back in paragraph (i) applies instead of the add-back in paragraph (h) in respect of the specified pre-regime loss.

Variable C is made up of various deductions that effectively reverse income inclusions for several amounts that are included in computing a taxpayer’s taxable income.

ATI, once determined, is a component in Variable B of the EIFEL formula in subsection 18.2(2). This subsection limits the deductibility of IFE to the extent of the proportion determined by the formula:

(A – (B + C + D + E)) / F

• Variable A is the taxpayer’s IFE for the year.
• Variable B is the taxpayer’s ratio of permissible expenses for the year multiplied by the taxpayer’s ATI (unless the taxpayer made an election under subsection 18.21(2)). The ratio of permissible expenses is 30% on or after January 1, 2024 (and 40% for the period that begins on or after October 1, 2023 and ends before January 1, 2024).
• Variable C is the taxpayer’s IFR for the year.
• Variable D is the amount by which the received capacity of the taxpayer for the year exceeds the total amount deductible under paragraph 111(1)(a.1) for the year.
• Variable E is the taxpayer’s absorbed capacity for the year; and
• Variable F is generally the amounts that increase a taxpayer’s IFE under variable A of the definition of IFE.

If the result of this formula is positive, a portion of IFE will be non-deductible and a taxpayer will have to carry forward or back additional NCLs, following the application of the EIFEL rules, if they want to bring taxable income down to nil to shelter the income resulting from the application of subsection 18.2(2).

• Example 1 – Application of NCLs to the computation of ATI where no specified pre-regime loss election is made
  

  Facts

  • Canco has IFE of $500 in the 2024 taxation year.
  • Canco has no IFR, absorbed capacity or received capacity in the 2024 taxation year.
  • Canco had IFE of $500 in the 2021 taxation year.
  • Canco has no amounts in paragraphs (b) to (g) or (j) to (m) of variable B of the definition of ATI in the 2021 taxation year.
  • Canco has no amounts in paragraphs (a) to (f), (h) or (j) of variable C of the definition of ATI in the 2021 taxation year.
  • Canco has $2,000 of NCLs attributable to the 2021 taxation year.
  • Canco has net income of $1,000 for tax purposes in the 2024 taxation year.

  Analysis

  Computation of ATI

  ATI is determined by the formula, A + B - C

  Variable A:

  • Canco’s taxable income before the application of the EIFEL rules is nil in the 2024 taxation year since Canco will reduce its net income of $1,000 by $1,000 in NCLs under paragraph 111(1)(a).
  • Thus, variable A of the definition of ATI is nil.

  Variable B:

  • Paragraph (a) is Canco’s IFE for the year which equals $500.
  • Paragraph (h) is the amount determined by the formula I x J / K, where
    
    
    • Variable I is the amount of NCLs (other than a specified pre-regime loss) deducted for the year under paragraph 111(1)(a) in respect of another taxation year (the “taxpayer loss year”). In this example, variable I equals $1,000 (NCLs deducted under paragraph 111(1)(a) in the 2024 taxation year).
    • Variable K is the NCLs for the taxpayer loss year in which the loss arose. In this example, variable K is $2,000 (NCLs attributable to the 2021 taxation year).
    • Variable J equals the lesser of NCLs for the taxpayer loss year ($2,000 in this example) and the amount determined by the formula W – X – Y.
      
      • Variable W is the total of all amounts in the taxpayer loss year that are IFE (without regard to any amount that is not deductible because of subsection 18.2(2)), described in paragraphs (b) to (g) or (j) to (m) of variable B of the definition of ATI for the loss year, or deducted under paragraph 111(1)(a.1). In this example, variable W equals $500 (Canco’s IFE for the 2021 loss year).
      • Variable X is the total of all amounts in the taxpayer loss year that are described in paragraphs (a) to (f), (h) or (j) of variable C of the definition of ATI or included in the income of the taxpayer under paragraph 12(1)(l.2). Variable X is nil for the 2021 loss year.
      • Variable Y relates to the amounts in respect of controlled foreign affiliates that are beyond the scope of this guidance. Variable Y is nil for the 2021 loss year.
    • W – X – Y is $500 thus variable J equals $500 (the lesser of $2,000 and $500).
  • Paragraph (h) of variable B equals $1,000 x $500 / $2,000 = $250.
  • Thus, variable B of the definition of ATI equals $750 ($500 of IFE in paragraph (a) plus $250 in paragraph (h)).

