CRA finds that a corporation is not affiliated with itself for purposes of the EIFEL – excluded interest rules

A Co and its wholly owned subsidiary, B Co (both taxable Canadian corporations) were the only partners of a partnership. A Co owed interest to the partnership.

Whether the interest qualified as "excluded interest" (e.g., so as to be excluded from the interest and financing expenses of A Co for EIFEL purposes if so elected) turned on the requirement under s. (d)(ii)(A) of the definition thereof that each member of the partnership be an "eligible group entity" in respect of A Co. Since B Co clearly was affiliated with A Co, this turned on whether the taxpayer (A Co) was affiliated with the other member of the partnership (A Co), i.e., on whether A Co was affiliated with itself.

In rejecting this proposition (so that it did not consider the interest to be excluded interest), CRA stated:

Subsection 251.1(1) delineates the meaning of “affiliated persons” or “persons affiliated with each other”, for the purposes of the Act. It does not deem a corporation to be affiliated with itself. For the purpose of applying section 251.1, to establish whether two different entities or persons are affiliated, paragraph 251.1(4)(a) states that “persons are affiliated with themselves”. There is no specific rule deeming a corporation to be affiliated with itself, for the purpose of the “excluded interest” election. Therefore [s. (d)(ii)(A)] would not be satisfied.

In reaching this conclusion, we kept in mind the main rationale of the “excluded interest” election, namely the facilitation of typical loss consolidation transactions [as per the Explanatory Notes].

The contrary view could also be argued: Nowhere in s. 251.1 does it state that affiliated persons must be “two different entities” and s. 251.1(4)(a) states the opposite. S. 251.1(4)(a) deems a person to be affiliated with itself for the purposes of s. 251.1, which constitutes a comprehensive code for determining whether persons are affiliated. Therefore, a person may generally be affiliated with itself, including under the EIFEL rules. Furthermore, the statement by the CRA that the “main” rationale of the excluded interest election is to deal with typical loss consolidation transactions acknowledges that there are other uses of the excluded interest election. (For a harder case that nonetheless resulted in an expansive application of a deeming provision, see Canada v. Olsen, 2002 FCA 3.)

Neal Armstrong. Summary of 18 November 2025 Roundtable, 2025-1082041C6 - TEI 2025 – Q. C.4 under s. 18.2(1) – excluded interest - (d)(ii)(A).