Corporate Tax Planning: EIFEL—It's Here

In new legislation effective for taxation years commencing on or after October 1, 2023, Canada will implement its version of the recommendations of the Organisation for Economic Co-operation and Development set out in its 2015 action 4 report, addressing base erosion through interest deductions and other financial payments. In this article, the authors explore the computational aspects of the proposed excessive interest and financing expenses limitation (EIFEL) rules. The rules will limit the deductibility of interest and other financing expenses incurred by corporations and trusts, and require an adjustment to certain income that those entities derive from partnerships and controlled foreign affiliates. In November 2023, the authors co-presented a workshop at the Canadian Tax Foundation's annual tax conference dealing with the computations required by the rules. This article extends that work in light of the implementing legislation tabled in Parliament within days of that workshop. The authors begin with some background on the consultation journey toward these rules. Then they explore the math underpinning the rules and the variables underpinning the math. The article shows how practitioners can use math to develop an understanding of the rules, by zeroing in on the key variables and interrelationships that are relevant to the limitations. The authors provide readers with a systematic way to approach computations across multiple entities and thus minimize the work effort involved in applying the EIFEL legislation and navigating the transitional rules.