  Variable C:

  • None of the deductions in variable C apply in this example. Variable C is nil.

  Thus ATI is $750 ( A + B – C = $0 + $750 – $0).

  Computation of the non-deductible portion of IFE under subsection 18.2(2)

  The formula under subsection 18.2(2) is: (A – (B + C + D + E)) / F

  Variables A and F are $500.

  Variable B is $225 (Canco’s ratio of permissible expenses of 30% multiplied by $750 of ATI).

  Variables C, D and E are nil.

  The portion of non-deductible IFE under subsection 18.2(2) = (A – (B + C + D + E)) / F = ($500 – ($225 + $0 + $0 + $0))/ $500 = $275/$500 = 0.55 or 55%.

  Thus, IFE of $275 (55% x $500) is non-deductible in the year under the EIFEL rules.

  After the application of the EIFEL rules, Canco’s taxable income is $275 in the 2024 taxation year. As noted above, if Canco chooses to reduce its taxable income to nil and shelter the $275, it will need to carry forward additional NCLs.

• Example 2 – Application of NCLs to the computation of ATI where a specified pre-regime loss election is made under paragraph (i) of variable B of the ATI definition
  

  Facts

  • Canco has IFE of $500 for the 2024 taxation year.
  • Canco has no IFR, absorbed capacity or received capacity in the 2024 taxation year.
  • Canco has $2,000 of NCLs attributable to taxation years ending before February 4, 2022.
  • Canco has net income of $1,000 for tax purposes in the 2024 taxation year.
  • Canco will elect to apply the 25% add-back in respect of NCLs.

  Analysis

  Computation of ATI

  ATI is determined by the formula, A + B - C

  Variable A:

  • Canco’s taxable income before the application of the EIFEL rules will be nil in the 2024 taxation year since Canco will reduce its net income of $1,000 by $1,000 in NCLs under paragraph 111(1)(a).
  • Thus, variable A of the definition of ATI is nil.

  Variable B:

  • Paragraph (a) is Canco’s IFE for the year which equals $500.
  • Paragraph (i) is 25% of Canco’s pre-regime losses for the year which equals $250 (25% x $1,000).
  • Thus, variable B of the definition of ATI equals $750 ($500 of IFE plus $250 (25% pre-regime losses)).

  Variable C:

  • None of the deductions in variable C apply in this example. Variable C is nil.

  Thus, ATI is $750 ( A + B – C = $0 + $750 – $0).

  Computation of the non-deductible portion of IFE under subsection 18.2(2)

  The formula under subsection 18.2(2) is: (A – (B + C + D + E)) / F

  Variables A and F are $500.

  Variable B is $225 (Canco’s ratio of permissible expenses of 30% multiplied by $750 of ATI).

  Variables C, D and E are nil.

  The portion of non-deductible IFE under subsection 18.2(2) = (A – (B + C + D + E)) / F = ($500 – ($225 + $0 + $0 + $0)) / $500 = $275/$500 = 0.55 or 55%.

  Thus, IFE of $275 (55% x $500) is non-deductible in the year under the EIFEL rules.

  After the application of the EIFEL rules, Canco’s taxable income is $275 in the 2024 taxation year. As noted above, if Canco wants to reduce its taxable income to nil and shelter the $275, it will need to carry forward additional NCLs.

  Whether the application of paragraph (h) or (i) of variable B of the definition of ATI would yield the same or different ATI and the non-deductible portion of IFE for the year depends on the facts and circumstances of each taxpayer and should be evaluated on a case by case basis.

Excluded entities

There is some uncertainty on the application of the EIFEL rules in circumstances where a taxpayer, categorized as an excluded entity in prior years, no longer qualifies as an excluded entity in the particular year. For further clarification on the application of the EIFEL rules in such fact-specific situations, consult the Income Tax Ruling Directorate.

Incorporating relevant amounts from your T5013 slips

If your corporation or trust is a member of a partnership and requires instructions on how to incorporate the relevant amounts from your T5013 slip when completing your Schedule 130, refer to: T5013-INST Statement of Partnership Income - Instructions for recipient.

If your partnership receives a T5013 slip with an amount in a box relevant for determining the EIFEL under subsection 18.2(2), it must provide a letter to its members informing them of their portion of each such amount. For a listing of the relevant box numbers, refer to: T5013-INST Statement of Partnership Income - Instructions for recipient.

