Taxpayers who have filed under s. 216 face uncertainties under the EIFEL rules

It is uncertain whether a s. 216 filer will be a person resident in Canada for purposes of the draft excessive interest and financing expenses limitation (EIFEL) rules.

If, by virtue of s. 216(1)(a) (providing that such filer is liable to pay Part I tax as if it were a person resident in Canada), the answer is yes, the filer would be treated as resident for the purposes of provisions that were likely intended to apply only to actual Canadian residents. For instance, the taxpayer could qualify as an “excluded entity” under para. (b) of that definition (regarding the $1 million “de minimis” net interest test). If the taxpayer was a “fixed interest commercial trust” and was considered resident, it could potentially transfer and receive excess capacity from other eligible group entities.

Being an eligible group entity could also be relevant under the group ratio rules in s. 18.21.

Conversely, if the s. 216 filer is to be treated for EIFEL purposes as non-resident, it would have no “adjusted taxable income” (ATI) because it would have no “taxable income earned in Canada” for the year (as required under para. D(a) of the ATI definition), as that term applies only to taxpayers filing under s. 115. Furthermore, since, by virtue of s. 216(1(c), a s. 216 filer cannot claim any deductions in computing taxable income, restricted interest and financing expenses (RIFE) for a year cannot be claimed as a deduction in any subsequent year even if the taxpayer had excess capacity.

Neal Armstrong. Summary of Ken Griffin, “The EIFEL Rules and Section 216 Filers,” International Tax Highlights, Vol. 2, No. 1, February 2023, p. 7 under s. 216(1)(a).