Excessive interest and financing expenses limitation rules

Interest and financing expenses of a taxpayer for a particular taxation year means the amount determined by the formula

A - B

where

A is the total of all amounts (other than an amount that is included in exempt interest and financing expenses), each of which is

(a) an amount that
- (i) is paid in, or payable in or in respect of, a year as, on account of, in lieu of payment of or in satisfaction of, interest (other than excluded interest for the particular year or an amount that is deemed to be interest under subsection 137(4.1)),
- (ii) would, in the absence of this section, be deductible (other than under a provision referred to in subparagraph (c)(i)) by the taxpayer in computing its income for the particular year, and
- (iii) is not described in any other paragraph in this definition,
(b) an amount that, in the absence of this section and on the assumption that it is not deductible under another provision of this Act (other than any of the provisions referred to in subparagraph (c)(i)), would be deductible in computing the taxpayer’s income for the particular year under any of subparagraphs 20(1)(e)(ii) to (ii.2) and paragraphs 20(1)(e.1) to (f),
(c) the portion of an amount, if
- (i) the amount, in the absence of this section, would be deductible in computing the taxpayer’s income for the particular year and is claimed by the taxpayer under paragraph 20(1)(a) or subsection 66(4), 66.1(2) or (3), 66.2(2), 66.21(4), 66.4(2) or 66.7(1), (2), (2.3), (3), (4) or (5), and
- (ii) the portion can reasonably be considered to be attributable to an amount paid or payable on or after February 4, 2022 that either
  - (A) is described in subparagraph (a)(i), or
  - (B) would otherwise have been deductible in a taxation year under a provision referred to in paragraph (b), but for the application of another provision of this Act,
(d) the portion of an amount that would, in the absence of this section, be deductible in computing the taxpayer’s income for the particular year under subsection 20(16), to the extent that the portion can reasonably be considered to be described in subparagraph (c)(ii),
(e) an amount that is paid or payable by the taxpayer in a year or that is a loss or a capital loss of the taxpayer for a year, as the case may be, under or as a result of an agreement or arrangement, if
- (i)the amount would, in the absence of this section
  - (A) be deductible (other than under subparagraph 20(1)(e)(i)) in computing the taxpayer’s income for the particular year, or
  - (B) in the case of a capital loss, reduce the amount determined under paragraph 3(b) in respect of the taxpayer or be deductible in computing the taxpayer’s taxable income for the particular year (except to the extent it has already been included under this paragraph for a previous year),
- (ii) the agreement or arrangement is entered into as or in relation to a borrowing or other financing that the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer enters into, whether currently or in the future, and absolutely or contingently, and
- (iii) the amount can reasonably be considered to increase (or be part of) the cost of funding with respect to the borrowing or other financing (including as a result of any hedge of the cost of funding or of the borrowing or other financing) of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer;
(f) a particular amount that
- (i) is in respect of an agreement or arrangement that gives rise to, or can reasonably be expected to give rise to, an amount that
  - (A) is included in computing a taxpayer’s interest and financing expenses for a taxation year under paragraph (e), or
  - (B) reduces the taxpayer’s interest and financing expenses for a taxation year under the description of B,
- (ii) would, in the absence of this section, be deductible by the taxpayer in computing its income for the particular year,
- (iii) is not deductible under any of the provisions listed in paragraph (b), and
- (iv) is an expense or fee payable under the agreement or arrangement or an expense that is incurred in contemplation of, in the course of entering into or in relation to, the agreement or arrangement,
(g) a lease financing amount (other than in respect of an excluded lease for the particular year) that
- (i) would, in the absence of this section, be deductible by the taxpayer in computing its income for the particular year, and
- (ii) is not excluded interest for the particular year,
(h) in respect of the income or loss of a partnership, for a fiscal period that ends in the particular year, from any source or from sources in a particular place, an amount determined by the formula

C × D − E − F

where

C is the total of all amounts, each of which is an amount that
- (i) is deductible by the partnership in computing its income or loss from the source, or the source in a particular place, for a fiscal period, and that would be described in any of paragraphs (a) to (g) if the references to the taxpayer were read as references to the partnership, or
- (ii) would be included under paragraph (j) in determining the interest and financing expenses of the partnership for the purposes of determining its income or loss from the source, or the source in a particular place, for the fiscal period, if the partnership were a taxpayer for the purposes of this section,
D is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,

E is the amount, if any, included in computing the taxpayer’s income under paragraph 12(1)(l.1) in respect of the amount referred to in the description of C, and

F is the portion of an amount determined for C that can reasonably be considered to not be deductible in computing the taxpayer’s income for the particular year, and to not be included in computing the taxpayer’s non-capital loss for the particular year, because of subsection 96(2.1),
(i) the portion of an amount that, in the absence of this section, would be deductible in computing the taxpayer’s taxable income for the particular year and is claimed by the taxpayer under paragraph 111(1)(e) in respect of a partnership of which the taxpayer is a member that can reasonably be considered to be attributable to an amount referred to in the description of F in paragraph (h) in respect of a fiscal period of the partnership ending in another taxation year of the taxpayer, or
(j) in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the particular year, an amount determined by the formula

G × H

where

G is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

H is the taxpayer’s specified participating percentage in respect of the affiliate for the affiliate taxation year; and