Keeping records

You are required to keep records of detailed calculations supporting all amounts reported on Schedule 130 and election forms.

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

Instructions for T2SCH130 Excessive Interest and Financing Expenses Limitation (2023 and later tax years)

Part 1C — Information on borrowings and other financings and related derivatives

Column 2: Report the greatest total amount of borrowing or other financing outstanding at any time in the tax year.

In the case of a public offering or a syndicated financing (other than a private placement), report an estimated breakdown of the amounts between Canadian arm’s length and non-resident arm’s length parties.

Column 3: Report the greatest total of the notional amount of derivatives entered in respect of a borrowing or other financing outstanding at any time in the tax year.

Columns 2 and 3: For additional clarification, the term “borrowing or other financing” refers to any borrowing or other financing of your corporation, including a borrowing or other financing that is non-interest bearing and one that is the subject of an election under the definition of excluded interest in subsection 18.2(1).

Columns 4, 5 and 6: The CRA will accept when reporting for tax years ending in 2023 and 2024, an estimated breakdown of the information required.

Part 1D — Information on loans and other financings and related derivatives

Column 2: Report the greatest total amount of loans or other financings owing to or provided by your corporation at any time in the tax year.

Column 3: Report the greatest total of the notional amount of derivatives entered in respect of loans or other financings owing to or provided by your corporation at any time in the tax year.

Columns 2 and 3: For additional clarification, the term “loans or other financings” refers to any loan or other financing owing to or provided by your corporation, including loans or other financings that are non-interest bearing and ones that are the subject of an election under the definition of excluded interest in subsection 18.2(1).

Columns 4 and 5: The CRA will accept when reporting for tax years ending in 2023 and 2024, an estimated breakdown of the information required.

Part 2B — Capitalized interest and financing expenses (IFE) in the cost of depreciable assets

Column 3: Report the net adjustment to the IFE in the undepreciated capital cost of the class of assets as a result of the following:

• Acquisitions
• Adjustments
• Transfers
• Dispositions

This amount can be positive or negative, depending on whether the net adjustment results in an increase in the IFE in the capital cost of the class of assets (positive amount) or a decrease in the IFE in capital cost of the class of assets (negative amount).

Column 4: For additional clarification, adjust column 2 “IFE in undepreciated capital cost (UCC) at the beginning of the year” by the amount reported in column 3 and report the result in column 4. Add a positive amount in column 3 to the amount reported in column 2. A negative amount in column 3 will reduce the amount reported in column 2.

Part 2C — IFE included in resource deductions

Column 4: For additional clarification, adjust column 2 “IFE in the opening balance” by the amount reported in column 3 and report the result in column 4. Add a positive amount in column 3 to the amount reported in column 2. A negative amount in column 3 will reduce the amount reported in column 2.

Part 2I — Cumulative Unused Excess Capacity (CUEC)

Amalgamations: When there has been an amalgamation of two or more corporations (referred to as a “new corporation” and the “predecessor corporations”) under subsection 87(1), report in columns 1, 2 and 3 the total of the amounts of the predecessor corporations for each of the preceding years pursuant to paragraph 87(2.1)(a.1).

Wind-ups: If a subsidiary has been wound up in circumstances described in subsection 88(1.1), report in columns 1, 2 and 3 the aggregate of the amounts of both the parent and the subsidiary corporation for each of the preceding years pursuant to subsection 88(1.11).

Amounts allocated on form T2224 Transitional Election Under the Excessive Interest and Financing Expenses Limitation Rules:

If your corporation or any of its eligible pre-regime group entities have a ratio of permissible expenses of 40% in the first tax year in which the rules apply, report the amount of group net excess capacity allocated in part 2, section 4 of the T2224 form in part 2I as follows:

• Report the amount in column 271 of the T2224 form in row 3 of column 122 of Part 2I
• Report the amount in column 272 of the T2224 form in row 2 of column 122 of Part 2I
• Report the amount in column 273 of the T2224 form in row 1 of column 122 of Part 2I

The amounts allocated in part 2, section 5 of the T2224 form are used when completing Part 2I in the two tax years following the first tax year in which the rules apply.

