On 4 February 2022, the Canadian federal government released draft legislation to implement a variety of proposed tax measures including the new “Excessive Interest and Financing Expenses Limitation” (EIFE Limit) first announced in the April 2021 Federal Budget. The draft proposed EIFE Limit contained primarily in proposed sections 18.2 and 18.21 of the Income Tax Act, is to limit a taxpayer’s Canadian interest and financing expense deductions to an amount commensurate with the taxable income generated by its Canadian economic activity, based on tax-adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). The EIFE Limit is aligned with the recommendations of the OECD relating to base erosion and profit shifting.
In most cases, the EIFE Limit will, if enacted, apply to tax years beginning on or after 1 January 2023. Canadians are invited to provide comments on these draft proposals and the sample notifiable transactions. Submissions on the following measures should be received by 5 April 2022.
