Navigating the evolution of EIFEL rules: Part I
The Department of Finance released the final legislation for EIFEL rules.
Part IV – Recent updates
Exceptions to EIFEL rules
On April 16, 2024, Canada's Finance Minister, the Honorable Chrystia Freeland, introduced the 2024 federal budget, which included important updates to the Income Tax Act and provided more details about previous tax measures.
The EIFEL rules generally apply to all taxpayers. However, there are exceptions, like for certain public-private infrastructure projects or if an excluded entity exception test is met. Budget 2024 proposed expanding these exceptions to include an elective exemption related to purpose-built rental housing and regulated energy utility businesses.
The proposed exception for regulated energy utility businesses applies to borrowings used to earn income from such a business, where all or substantially all of the property is used in that business and is located in Canada.
Both exceptions were a part of the proposed legislation that was put on pause due to prorogation. We will continue to monitor whether this measure is maintained and ultimately enacted, especially in light of the change in government.
Guidance from the CRA
On Sept. 24, 2024, the Canada Revenue Agency (CRA) released some instructions on how to comply with the EIFEL rules with the introduction of Schedule 130. This schedule is part of corporate or trust income tax returns, and was released earlier this year.
As you may know, Schedule 130 is a detailed form requiring taxpayers to report a range of information, including interest and financing expenses (IFE), interest and financing revenues (IFR), adjusted taxable income, absorbed capacity, and other relevant calculations. If a corporation or trust is a partner of a partnership, the taxpayer will need to include their share of the partnership's interest and financing expenses and revenues. The same applies for relevant affiliate interest and financing expenses and relevant affiliate interest and financing revenues.
Where a corporation or trust is a partner of a partnership, the partnership must include details of how the partnership calculated its interest and financing expenses and interest and financing revenues in schedule 130 of its partnership return.
The CRA has also released forms and filing instructions for several elections under the EIFEL rules. One remaining information return, relating to taxpayers with multiple transfers of excess capacity, is still outstanding. The CRA have stated on their webpage that they are not requiring the filing of this information return at this time.
Common challenges
As taxpayers and advisors work through the EIFEL rules, they may face some areas that require careful judgment. These areas include, but are not limited to, determining the amount of IFE in non-capital losses and how to determine the proportion of capital cost allowance deductions that relate to capitalized interest. We hope to get more guidance from the CRA soon.
Key takeaways and next steps
The EIFEL rules are complex and likely to evolve over the coming years. Taxpayers impacted by these rules should consider the following next steps:
- Ensure partnerships are compliant with schedule 130 filings, and corporate or trust members are including their allocated share of IFE and IFR in their EIFEL analysis.
- Ensure corporations and trusts maintain detailed working papers to support the amounts identified or computed in schedule 130. If the taxpayer is relying on an excluded entity exception test, ensure there is sufficient documentation to support this position.
BDO can help
Contact your BDO advisor to learn more about how we can help you manage the impact of these proposals on your business.
Harry Chana,
International and Cross-Border Tax Services Leader
Jaskirit Randhawa,
Senior Manager, International Tax
The information in this publication is current as of April 16, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.