B is the total of all amounts, each of which is
- (a) an amount received or receivable (other than as a dividend or in respect of exempt interest and financing expenses) by the taxpayer in a year, or a gain of the taxpayer for a year, as the case may be, under or as a result of an agreement or arrangement to the extent that
  - (i) the amount is included in computing the taxpayer’s income for the particular year,
  - (ii) the agreement or arrangement is entered into
    - (A) as a borrowing or other financing of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer, or
    - (B) in relation to a borrowing or other financing of the taxpayer or of a person or partnership that does not deal at arm’s length with the taxpayer to hedge the cost of funding or the borrowing or other financing,
  - (iii) the amount can reasonably be considered to reduce the cost of funding with respect to the borrowing or other financing of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer, and
  - (iv) the amount cannot reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from tax under this Part because
    - (A) an amount is deductible under any of subsections 20(11) to (12.1) and 126(1) and (2), and
    - (B) an amount is deductible in respect of income or profits tax paid to a country other than Canada that
      - (I) can reasonably be considered to have been paid in respect of the amount, and
      - (II) is not a tax substantially similar to tax under subsection 212(1), or
    - (b) in respect of the income or loss of a partnership, for a fiscal period that ends in the particular year, from any source or from sources in a particular place, an amount determined by the formula
I × J

where

I is an amount that would be described in paragraph (a) if
- (i) the references to the taxpayer in that paragraph were read as references to the partnership, and
- (ii) the reference in subparagraph (a)(i) to “the taxpayer’s income for the particular year” were read as “the partnership’s income or loss from the source, or the source in a particular place, for a fiscal period”, and
J is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”. (dépenses d’intérêts et de financement)

Interest and financing revenues of a taxpayer for a taxation year means the amount determined by the formula

A − B

where

A is the total of all amounts (other than any amount included under the description of B in the definition interest and financing expenses), each of which is

(a) an amount received or receivable as, on account of, in lieu of payment or in satisfaction of, interest (other than excluded interest for the year, an amount that is deemed to be interest under subsection 137(4.1) or any amount described in any other paragraph in this definition) that is included in computing the taxpayer’s income for the year,
(b) an amount that is included in computing the taxpayer’s income for the year because of subsection 12(9) or section 17.1 (other than any amount described in any other paragraph in this definition),
(c) a fee or similar amount in respect of a guarantee, or similar credit support, provided by the taxpayer for the payment of any amount on a debt obligation owing by another person or partnership that is included in computing the taxpayer’s income for the year (other than any amount described in any other paragraph in this definition),
(d) an amount received or receivable (other than as a dividend) by the taxpayer, or a gain of the taxpayer, as the case may be, under or as a result of an agreement or arrangement, if
- (i) the amount is included in computing the taxpayer’s income for the year,
- (ii) the agreement or arrangement is entered into as or in relation to a loan or other financing owing to or provided by the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer, and
- (iii) the amount can reasonably be considered to increase (or be part of) the return of the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer with respect to the loan or other financing (including as a result of any hedge of the return or of the loan or other financing),
(e) a lease financing amount (other than in respect of a lease that would be an excluded lease for the year, if the definition excluded lease were read without regard to its paragraph (a)) that
- (i) is included in computing the taxpayer’s income for the year, and
- (ii) is not excluded interest for the year,
(f) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula
C × D

where

C is the total of all amounts, each of which is an amount that
- (i) is included by the partnership in computing its income or loss from the source, or the source in a particular place, for a fiscal period and that would be described in paragraphs (a) to (e) if the references to the taxpayer were read as references to the partnership, or
- (ii) would be included under paragraph (g) in determining the interest and financing revenues of the partnership for the purposes of determining its income or loss from the source, or the source in a particular place, for the fiscal period, if the partnership were a taxpayer for the purposes of this section, and
D is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”, or
(g) in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year, an amount determined by the formula
E × F − G

where

E is the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year,

F is the taxpayer’s specified participating percentage in respect of the affiliate for the affiliate taxation year, and

G is an amount (other than any portion of the amount that is in respect of income tax paid under subsection 212(1)) that is deducted under subsection 91(4) in computing the taxpayer’s income for any taxation year in respect of foreign accrual tax (as defined in subsection 95(1)) applicable to an amount that is included in the taxpayer’s income under subsection 91(1) in respect of the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year, and

B is the total of all amounts, each of which is

(a) an amount paid or payable by the taxpayer, or a loss or a capital loss of the taxpayer, as the case may be, under or as a result of an agreement or arrangement, to the extent that
- (i) the amount
  - (A) is deductible in computing the taxpayer’s income for the year, or
  - (B) in the case of a capital loss, reduces the amount determined under paragraph 3(b) in respect of the taxpayer or is deductible in computing the taxpayer’s taxable income for the year (except to the extent it has already been taken into account in determining an amount under this paragraph for a previous year),
- (ii) the agreement or arrangement is entered into
  - (A) as a loan or other financing owing to or provided by the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, or
  - (B) in relation to a loan or other financing owing to or provided by the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, to hedge the cost of funding or the borrowing or other financing, and
- (iii) the amount can reasonably be considered to reduce the return of the taxpayer, or a person or partnership that does not deal at arm’s length with the taxpayer, in respect of the loan or other financing;
(b) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula
H × I

where

H is an amount that would be described in paragraph (a) if
- (i) the references to the taxpayer in that paragraph were read as references to the partnership, and
- (ii) the reference in subparagraph (a)(i) to “the taxpayer’s income for the year” were read as “the partnership’s income or loss from the source, or the source in a particular place, for a fiscal period”, and
I is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,
(c) the portion of any amount included under the description of A (referred to in this paragraph as the “subject amount”) that can reasonably be considered to be excluded, reduced, offset or otherwise effectively sheltered from tax under this Part because an amount is deductible
- (i) under any of subsections 20(11) to (12.1) and 126(1) and (2), and
- (ii) in respect of income or profits tax paid to a country other than Canada that
  - (A) can reasonably be considered to have been paid in respect of the subject amount, and
  - (B) is not a tax substantially similar to tax under subsection 212(1),
- (d) the portion of any amount included under A that is not, because of an Act of Parliament, subject to tax under this Part. (revenus d’intérêts et de financement)

