On June 20 2024, Bill C-59, which includes the legislation to implement the Excessive Interest and Financing Expenses Limitation (EIFEL) rules, received Royal Ascent.


The final version of the legislation contained a number of changes to the initial draft legislation that was discussed in a previous article but is the same as the previously amended draft legislation that was published in November 2023.


In this article, we discuss the main highlights from the rules.


The Key Rules

For applicable entities:

  • The annual tax interest expense (net of interest income) (“IFE”) is generally limited to an “Interest Allowance”: Adjusted Tax-EBITDA x Fixed (or Group) Ratio %
    • Fixed ratio is 30% for tax years beginning from 1 January 2024 (40% during transitional period where tax years beginning 1 October -31 December 2023)
    • Entities have the option to calculate their ‘group ratio %’ which, if higher than 30%, can be used to permit additional deductions of interest.
  • Interest is restricted where the IFE is in excess of the Interest Allowance.
  • ‘Excess capacity’ is created where the Interest Allowance is in excess of the IFE.
  • Any restricted interest can be carried forward indefinitely and potentially reactivated in years where there is excess capacity.
  • Any unused excess capacity can be carried forward for up to 3 years.
  • Group elections can be made to utilise other group member’s unused excess capacity and/or treat related party interest.


Excluded Entities

The rules apply to all corporations, trusts and partnerships on a look-through basis.  However, certain entities are “exempt entities” as follows:

  • CCPCs whose taxable capital employed (together with any associated CCPCs) is less than CAD50m;
  • Groups with an IFE of CAD1m or less; and
  • Certain groups that carry on all or substantially all for their business in Canada (providing certain conditions are met).


Support for P3 projects

An SPV undertaking a P3 project is subject to the EIFEL rules however:

  • In calculating its IFE, interest and fees incurred on third-party (arm’s length) debt that funds P3 infrastructure projects can be excluded (provided certain conditions are met).
    • Therefore, its IFE would generally reflect its related party debt interest (plus any non-P3 interest income and interest expense)
  • ‘Adjusted Tax-EBITDA’ is appropriately adjusted downwards to strip out income earned by a borrower from the borrowings that generates the exempt IFE.

As a high-level example, let us assume an SPV is set up purely for a qualifying P3 project and is funded 2:1 between third-party and related party debt. Adjusted Tax-EBITDA would be pro-rated to 33% before it is multiplied by the Fixed Ratio of 30%.


Operis’s view

Whilst the inclusion of an exemption from IFE for third-party debt interest incurred by a taxpayer in the context of certain P3 infrastructure projects is likely to significantly reduce the impact of the new EIFEL rules on P3 projects, it is important to assess the impact of the rules on groups that include entities undertaking P3 projects and non-P3 transactions, and confirm that interest incurred will qualify for this exemption.


In addition, the rules will always have to considered where a P3 project is partly financed by related party debt.


Using our world-class modelling team along with our tax and accounting team’s knowledge of the EIFEL rules, we can ensure your financial model appropriately reflects the EIFEL legislation and therefore help you assess the impact of these rules on your transactions.

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Meet Henry Henry Le Maistre
Henry Le Maistre
Senior Tax and Accounting Manager


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