If your corporation and all of its eligible pre-regime group entities have a ratio of permissible expenses of 30% in the first tax year in which the rules apply, report the amount of group net excess capacity allocated in part 3, section 4 of the T2224 form as follows:

• Report the amount in column 371 of the T2224 form in row 3 of column 122 of Part 2l
• Report the amount in column 372 of the T2224 form in row 2 of column 122 of Part 2l
• Report the amount in column 373 of the T2224 form in row 1 of column 122 of Part 2l

Part 2J — Restricted interest and financing expenses (RIFE) under paragraph 111(1)(a.1)

Include in the amount reported on line 128 “RIFE from previous tax years” any of the following adjustments:

• Amalgamations – see paragraphs 87(2.1)(a) and (b)
• Wind-ups – see subsection 88(1.1)
• Loss restriction events – see subsection 111(5)

Instructions for T3SCH130 Excessive Interest and Financing Expenses Limitation

Part 1 — General Information

Information on borrowing and other financing and related derivatives:

Second column from the left:

• Report the greatest total amount of borrowing or other financing outstanding at any time in the tax year.
• In the case of a public offering or a syndicated financing (other than a private placement), report an estimated breakdown of the amounts between Canadian arm’s length and non-resident arm’s length parties.

Third column from the left: Report the greatest total of the notional amounts of derivatives entered into in respect of a borrowing or other financing outstanding at any time in the tax year.

Second and third columns from the left: For additional clarification, the terms “amounts borrowed or other financing” in the second column and “borrowing or other financing” in the third column refer to any borrowing or other financing of your trust, including a borrowing or other financing that is non-interest bearing.

Fourth, fifth and sixth columns from the left: The CRA will accept when reporting for tax years ending in 2023 and 2024, an estimated breakdown of the information required.

Information on loans and other financing and related derivatives:

Second column from the left: Report the greatest total amount of loans or other financing owing to or provided by your trust at any time in the tax year.

Third column from the left: Report the greatest total of the notional amount of derivatives entered into in respect of loans or other financing owing to or provided by your trust at any time in the tax year.

Second and third columns from the left: For additional clarification, the term “loans or other financing” used in the second and third columns refers to any loans or other financing owing to or provided by your trust, including loans or other financing that are non-interest bearing.

Fourth and fifth columns from the left: The CRA will accept when reporting for tax years ending in 2023 and 2024, an estimated breakdown of the information required.

Table for a trust is a member of a partnership that has IFE: For additional clarification, the heading in the second column from the left should be read as “Partnership account number (if the partnership is non-resident, leave blank)”.

Part 2A — Interest and financing expenses (IFE)

• Line IV: For additional clarification, the narrative in the bracket should be read as: Amount I from the table in part 1(6).
• Line above “Variable B of IFE”: The amount reported on this line should represent the total of the following:
  • The amounts from box 249 of the T5013 slips
  • Any relevant amounts from non-resident partnerships

Part 2B — Capitalized IFE in the cost of depreciable assets

Column 3: Report the net adjustment to the IFE in the undepreciated capital cost of the class of assets as a result of the following:

• Acquisitions
• Adjustments
• Transfers
• Dispositions

This amount can be positive or negative, depending on whether the net adjustment results in an increase in the IFE in the capital cost of the class of assets (positive amount) or a decrease in the IFE in the capital cost of the class of assets (negative amount).

Column 4: For additional clarification, adjust column 2 “Portion of opening undepreciated capital costs (UCC) that is IFE” by the amount reported in column 3 and report the result in column 4. Add a positive amount in column 3 to the amount reported in column 2. A negative amount in column 3 will reduce the amount reported in column 2.

Part 2C — Capitalized IFE in resource deductions

Column 4: For additional clarification, adjust column 2 “Portion of balance at end of previous year that is IFE” by the amount reported in column 3 and report the result in column 4. Add a positive amount in column 3 to the amount reported in column 2. A negative amount in column 3 will reduce the amount reported in column 2.

Part 2D — Interest and financing revenues (IFR)

Second line above “Variable A of IFR”: Report the total of the following:

• The amounts from box 248 of the T5013 slips
• Any relevant amounts from non-resident partnerships

Line I.1: For additional clarification, the narrative in the bracket should be read as: Amount I from the table in Part 1(5).

Third line above “Variable B for IFR”: Report the total of the following:

• The amounts from box 250 of the T5013 slips
• Any relevant amounts from non-resident partnerships

Line above “Variable B for IFR”: For additional clarification, the narrative on the line should be read as: Amounts included in Variable A of IFR that are exempt from tax under Part I of the Income Tax Act.