Adjusted taxable income of a taxpayer for a taxation year means the amount determined by the formula

A + B − C

where

A is the positive or negative amount determined by the formula

D − E

where

D is

(a) if the taxpayer is non-resident, the taxpayer’s taxable income earned in Canada for the year (determined without regard to subsection (2) and paragraphs 12(1)(l.2) and 111(1)(a.1)), and
(b) in any other case, the taxpayer’s taxable income for the year (determined without regard to subsection (2), paragraphs 12(1)(l.2) and 111(1)(a.1) and clause 95(2)(f.11)(ii)(D)), and

E is the total of

(a) the taxpayer’s non-capital loss for the year (determined without regard to subsection (2), paragraphs 12(1)(l.2) and 111(1)(a.1) and clause 95(2)(f.11)(ii)(D)), and
(b) the total of all amounts each of which is, in respect of a corporation that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year — or a controlled foreign affiliate of a partnership, of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member, at the end of an affiliate taxation year ending in a fiscal period of the partnership — an amount determined by the formula

T × U ÷ V

where

T is the lesser of

(i) the affiliate’s foreign accrual property loss (determined without regard to clause 95(2)(f.11)(ii)(D)) for the affiliate taxation year, and
(ii) the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year exceeds the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year,

U is the amount that is included in the taxpayer’s interest and financing expenses for the year in respect of the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

V is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year;

B is the total of all amounts (subject to paragraph (k), other than an amount that can reasonably be considered to be in respect of exempt interest and financing expenses) each of which is

(a) the taxpayer’s interest and financing expenses for the year,
(b) an amount deducted by the taxpayer in computing its income for the year under paragraph 20(1)(a) or 59.1(a) or subsection 66(4), 66.1(2) or (3), 66.2(2), 66.21(4), 66.4(2) or 66.7(1), (2), (2.3), (3), (4) or (5), other than any portion of that amount that is described in subparagraph (c)(ii) of the description of A in the definition interest and financing expenses,
(c) an amount deducted by the taxpayer in computing its income for the year under subsection 20(16), other than any portion of that amount that is described in paragraph (d) of the description of A in the definition interest and financing expenses,
(d) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

H × G − H

where

F is the total of all amounts, each of which is an amount deducted by the partnership under paragraph 20(1)(a) or subsection 20(16) in computing its income or loss from the source, or the source in a particular place, for the fiscal period, other than any portion of that amount that is described in subparagraph (c)(ii) of the description of A in the definition interest and financing expenses,

G is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”, and

H is the portion of an amount referred to in the description of F that can reasonably be considered to not be deductible in computing the taxpayer’s income for the year, or to not be included in computing the taxpayer’s non-capital loss for the year, because of subsection 96(2.1),
(e) the portion of an amount deducted under paragraph 111(1)(e) for the year, in respect of a partnership of which the taxpayer is a member, that can reasonably be considered to be attributable to an amount referred to in the description of H in paragraph (d) in respect of a fiscal period of the partnership ending in a preceding taxation year of the taxpayer,
(f) an amount deducted by the taxpayer under paragraph 110(1)(k) in computing its taxable income for the year,
(g) an amount deducted by the taxpayer under subsection 104(6) in computing its income for the year, except to the extent of any portion of the amount that has been designated under subsection 104(19) for the year,
(h) an amount determined by the formula
I × J ÷ K

where

I is the amount deducted by the taxpayer under paragraph 111(1)(a) in computing its taxable income for the year, in respect of the taxpayer’s non-capital loss (other than a specified pre-regime loss of the taxpayer in respect of the year) for another taxation year (referred to in this paragraph as the “taxpayer loss year”),

J is the lesser of
- (i) the non-capital loss for the taxpayer loss year, and
- (ii) the amount determined by the formula
W − X − Y

where

W is the total of all amounts, each of which is an amount that is
- (A) the interest and financing expenses of the taxpayer for the taxpayer loss year, determined without regard to any amount or portion of an amount that is not deductible because of subsection (2) or clause 95(2)(f.11)(ii)(D),
- (B) described in any of paragraphs (b) to (g) or (j) to (m) of the description of B for the taxpayer loss year, or
- (C) deducted by the taxpayer under paragraph 111(1)(a.1) in computing its taxable income for the taxpayer loss year,
X is the total of all amounts, each of which is an amount
- (A) described in any of paragraphs (a) to (f), (h) or (j) of the description of C for the taxpayer loss year, or
- (B) included in the income of the taxpayer for the taxpayer loss year by reason of paragraph 12(1)(l.2), and
Y is the total of all amounts, each of which is an amount determined by the formula

Z × Z.1 ÷ Z.2

where

Z is the lesser of
- (A) the foreign accrual property loss, for an affiliate taxation year, of a corporation (referred to throughout the description of Y as the “affiliate”) that, at the end of the affiliate taxation year, is a controlled foreign affiliate of the taxpayer, or is a controlled foreign affiliate of a partnership of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member at any time, and
- (B) the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year (determined without regard to any amount or portion of an amount that is not deductible because of clause 95(2)(f.11)(ii)(D)) exceeds the total of all amounts, each of which is
  - (I) the affiliate’s relevant affiliate interest and financing revenues for the affiliate taxation year, or
  - (II) an amount included under subclause 95(2)(f.11)(ii)(D)(II) in respect of the affiliate for the affiliate taxation year,
Z.1 is the amount that is included in the taxpayer’s interest and financing expenses for the taxpayer loss year in respect of the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

Z.2 is the affiliate’s relevant affiliate interest and financing expenses for the affiliate taxation year, and

