Many corporations and trusts will be affected by proposed rules to limit the amount of interest and other financing expenses that businesses may deduct for Canadian income tax purposes. These proposals, known as the excessive interest and financing expenses limitation (EIFEL) rules, generally limit the amount of net interest and financing expenses that may be deducted by affected corporations and trusts. Finance recently released a newly revised version of these proposals that, among other changes, clarifies how the EIFEL rules apply to controlled foreign affiliates (CFAs), introduces a 10% up-lift for groups that elect to use the Group Ratio and notes that taxpayers will be required to file a new prescribed form along with their tax return with respect to the deductibility of their interest and financing expenses. These revised rules, which were released August 4, 2023, are proposed to be effective for taxation years beginning on or after October 1, 2023. Finance is accepting comments on the revised draft legislation until September 8, 2023.

Corporations and trusts should review the latest revisions to the EIFEL rules to determine whether they may be affected and model potential impacts, including on after-tax cashflows. These corporations and trusts should also consider any available elections or designations to maximize allowable interest and financing expenses on a group-wide basis. In addition, these taxpayers may want to look at whether it makes sense to modify any existing internal or external financing or undertake restructuring transactions before the rules take effect.

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