Part 2H — Cumulative unused excess capacity (CUEC)

Amounts allocated on T2224 Transitional Election Under the Excessive Interest and Financing Expenses Limitation Rules:

If your trust or any of its eligible pre-regime group entities have a ratio of permissible expenses of 40% in the first tax year in which the rules apply, report the amount of group net excess capacity your trust was allocated in part 2, section 4 of the T2224 form in part 2H as follows:

• Report the amount in column 271 of the T2224 form on the line for excess capacity in part 2H of Schedule 130 in the column titled “First previous year”
• Report the amount in column 272 of the T2224 form on the line for excess capacity in part 2H of Schedule 130 in the column titled “Second previous year”
• Report the amount in column 273 of the T2224 form on the line for excess capacity in part 2H of Schedule 130 in the column titled “Third previous year”

The amounts allocated in part 2, section 5 of the T2224 form are used when completing part 2H in the two tax years following the first tax year in which the rules apply.

If your trust and all of its eligible pre-regime group entities have a ratio of permissible expenses of 30% in the first tax year in which the rules apply, report the amount of group net excess capacity your trust was allocated in part 3, section 4 of the T2224 form as follows:

• Report the amount in column 371 of the T2224 form on the line for excess capacity in part 2H of Schedule 130 in the column titled “First previous year”
• Report the amount in column 372 of the T2224 form on the line for excess capacity in part 2H of Schedule 130 in the column titled “Second previous year”
• Report the amount in column 373 of the T2224 form on the line for excess capacity in Part 2H of Schedule 130 in the column titled “Third previous year”

Part 2K — Excess IFE under subsection 18.2(2)

Line U: For additional clarification, the narrative in the bracket should be read as: Amount I from the table in Part 1(6).

Instructions for T5013SCH130 Partnership Interest and Financing Expenses and Interest and Financing Revenues

Part 1B — Information on borrowings, loans and other financings

Table for a partnership that has a borrowing or other financing:

Column 2:

• Report the greatest total amount of borrowing or other financing outstanding at any time in the tax year.
• In the case of a public offering or a syndicated financing (other than a private placement), report an estimated breakdown of the amounts between Canadian arm’s length and non-resident arm’s length parties.

Column 3: Report the greatest total of the notional amount of derivatives entered into in respect of a borrowing or other financing outstanding at any time in the tax year.

Columns 2 and 3: For additional clarification, the terms “amounts borrowed or other financing” in the second column and “borrowing or other financing” in the third column refer to any borrowing or other financing of the partnership, including a borrowing or other financing that is non-interest bearing as well as one that is the subject of an election under the definition of excluded interest in subsection 18.2(1).

Columns 4, 5 and 6: The CRA will accept when reporting for tax years ending in 2023 and 2024, an estimated breakdown of the information required

Table for a partnership that has a loan or other financing:

Column 2: Report the greatest total amount of loans or other financings owing to or provided by the partnership at any time in the tax year.

Column 3: Report the greatest total of the notional amount of derivatives entered into in respect of loans or other financings owing to or provided by the partnership at any time in the tax year.

Columns 2 and 3: For additional clarification, the term “loans or other financings” used in these two columns refers to any loans or other financings owing to or provided by your corporation, including loans or other financings that are non-interest bearing as well as ones that are the subject of an election under the definition of excluded interest in subsection 18.2(1).

Columns 4 and 5: The CRA will accept when reporting for tax years ending in 2023 and 2024, an estimated breakdown of the information required.

Part 3 — Capitalized IFE in the cost of depreciable assets

Column 3: Report the net adjustment to the IFE in the undepreciated capital cost of the class of assets as a result of the following:

• Acquisitions
• Adjustments
• Transfers
• Dispositions

This amount can be positive or negative, depending on whether the net adjustment results in an increase in the IFE in the capital cost of the class of assets (positive amount) or a decrease in the IFE in capital cost of the class of assets (negative amount).

Column 4: For additional clarification, adjust column 2 “IFE in undepreciated capital cost (UCC) at the beginning of the fiscal period” by the amount reported in column 3 and report the result in column 4. Add a positive amount in column 3 to the amount reported in column 2. A negative amount in column 3 will reduce the amount reported in column 2.

Part 4 — Interest and financing revenues (IFR)

Line 141: For additional clarification, line 141 should be read as: Amounts included in amount A of Part 4 that are exempt from tax under part I of the Income Tax Act.