K is the non-capital loss for the taxpayer loss year,
(i) 25% of the amount deducted, in respect of a specified pre-regime loss of the taxpayer in respect of the year, by the taxpayer under paragraph 111(1)(a) in computing its taxable income for the year,
(j) in respect of a corporation (referred to in this paragraph as the “affiliate”) that is a controlled foreign affiliate of the taxpayer at the end of an affiliate taxation year ending in the year — or that is a controlled foreign affiliate of a partnership, of which the taxpayer or a controlled foreign affiliate of the taxpayer is a member at any time, at the end of an affiliate taxation year ending in a fiscal period of the partnership — the additional amount that would be included in the taxpayer’s income, either under subsection 91(1) or because an amount would be included in the income of a partnership under that subsection, in respect of the affiliate’s foreign accrual property income for the affiliate taxation year, if the affiliate’s foreign accrual property income for the affiliate taxation year were increased by the amount determined by the formula
L × M ÷ N

where

L is the amount that, in computing the foreign accrual property income of the affiliate for the affiliate taxation year, is the prescribed amount for the description of F in the definition foreign accrual property income in subsection 95(1), in respect of a foreign accrual property loss of the affiliate for another affiliate taxation year (referred to in this paragraph as the “affiliate loss year”),

M is the lesser of
- (i) the affiliate’s foreign accrual property loss for the affiliate loss year, and
- (ii) the amount by which the affiliate’s relevant affiliate interest and financing expenses for the affiliate loss year (determined without regard to any amount or portion of an amount that is not deductible because of clause 95(2)(f.11)(ii)(D)) exceeds the total of all amounts, each of which is
  - (A) the affiliate’s relevant affiliate interest and financing revenues for the affiliate loss year, or
  - (B) an amount included under subclause 95(2)(f.11)(ii)(D)(II) in respect of the affiliate for the affiliate loss year, and
  N is the affiliate’s foreign accrual property loss for the affiliate loss year,
(k) the amount that would be the taxpayer’s loss for the year, or that would be the taxpayer’s share of the loss of a partnership of which the taxpayer is a member, if the taxpayer or partnership had no income or loss other than a loss that can reasonably be considered to be incurred by the taxpayer or the partnership in respect of activities funded by a borrowing (within the meaning of the definition exempt interest and financing expenses) that results in exempt interest and financing expenses of the taxpayer or the partnership,
(l) an amount deducted under subsection 127(5) or (6), 127.44(3), 127.45(6), 127.48(3) or 127.49(6) in respect of a property acquired in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it
- (i) is included in an amount determined under paragraph 13(7.1)(e) or subparagraph 53(2)(c)(vi) to (vi.4) or (h)(ii) or for I in the definition undepreciated capital cost in subsection 13(21), and
- (ii) was not included
  - (A) in computing the taxpayer’s income for the year or a preceding taxation year, and
  - (B) under this paragraph in calculating the taxpayer’s adjusted taxable income for a preceding taxation year, or
(m) an amount described in clause 12(1)(x)(i)(C) or subparagraph 12(1)(x)(ii) that is received by the taxpayer in the year to the extent that it
- (i) reduces the cost or capital cost of a property,
- (ii) is not included in computing the income of the taxpayer for the year under paragraph 12(1)(x), and
- (iii) would be included in computing the income of the taxpayer for the year under paragraph 12(1)(x) if that paragraph were read without reference to its subparagraphs (vi) and (vii); and

C is the total of all amounts each of which is

(a) the taxpayer’s interest and financing revenues for the year,
(b) an amount included under subsection 13(1) in computing the taxpayer’s income for the year,
(c) in respect of the income or loss of a partnership, for a fiscal period that ends in the year, from any source or from sources in a particular place, an amount determined by the formula

O × P

where

O is an amount that is included by the partnership under subsection 13(1) in computing its income or loss from the source, or the source in a particular place, for the fiscal period, and

P is the taxpayer’s specified proportion, if the references in the definition specified proportion in subsection 248(1) to “total income or loss” were read as “income or loss from the source, or the source in a particular place”,
(d) an amount included under subsection 59(1) or (3.2) or paragraph 59.1(b) in computing the taxpayer’s income for the year,
(e) in the case of a corporation
- (i) 100/28 of the total of the amounts that would be deductible by it under subsection 126(1) from its tax for the year otherwise payable under this Part if those amounts were determined without reference to sections 123.3 and 123.4, or
- (ii) the amount determined by multiplying the total of the amounts that would be deductible by it under subsection 126(2) from its tax for the year otherwise payable under this Part, if those amounts were determined without reference to section 123.4, by the relevant factor for the year,
(f) in the case of a trust, the amount determined by the formula
Q × (1 ÷ (R × S))

where

Q is the total of the amounts deductible by it under subsection 126(1) or (2) from its tax for the year otherwise payable under this Part for the year,

R is the percentage (expressed as a decimal fraction) referred to in paragraph 122(1)(a) in respect of the year, and

S is 1 plus the percentage (expressed as a decimal fraction) referred to in subsection 120(1) in respect of the year,
(g) an amount included under section 110.5 in computing the taxpayer’s taxable income for the year,
(h) an amount included under subsection 104(13) in computing the taxpayer’s income for the year, except to the extent of any portion of the amount that
- (i) has been designated under subsection 104(19) for the year, or
- (ii) gives rise to a deduction under paragraph 94.2(3)(a) in computing the foreign accrual property income for an affiliate taxation year of an entity that is a controlled foreign affiliate of the taxpayer at the end of the affiliate taxation year,
(i) an amount of the taxpayer’s taxable income for the year that is not, because of an Act of Parliament, subject to tax under this Part, or
(j) the amount that would be the taxpayer’s income for the year, or that would be the taxpayer’s share of the income of a partnership of which the taxpayer is a member, if the taxpayer or partnership had no income or loss other than income that can reasonably be considered to be earned by the taxpayer or the partnership in respect of activities funded by a borrowing (within the meaning of the definition exempt interest and financing expenses) that results in exempt interest and financing expenses of the taxpayer or the partnership. (revenu imposable rajusté)

