DFK Tax Digest – 2024 Issue Two
- EIFEL Rules May Affect Your Ability to Deduct Interest and Financing Costs Going Forward – New rules are now in effect related to the deductibility of interest and financing costs. The rules are referred to as “Excess Interest and Financing Expenses Limitation” or EIFEL. In general, the rules limit net interest and financing expenses to 30% of Adjusted Taxable Income (“ATI”) for taxation years beginning on or after January 1, 2024. In addition, there was a limitation to 40% of ATI for taxation years beginning after September 30, 2023 and before January 1, 2024.
- Bare Trusts – Updated Filing Requirements Announced August 2024 – Over the last few years, Finance Canada has announced several changes to tax filing requirements for Trusts. One of the more significant changes was the requirement for all bare trusts to file tax returns commencing with the tax year ended December 31, 2023. The details regarding this requirement were outlined in a December 2023 article by John Grummett of Taylor Leibow LLP. Before 2023, bare trusts generally did not have a requirement to file tax returns. Some common examples of bare trusts mentioned in the article were situations where children are put on title to a parent’s property for ease of administering an estate, or where a parent is required to be on title of a child’s property for mortgage financing purposes.
- What is GAAR? – GAAR stands for the General Anti-Avoidance Rule. The GAAR rules were added to the Income Tax Act (“the Act”) in 1988 to prevent abusive tax avoidance transactions while not interfering with legitimate transactions. In Finance Canada’s 2022 consultation paper on GAAR it was stated that GAAR was intended to strike a balance between taxpayers’ need for certainty in planning their affairs, and the government’s responsibility to protect the tax base and the fairness of the tax system.
- Capital Dividend Election Trap – There has been a lot of coverage in the media lately about the Federal Government changing the inclusion rate for capital gains (the part of a capital gain that is taxed) from 50% to 66.7%. One issue that has not received as much attention is the impact this change has on capital dividend elections. And it is an issue that could prove to be quite costly if you are not careful.
- Employee Ownership Trust Update – Federal Budget 2024 – The 2024 federal budget provides additional details on the $10 million exemption from taxation on capital gains realized on the sale of a business to an Employee Ownership Trust (“EOT”) that were not included in the 2023 Fall Economic Statement or Bill C-59. The 2024 budget also proposes to expand the definition of a “qualifying business transfer”.