Part 5 — Allocation to members of the partnership

When completing part 5 and filling out T5013 slips, do not allocate amounts to persons or partnerships that have been deemed to be members under subsection 18.2(12).

Instructions for election forms

Functional currency and EIFEL elections

Several of the elections available under the EIFEL rules are jointly filed with other taxpayers. It may happen that one or more parties to an election has elected to report in a functional currency under paragraph 261(3)(b). The CRA is developing additional guidance on how amounts should be reported in these situations. Until this guidance is available, taxpayers should consult existing resources, including section 261, Income Tax Folio S5-F4-C1, Income Tax Reporting Currency and relevant rulings interpretations when choosing a method to convert amounts.

T2224 Transitional Election Under the Excessive Interest and Financing Expenses Limitation Rules

Filing due date

An election under the EIFEL transitional rules should be filed by the filing due date of the group member with the earliest filing due date for the first regime year. However, the CRA will generally accept a late-filed election if reasonable efforts were made to determine all amounts relevant in making the election and the election is filed as soon as circumstances permit. For example, in a situation where each member of a pre-regime group of entities would otherwise have tax years ending on December 31, 2024, but the dissolution of a group member results in that member having a short first regime year, the CRA will generally accept an election filed by the due date for those tax years (for example, June 30, 2025, for corporate members). In all cases, the determination of eligible pre-regime group entity status must still be made at the time of the earliest filing due date of the group members for the first regime year.

A late-filed election will not be accepted in circumstances where:

• it is reasonable to conclude the request was made for retroactive tax planning purposes
• adequate records do not exist to support the election
• it is reasonable to conclude you were negligent or careless in complying with the law
• in the opinion of the CRA, it would be inappropriate to accept the election.

Completing the T2224

For the transitional rules to the legislation, refer to: Subsection 7(2) of Bill C-59.

If the result of a calculation required in one of the columns is negative, the amount entered into the column should be “0”.

Although the transitional rules specify that the election is a joint election made by a taxpayer and its eligible pre-regime entities, the CRA will also accept this election when it is made by a taxpayer that is a standalone entity. When making this election as a standalone entity, answer “No” to the question on line 020: Is the filer an eligible pre-regime group entity filing this election on behalf of one or more other taxpayers?

If an election is made under the transitional rules, you may also, for any of the three pre-regime years, make a:

• T2225 Group Ratio Rules Election under subsection 18.21(2) and Fair Value Adjustments Election under subsection 18.21(4), and
• T2228 Specified Pre-regime Loss Election under subsection 18.2(1)

For instructions on how to include the allocated group net excess capacity, determined in Part 4 of the T2224 election, in the Schedule 130, refer to Part 2I of the supplemental instructions to the T2 Schedule 130 or Part 2H of the supplemental instructions to the T3 Schedule 130.

T2225 Group Ratio Rules Election under subsection 18.21(2) and Fair Value Adjustments Election under subsection 18.21(4)

Filing due date

The group ratio rules election is due by the latest filing due date of a Canadian group member for a relevant taxation year. If consolidated financial statements (CFS) are not available by this due date, the amounts relevant to making the group ratio rules election cannot be determined. In these circumstances, each Canadian group member should use the applicable ratio of permissible expenses in applying subsection 18.2(2). The Canadian group members may file the group ratio rules election late and submit amended tax returns for the relevant taxation years if they later determine the group ratio rules are beneficial.

Part 2 — Fair Value adjustments election

Subsection 18.21(4) allows Canadian group members to make a joint election to include the net fair value amount in calculating group adjusted net book income (GANBI). GANBI, in essence, is the accounting earnings before interest, taxes, depreciation and amortization (EBITDA) of the consolidated group, adjusted for certain amounts in the CFS.

Although, paragraph 18.2(4)(a) specifies that the election is a joint election made by all Canadian group members, we will accept this election when it is filed by a Canadian resident taxpayer who is a standalone entity.

The fair value adjustments election must be made for the first relevant taxation year in respect of which a group ratio rules election under subsection 18.21(2) is made. Once a fair value adjustments election is made, it applies to that relevant taxation year and all subsequent taxation years of each Canadian group member. If the election is not made in the first relevant taxation year, it is deemed not to have been made for the first relevant taxation year and all subsequent taxation years.

A fair value amount is the amount reflected in the net income or net loss from the CFS representing the change in the carrying value of an asset or liability where the carrying value is measured using the fair value method of accounting.