Excluded entity for a particular taxation year means

(a) a corporation that is throughout the particular year a Canadian-controlled private corporation in respect of which the amount determined for C in paragraph 125(5.1)(a) for the year is less than $50,000,000;
(b) a particular taxpayer resident in Canada, if $1,000,000 is not less than the amount determined by the formula
A − B

where

A is the total of all amounts, each of which is the interest and financing expenses or the exempt interest and financing expenses of
- (i) the particular taxpayer for the particular taxation year, or
- (ii) another taxpayer resident in Canada for a taxation year (referred to in this subparagraph as the “relevant taxation year”) ending in the particular taxation year, if the other taxpayer is an eligible group entity in respect of the particular taxpayer at the end of the relevant taxation year, and
B is the amount that would be determined for A if
- (i) the reference in the description of A to “the interest and financing expenses or the exempt interest and financing expenses” were read as a reference to “the interest and financing revenues”, and
- (ii) the interest and financing revenues of a financial institution group entity were excluded; or
(c) a taxpayer resident in Canada if
- (i) all or substantially all of the businesses, if any, and all or substantially all of the undertakings and activities of
  - (A) the taxpayer are, throughout the particular year, carried on in Canada, and
  - (B) each eligible group entity in respect of the taxpayer are, throughout the eligible group entity’s taxation year that ends in the particular year, carried on in Canada,
- (ii) throughout the year, it is the case that
  
  A ≥ B
  
  where
  
  A is $5,000,000, and
  
  B is the greater of
  - (A) the total of all amounts, each of which is the amount at which the shares of the capital stock of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, would be valued for the purpose of the balance sheet of the taxpayer or the eligible group entity if that balance sheet were prepared in accordance with generally accepted accounting principles used in Canada, other than any amount or portion of an amount that is already included under this clause because the value of the shares of the capital stock of a particular foreign affiliate reflects the value of shares of the capital stock of another foreign affiliate that is owned, directly or indirectly, by the particular foreign affiliate, or
  - (B) the total of all amounts, each of which is the amount that can reasonably be considered to be the proportionate share, of the taxpayer or an eligible group entity in respect of the taxpayer, of the fair market value of all property of a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member, other than a property that is shares of the capital stock of another corporation that is a foreign affiliate of the taxpayer, a foreign affiliate of an eligible group entity in respect of the taxpayer or a foreign affiliate of a partnership of which the taxpayer or an eligible group entity in respect of the taxpayer is a member,
- (iii) no person or partnership is, at any time in the particular year,
  - (A) a specified shareholder or a specified beneficiary (as those terms are defined in subsection 18(5)) of the taxpayer, or of any eligible group entity in respect of the taxpayer, that is not resident in Canada, or
  - (B) a partnership more than 50% of the fair market value of all interests in which can reasonably be considered to be held, directly or indirectly through one or more trusts or partnerships, by non-resident persons, if the property of the partnership includes,
    - (I) if the taxpayer or the eligible group entity in respect of the taxpayer is a corporation, shares, or a right to acquire shares, of the capital stock of the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with shares, or rights to acquire shares, held by persons or partnerships with whom the partnership does not deal at arm’s length,
      - 1 provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or
      - 2 have 25% or more of the fair market value of all capital stock in the corporation, or
    - (II) if the taxpayer or the eligible group entity in respect of the taxpayer is a trust, an interest, or a right to acquire an interest, as a beneficiary in the taxpayer or an eligible group entity in respect of the taxpayer that, either alone or together with interests, or rights to acquire interests, held by persons or partnerships with whom the partnership does not deal at arm’s length, has 25% or more of the fair market value of all interests as a beneficiary in the trust, and
- (iv) all or substantially all of the interest and financing expenses of the taxpayer and of each eligible group entity in respect of the taxpayer for the particular year are paid or payable to persons or partnerships that are not, at any time in the particular year, tax-indifferent persons or partnerships that do not deal at arm’s length with the taxpayer or any eligible group entity in respect of the taxpayer. (entité exclue)

Financial institution group entity means a taxpayer that at any time in a taxation year is

(a) a bank;
(b) a credit union;
(c) an insurance corporation;
(d) an entity authorized under the laws of Canada or a province to carry on the business of offering its services as a trustee to the public;
(e) an entity whose principal business consists of one or more of
- (i) the lending of money to persons with whom the entity deals at arm’s length,
- (ii) the purchasing of debt obligations issued by persons with whom the entity deals at arm’s length, or
- (iii) activities which principally give rise to amounts described in paragraphs (a) to (d) of the description of A in the definition interest and financing revenues and are principally conducted with persons with whom the entity deals at arm’s length;
(f) a particular entity that is an eligible group entity in respect of an entity described in any of paragraphs (a) to (e), if the particular entity, or a partnership of which the particular entity is a member and from which the particular entity primarily derives its income,
- (i) is authorized under provincial securities laws to engage in, and primarily engages in, the business of
  - (A) dealing in securities, or
  - (B) providing portfolio management, investment advice, fund administration or fund management; or
- (ii) primarily engages in the business of providing portfolio management, investment advice, fund administration or fund management, including any services connected to those activities, in respect of real estate; or
(g) a particular entity (other than a financial holding corporation) that is an eligible group entity in respect of any entity described in any of paragraphs (a) to (f) if all or substantially all of the activities of the particular entity are ancillary to the activities or business carried on by one or more entities described in paragraphs (a) to (f) that are eligible group entities in respect of the particular entity. (entité du groupe d’institutions financières)

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.

