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
• Who the rules affect
• Filing your information
• Making an election
• Related information

What are the rules

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

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

Who the rules affect

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

• Hold interests in controlled foreign affiliates (CFAs) that have relevant affiliate interest and financing expenses (RAIFE) or relevant affiliate interest and financing revenues (RAIFR)
• Are members or have CFAs that are members of partnerships that have IFE and IFR

Excluded entities

The rules do not affect a corporation or a trust that is an excluded entity. An excluded entity 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 their 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-indifferent and that do not deal at arm’s length with the taxpayer or any member of the group

Filing your information

You must report your information relating to the rules on the Schedule 130 of your corporation or trust income tax return.

You may also have to report relevant information on Schedule 130 of your partnership information return if you have IFE or IFR, and have a corporation or a trust as a member.

If your partnership has a corporation or a trust as a member, under the rules you should complete the following steps:

1. Provide each member with detailed calculations of the partnership’s IFE and IFR
2. Provide each member with detailed calculations of the RAIFE and RAIFR of any CFA of the partnership
3. Notify each member in writing of their allocated share for the year of:
   • IFE in Canadian exploration expenses, Canadian development expenses, Canadian oil and gas expenses, and foreign resource expenses
   • The income or loss that can reasonably be considered to come from activities funded by a borrowing or other financing that results in exempt interest and financing expenses

Schedule 130

The Canada Revenue Agency (CRA) is currently preparing these forms to allow corporations, trusts, and partnerships to meet the reporting requirements.

Schedule 130 information is still required even though the form is not available.

Visit this page regularly for updates on when the forms will be available.

How to file the Schedule 130 information before the form is available

Corporations and trusts

If you need to file a tax return for a tax year subject to the rules before the forms are available, you can report amounts denied under subsection 18.2(2) or amounts that must be included in income under paragraph 12(1)(l.2):

• Using columns 605 and 295 and line 296 of Schedule 1 of the T2 return if you are a corporation, or
• On separate lines in “Other income” of Step 2 of the T3 return if you are a trust

When you report your foreign accrual property income, you must adjust for RAIFE denied under subclause 95(2)(f.11)(ii)(D)(I) and include amounts in respect of a CFA’s partnership under subclause 95(2)(f.11)(ii)(D)(II).

When you submit your return, send a letter to the CRA that includes the following:

• Calculations of absorbed capacity, ATI, excess capacity, IFE, and IFR. The calculations should include enough details so that a total amount for each paragraph of the relevant definition is shown (refer to subsection 18.2(1))
• A calculation of the proportion in subsection 18.2(2) showing an amount for each variable of the formula
• A calculation of restricted interest and financing expenses for the year, broken down to show amounts restricted under:
  • Paragraph 12(1)(l.2)
  • Subsection 18.2(2), and
  • Subclauses 95(2)(f.11)(ii)(D)(I) and 95(2)(f.11)(ii)(D)(II)

If your corporation or trust is a member of a partnership, you must include the share of all relevant partnership amounts when you calculate the corporation or trust’s ATI, IFE, and IFR.

If you are filing your T2 return using certified software, you can use the Attach-a-doc service as a temporary measure to submit your Schedule 130 information until Form T2SCH130 is available.

You can also submit your Schedule 130 information through My Business Account or Represent A Client using Submit documents.

1. Select “No” when asked for a case or reference number
2. Select “Special Elections and Returns” as the topic
3. Select “Supporting documentation” as the reason
4. Select Form T2152A as the form type and the applicable account

If you are not filing electronically, mail the letter that includes the Schedule 130 information to your tax centre. To determine your tax centre, refer to: Where to send your corporation income tax (T2) return.

Partnerships

When you submit your partnership information return for the fiscal year, you must include the details of how the partnership calculated its IFE and IFR (refer to subsection 18.2(1)).

You can submit your partnership Schedule 130 information through My Business Account or Represent A Client using Submit documents.

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

Making an election

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 capacity.

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 loss. 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

The CRA is preparing forms that will allow you to apply for EIFEL elections. The forms will be available in the near future.

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)

Visit this page regularly for updates on when the forms will be available.

How to file the election before the forms are available

If you need to file an election before the forms are available, you may send a letter containing the information required under the relevant election provision in the Income Tax Act with the signatures of all taxpayers or partnerships who are party to the election.

You can submit your letter for the election 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 Form T2152A as the form type and the applicable account

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

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, the CRA is 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