The net fair value amount is the positive or negative amount that is the result of totaling all of the fair value amounts, each of which could itself be a positive or negative amount in the CFS.

In the absence of the fair value adjustments election, changes in the carrying value of fair valued assets or liabilities are included in GANBI because the computations of GANBI begins with the net income or net loss from the CFS which already reflects all fair value amounts.

When the fair value adjustments election is made, the net fair value amount is included in computing GANBI:

• When the net fair value amount for a period is negative, the absolute value of the amount is added when computing GANBI (under paragraph (d) of variable F in the definition of GANBI); and
• When the net fair value amount for a period is positive, the positive amount is subtracted when computing GANBI (under variable K in the definition of GANBI).

The inclusion of the net fair value amount in GANBI results in the fair value amounts reflected in the net income or loss reported in the CFS being excluded from GANBI.

For the definitions of GANBI, fair value amount and net fair value amount, refer to: Subsection 18.21(1).

Part 3, Section 1 – GANBI

Meaning of consolidated financial statements, consolidated group, and ultimate parent

The terms consolidated financial statements (CFS), consolidated group, and ultimate parent are defined in subsection 18.21(1) and are used in the determination of GANBI for purposes of the group ratio rules election. The example below illustrates the application of these terms in a particular fact situation.

• Example – Consolidated financial statements, consolidated group, and ultimate parent
  

  Facts

  • Family Trust owns 100% of the shares of Canco which owns 100% of the shares of Subco.
  • Canco decides not to include Family Trust in the audited CFS prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) for January 1, 2024, to December 31, 2024.
  • Family Trust is identified as the ultimate parent, because it is the top entity in the group’s organizational structure, and it would be required to prepare CFS if it were subject to International Financial Reporting Standards (IFRS).

  Question

  Are Canco and Subco able to file a group ratio rules election using the audited CFS prepared for January 1, 2024, to December 31, 2024?

  Analysis

  The CFS used to determine the allocated group ratio amount (AGRA) must be audited and prepared in accordance with relevant acceptable accounting standards. Canco and Subco have met these requirements since the CFS have been audited and prepared using one of the accounting standards identified as acceptable in the definition of acceptable accounting standards in subsection 18.21(1).

  An additional requirement is that the CFS include all members of the consolidated group.

  A consolidated group means two or more entities, other than an equity-accounted entity but including an ultimate parent in respect of which CFS are required to be prepared for financial reporting purposes or would be so required if the entities were subject to IFRS.

  An ultimate parent is the top entity in a group's organizational structure. It is the entity that is required to prepare CFS for financial reporting purposes or would be so required if it was subject to IFRS.

  Canco’s CFS do not meet this requirement because the financial results of the Family Trust, the entity identified as the ultimate parent, were omitted from the statements.

  Conclusion

  Canco and Subco would not be able to file a group ratio rules election using the audited CFS prepared for January 1, 2024, to December 31, 2024.

Meaning of “throughout the relevant period” in subsection 18.21(2)

A relevant period is defined in subsection 18.21(1) and means a period in respect of which the CFS of a consolidated group are presented. The term “throughout” is not defined in the Income Tax Act. In the absence of a definition, the CRA generally applies the ordinary meaning of the word, which is “from the beginning to the end”. In circumstances where there has been an acquisition, incorporation, dissolution, amalgamation or windup in the relevant period, consult the applicable legislative provisions, including subsection 18.2(9) and sections 18.21, 87 and 88.

Part 3, Section 6 - Elected allocated group ratio amount under subsection 18.21(2)

Subsections A & B: Each Canadian group member must complete the table in the subsection, even if that group member has no allocated group ratio amount.

T2227 Excluded Interest Election Under Subsection 18.2(1)

Box 100 of the T2227 form requests a “description of debt” for interest paid or payable, and box 200 requests a “description of the property” for a lease financing amount paid or made payable. We will accept, in these boxes, a description that provides sufficient detail to allow us to separately identify the particular debt or property.

T2228 Specified Pre-regime Loss Election under subsection 18.2(1)

A separate election must be filed for each tax year in which an amount, deducted under paragraph 111(1)(a), is to be treated as a specified pre-regime loss.

Part 2 – Information required:

If there are 2 or more loss years, including a short year, ending in the same calendar year, the non-capital losses of those years should be added together and the total reported in column 201 in the row corresponding to the calendar year of origin.