To receive up-to-date information about the rules, sign up for our electronic mailing list.

Note: All legislative references on this page are to the Income Tax Act, unless otherwise noted.

What the rules are

The rules integrate with existing income tax provisions that allow interest and financing expenses (IFE) to be deducted.

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

IFE and IFR are defined in subsection 18.2(1).

: Option 1 of 2

The cap on net IFE is equal to a fixed ratio of adjusted taxable income, as defined in subsection 18.2(1):

30% for tax years starting on or after January 1, 2024
40% for tax years starting on or after October 1, 2023, and before January 1, 2024

: Option 2 of 2

If an election is filed, the cap on net IFE is equal to an allocated group ratio amount, as defined in subsection 18.21(2). The allocated group ratio amount is determined using audited consolidated financial statements.

Who the rules affect

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

hold interests directly or indirectly in controlled foreign affiliates (CFAs) that have relevant affiliate interest and financing expenses or relevant affiliate interest and financing revenues, as defined in subsection 18.2(1)
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. The term excluded entity is defined in subsection 18.2(1) and generally includes, for a tax year:

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, together with any other applicable taxpayers, has aggregate net interest and financing expenses of $1 million or less
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 of its 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, as defined in subsection 18.2(1), and that do not deal at arm’s length with the taxpayer or any member of the group

Filing your information

Schedule 130 is available for corporations, trusts, and partnerships at Canada Revenue Agency forms listed by number.

For more guidance on completing certain parts of the schedules, refer to Supplemental instructions for filing under the EIFEL rules.

For an overview on filing your information under the rules, review each of the following sections.

Corporations:

You must file Form T2SCH130, Excessive Interest and Financing Expenses Limitation, with your corporation income tax return unless you are exempt. A corporation is exempt from filing Form T2SCH130 if it meets both of the following conditions:

the corporation is one of the following:

exempt from Part I tax because of section 149
an excluded entity
a financial institution group entity, as defined in subsection 18.2(1), that has determined its proportion under subsection 18.2(2) to be nil
a financial holding corporation, as defined in subsection 18.2(1), that has determined its proportion under subsection 18.2(2) to be nil
a general partner that:
1. holds less than a 1% share in a limited partnership
2. holds no other property than its share in that limited partnership, and
3. carries on no other business than that of the limited partnership
a non-resident exempt from Part I tax because of a tax treaty

the corporation is not a party to an election under the rules

If your corporation is exempt from filing Form T2SCH130, leave the box on line 278 on the corporation income tax return blank.

You must keep documents showing that your corporation meets the requirements for exemption with your records.

How to file Form T2SCH130 if the corporation is not exempt

You can file Form T2SCH130 with your corporation income tax return using certified tax preparation software, if the software supports it.

If your software product does not support Form T2SCH130 you must download and complete a PDF version of Form T2SCH130 and submit it using one of the following methods:

Using the T2 Attach-a-doc-service

The T2 Attach-a-doc service allows corporations to attach supporting documents, such as certificates, when they file their corporation income tax return or within 24 hours of filing. This service is not mandatory for certified software products. Some include it and others do not.

If you have questions on the availability of the service, contact the software product company.

Requirements for filing an attachment

You must have filed the initial or amended return electronically within the last 24 hours.

Before filing an attachment, make sure you have:

your EFILE number and password to file, or a web access code for your corporation
the date and time of the return you want to attach the document to
the confirmation number of your return

Follow these document requirements:

limit the size of a single transmission to 150 MB (this means you may have to make multiple transmissions to send documents that exceed the limit)
use one of the following file types for your documents: pdf, doc, docx, xls, xlsx, rtf, txt, jpg, jpeg, tiff, tif, or xps

How to attach documents to your return

Select “Attach-a-doc” from within the tax software (you have 24 hours to attach a document to an electronically submitted return)
You will need the date and time of the return you want to attach the document to along with the confirmation number of the electronic transmission
Select the document type “Elections” from the drop-down menu list
Enter a description using 255 characters or less
Select "Submit/Transmit," and we will provide you with a confirmation

Using My Business Account or Represent a Client

If your software product does not provide the T2 Attach-a-doc service, you can submit Form T2SCH130 through My Business Account or Represent A Client using Submit documents.

Select “No” when asked: “Do you have a case or reference number?“
Select “Special Elections and Returns” as the topic
Select “No” when asked: “Do you have a SERS Electronic Filing Confirmation Number?“
Select “Supporting documentation” as the reason
Select Form T2152A as the form type, then select the applicable program account number

Trusts

You must file Form T3SCH130, Excessive Interest and Financing Expense Limitation with your trust income tax and information return unless your trust is exempt. A trust is exempt from filing Form T3SCH130 if it meets both of the following conditions:

the trust is one of the following:

a bare trust that is not otherwise required to file an income tax return
exempt from Part I tax under section 149
an excluded entity
a testamentary trust as defined in subsection 108(1),
described in any of paragraphs (a), (a.1), (b), (d) or (e) of the definition of a trust in subsection 108(1)
a non-resident exempt from Part I tax because of a tax treaty

the trust is not a party to an election under the rules

If your trust is exempt from filing Form T3SCH130, answer “No” to the question on line 15 on the trust income tax and information return.

You must keep documents showing that your trust meets the exemption requirements.

How to file Form T3SCH130 if the trust is not exempt

Using tax preparation software

You can file Form T3SCH130 with your trust income tax and information return if your certified tax preparation software supports it.

If your software product does not support Form T3SCH130, download and complete a PDF version of Form T3SCH130 and submit it through Represent A Client using Submit documents.

Using Represent a Client

Tax preparers and authorized representatives of trust administrators can access the Submit documents services online in Represent a Client.

