Canada: Revised excessive interest and financing expenses limitation (EIFEL) proposals

Draft revisions to proposed excessive interest and financing expenses limitation rules

Draft revisions to proposed excessive interest and financing expenses limitation rules

The Department of Finance released draft revisions to the proposed excessive interest and financing expenses limitation (EIFEL) rules that:

  • Narrow their applicability in some cases
  • Provide new rules to address controlled foreign affiliates
  • Delay their implementation date to tax years beginning on or after 1 October 2023

The proposed rules generally limit the amount of net interest and financing expenses that may be deducted by affected corporations and trusts for Canadian income tax purposes.

Finance is accepting comments on the revised draft legislation until 6 January 2023.

The revised rules, which were released 3 November 2022, provide some welcome changes, but not all of the revisions are relieving, and the rules will still significantly affect many corporations and trusts. Read TaxNewsFlash

KPMG observation

Corporations and trusts need to review the revisions to the EIFEL rules to determine whether they may be affected and model potential implications, including on after-tax cashflows, especially due to the recent increase in interest rates. These corporations and trusts need to also consider any available elections or designations to maximize allowable interest and financing expenses. 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.

Read a November 2022 report [PDF 237 KB] prepared by the KPMG member firm in Canada


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