Under “Access client information” enter the trust account number and select “Access T3”
Select “Submit documents” from the menu bar
Select “No” when asked, “Do you have a case or reference number?“
Select “Special Elections and Returns” as the topic
Select “No” when asked, “Do you have a SERS Electronic Filing Confirmation Number?“
Select “Send Special Election or Return form or supporting documentation” as the reason
Enter “T3SCH130” in the supporting documents box

Partnerships

You must file Form T5013SCH130, Partnership Interest and Financing Expenses and Interest and Financing Revenues with your partnership information return if both of the following conditions apply during the fiscal period:

your partnership has a corporation or trust as a member or deemed to be a member under subsection 18.2(12)
your partnership has IFE or IFR that affects a member’s calculation of the proportion under subsection 18.2(2). This includes amounts described in subsection 18.2(1) under:
- paragraph (h) of variable A of the definition of IFE
- paragraph (b) of variable B of the definition of IFE
- paragraph (f) of variable A of the definition of IFR
- paragraphs (b) to (d) of variable B of the definition of IFR

Your partnership is exempt from filing Form T5013SCH130 if all members, including deemed members under subsection 18.2(12), are not required to file Schedule 130 with their corporation income tax return, trust income tax and information return, or partnership information return for the tax year or fiscal period that includes the end of the fiscal period of your partnership.

If your partnership is exempt from filing Form T5013SCH130 for a fiscal period, answer “No” to the question on line 233 on Form T5013FIN, Partnership Financial Return.

Your partnership must keep, with its records, written notification from each member identifying the reason it is exempt from filing a Schedule 130.

How to file Form T5013SCH130 if the partnership is not exempt

Using tax preparation software

You can file Form T5013SCH130 with your partnership information return for the fiscal period if your certified tax preparation software supports it.

If your software product does not support Form T5013SCH130, download and complete the PDF version of Form T5013SCH130 and submit it through My Business Account or Represent A Client using Submit documents.

Using My Business Account or Represent a Client

You can access the Submit documents services online in My Business Account or Represent a Client.

Select “No” when asked, “Do you have a case or reference number?“
Select “More topics” as the topic
Select “Submit supporting documents for Partnership Financial Return (T5013FIN)”

A partnership required to complete Form T5013SCH130 must also provide each member with detailed calculations of the relevant affiliate interest and financing expenses and relevant affiliate interest and financing revenues of any CFA of the partnership.

Making an election Updated

The rules contain several election provisions that allow you to choose an alternative tax treatment if you meet the conditions.

Forms for these elections are available for corporations, trusts, and partnerships at Canada Revenue Agency forms listed by number.

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

Use Form T2224 to elect to apply the transitional rules. The transitional rules allow a group of eligible pre regime group entities to calculate group net excess capacity for the three years before the first year the EIFEL rules apply (pre-regime years). The group net excess capacity is then included in the cumulative unused excess capacity, as defined in subsection 18.2(1), in the first three years the EIFEL rules apply. This inclusion may reduce the amount of IFE that would otherwise be restricted in those years.

If you make an election under the transitional rules, you may also elect, for the pre-regime years, if applicable, using the following forms:

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

For information on how to file these elections, go to: Form T2225, Group Ratio Rules Election Under Subsection 18.21(2) and Fair Value Adjustments Election Under Subsection 18.21(4) and Form T2228, Specified Pre-regime Loss Election under Subsection 18.2(1).

The terms eligible pre-regime group entity and group net excess capacity are defined in the transitional rules to section 18.2. Refer to subsection 7(2) of Bill C-59.

Form T2225, Group Ratio Rules Election Under Subsection 18.21(2) and Fair Value Adjustments Election Under Subsection 18.21(4)

Use Form T2225 to elect to use the group ratio rules. These rules allow eligible taxpayers to calculate a group ratio using amounts reported on audited consolidated financial statements. Using a group ratio may allow a greater IFE deduction than the fixed ratio of 30% or 40%.

If a taxpayer elects to use the group ratio rules, they may also elect, using Form T2225, to exclude fair value amounts when determining group adjusted net book income. This exclusion applies to all future tax years and the election can be made only in the first year a taxpayer files the group ratio rules election.

The terms group adjusted net book income, group ratio and fair value amount are defined in subsection 18.21(1).

The Canada Revenue Agency (CRA) is revising Form T2225 to streamline reporting requirements. Until the new version of the form is available, follow the new instructions below.

Previous instructions	New instructions
When filing Form T2225, report all applicable amounts in the specified boxes	When filing Form T2225: report all applicable amounts on the specified lines, except for lines 222, 224, 226, 228, 230, 232, 234, 236, 238, 240, 242, 244, and 246, which may be left blank report on line 5C the amount you would otherwise have reported on line 234 report on line 5D the amount you would otherwise have reported on line 246

Form T2226, Election to Transfer Cumulative Unused Excess Capacity Under Subsection 18.2(4)

Use Form T2226 to elect to transfer cumulative unused excess capacity from one corporation or fixed interest commercial trust to another within a group of eligible group entities. The entity receiving the capacity may then be able to deduct more IFE, up to the amount of capacity it received. The terms eligible group entity and fixed interest commercial trust are defined in subsection 18.2(1).

Form T2227, Excluded Interest Election Under Subsection 18.2(1)

Use Form T2227 to elect to exclude interest or lease financing amount payments made between two qualifying members of a group from IFE and IFR.

The terms excluded interest and leasing financing amount are defined in subsection 18.2(1).

Form T2228, Specified Pre-regime Loss Election under Subsection 18.2(1)

When calculating adjusted taxable income, an add-back is required to adjust for certain amounts included in a non-capital loss being deducted in the current tax year. For non-capital losses from tax years ending before February 4, 2022, a taxpayer can choose to file Form T2228 to treat the loss as a specified pre-regime loss under subsection 18.2(1). If the taxpayer chooses this option, it must add back 25% of the loss deducted when calculating adjusted taxable income. This election may apply if, for example, a corporation or trust no longer has documents to support the amounts included in the non-capital loss.

The CRA is streamlining reporting requirements for Form T2228. The new instructions to elect to treat the loss as a specified pre-regime loss are below.

Previous instructions	New instructions
When filing Form T2228, report all applicable amounts on the specified lines.	For corporations The CRA is waiving the requirement to file Form T2228 for corporations for tax years starting on or after October 1, 2023. A corporation can instead make this election by reporting the add-back of 25% of the specified pre-regime loss on line 090 of Form T2SCH130. If the election relates to a pre-regime year, a corporation must still file Form T2228. However, it does not have to report amounts on lines 202 to 225. For trusts A trust making this election must still file Form T2228. However, the trust is not required to report amounts on lines 202 to 225.

Previous instructions

New instructions

When filing Form T2228, report all applicable amounts on the specified lines.

For corporations

The CRA is waiving the requirement to file Form T2228 for corporations for tax years starting on or after October 1, 2023. A corporation can instead make this election by reporting the add-back of 25% of the specified pre-regime loss on line 090 of Form T2SCH130.

If the election relates to a pre-regime year, a corporation must still file Form T2228. However, it does not have to report amounts on lines 202 to 225.

For trusts

A trust making this election must still file Form T2228. However, the trust is not required to report amounts on lines 202 to 225.

Form T2229, Election to Forgo a Foreign Accrual Property Loss Under Clause 95(2)(f.11)(ii)(E)

Use Form T2229 to elect under clause 95(2)(f.11)(ii)(E) to treat otherwise deductible relevant affiliate interest and financing expenses of a CFA as not deductible when computing the CFA’s income or loss from a property, a business other than an active business, or a non-qualifying business. As a result, these elected amounts are not included in the corporation’s or trust’s IFE for its tax year.

The CRA is revising Form T2229 to streamline reporting requirements. Until the new version of the form is available, follow the new instructions below.

Previous instructions	New instructions
When filing Form T2229, report all applicable amounts on the specified lines.	When filing Form T2229, report all applicable amounts on the specified lines, except lines 230 and 250, which may be left blank.

The taxpayer must keep details of each elected amount and provide them to the CRA upon request.

How to file an election

Download and complete a PDF version of the election form.

For corporations

Submit the completed election form through My Business Account or Represent A Client using Submit documents.

Select “No” when asked for case or reference number
Select “Special Elections and Returns” as the topic and “Supporting documentation” as the reason
Select “No” when asked the following: “Do you have a SERS Electronic Filing Confirmation Number?“
Select Form T2152A as the form type, then select the applicable program account number

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

For trusts

Tax preparers and authorized representatives of trust administrators can access the Submit documents service in Represent A Client.

Under “Access client information” enter the trust account number and select “Access T3”
Select “Submit documents” in the menu bar
Select “No” when asked, ”Do you have a case or reference number?”
Select “Special Elections and Returns” as the topic
Select “No” when asked, “Do you have a SERS Electronic Filing Confirmation Number?”
Select “Send Special Election or Return form or supporting documentation” as the reason
Enter the applicable election form number in the supporting documents box

If you are not filing electronically, mail the election form to your tax centre. To determine your tax centre, refer to: Where to file a trust return.

For partnerships

You can access the Submit documents service in My Business Account or Represent A Client.

Select “No” when asked, ”Do you have a case or reference number?”
Select “More topics” as the topic
Select “Submit supporting documents for Partnership Financial Return (T5013FIN)”

If you are not filing electronically, mail the election form to:

Prince Edward Island Tax Centre
275 Pope Rd
Summerside PE C1N 6A2

Information return requirement waived

Although subsection 18.2(6) requires your corporation or trust to file an information return if it has received capacity in a joint election under subsection 18.2(4), the CRA is waiving this filing requirement at this time.

Keeping records

Remember to keep all documents that support:

the deductibility of your corporation’s or trust’s IFE
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

Source of the rules

The bill containing the rules received royal assent on June 20, 2024.

The rules are contained in sections 18.2 and 18.21 of the Income Tax Act

and are based on the Organisation for Economic Co-operation and Development’s BEPS Action 4 report.

Source of the rules

The bill containing the rules received royal assent on June 20, 2024.

The rules are contained in sections 18.2 and 18.21 of the Income Tax Act and are based on the Organisation for Economic Co-operation and Development’s BEPS Action 4 report.

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Excessive interest and financing expenses limitation rules

On this page

What the rules are

: Option 1 of 2

: Option 2 of 2

Who the rules affect

Excluded entities

Filing your information

Corporations:

How to file Form T2SCH130 if the corporation is not exempt

Requirements for filing an attachment

How to attach documents to your return

Trusts

How to file Form T3SCH130 if the trust is not exempt

Partnerships

How to file Form T5013SCH130 if the partnership is not exempt

Making an election Updated

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

Form T2225, Group Ratio Rules Election Under Subsection 18.21(2) and Fair Value Adjustments Election Under Subsection 18.21(4)

Form T2226, Election to Transfer Cumulative Unused Excess Capacity Under Subsection 18.2(4)

Form T2227, Excluded Interest Election Under Subsection 18.2(1)

Form T2228, Specified Pre-regime Loss Election under Subsection 18.2(1)

Form T2229, Election to Forgo a Foreign Accrual Property Loss Under Clause 95(2)(f.11)(ii)(E)

How to file an election

Information return requirement waived

Keeping records

Related information

Page details