Income Tax Act — I-3.3 18.2
ée ) Excessive interest and financing expenses limitation (2) Notwithstanding any other provision of this Act, in computing the income for a taxation year of a taxpayer (other than an excluded entity for the year) from a business or property or the taxable income of the taxpayer for the year, no deduction shall be made — and in determining the amount under paragraph 3(b) in respect of the taxpayer for the year, no reduction shall be made — in respect of any amount that is described in any of paragraphs (a) to (g) and (i) of the description of A in the definition interest and financing expenses in subsection (1) that would, in the absence of this section, be deductible in computing that income or taxable income — or would reduce that amount determined under paragraph 3(b) — to the extent of the proportion of that amount that is determined by the formula (A − (B + C + D + E)) ÷ F where A is the taxpayer’s interest and financing expenses for the year; B is (a) if subsection 18.21(2) applies in respect of the taxpayer for the year, the amount determined in respect of the taxpayer for the year under that subsection, and (b) in any other case, the amount determined by the formula G × H where G is the taxpayer’s ratio of permissible expenses for the year, and H is the taxpayer’s adjusted taxable income for the year; C is the taxpayer’s interest and financing revenues for the year; D is the amount by which the total of all amounts each of which is an amount of received capacity of the taxpayer for the year, as determined under subsection (4), exceeds the total amount deductible under paragraph 111(1)(a.1) for the year; E is the amount of the taxpayer’s absorbed capacity for the year; and F is (a) if no amount is included in the taxpayer’s interest and financing expenses for the year under paragraph (j) of the description of A of that definition, or under paragraph (h) of the description of A of that definition in respect of a controlled foreign affiliate of a partnership of which the taxpayer is a member, the amount determined for A in that definition for the taxpayer for the year, or (b) in any other case, the amount that would be determined for A in the definition interest and financing expenses in subsection (1) for the taxpayer for the year if the reference to “the affiliate’s interest and financing expenses” in the definition relevant affiliate interest and financing expenses were read as a reference to “an amount determined for A in the definition interest and financing expenses for the affiliate”. Amount deemed deducted (3) All or any portion, of a particular amount described in paragraph (c) or (d) of the description of A in the definition interest and financing expenses in subsection (1), that would, in the absence of subsection (2), have been deducted in computing the income of a taxpayer for a taxation year but that is not deductible because of subsection (2), is deemed to have been deductible and to have been deducted in the year for purposes of determining, in respect of any taxpayer at any time, such of the following amounts to which the particular amount relates: (a) the total depreciation (as defined in subsection 13(21)) allowed for property of a prescribed class; (b) the amount the taxpayer may deduct under subsection 66(4); (c) the cumulative Canadian exploration expense (as defined in subsection 66.1(6)); (d) the cumulative Canadian development expense (as defined in subsection 66.2(5)); (e) the cumulative foreign resource expense (as defined in subsection 66.21(1)) in respect of a country; (f) the cumulative Canadian oil and gas property expense (as defined in subsection 66.4(5)); and (g) the amount the taxpayer may deduct under subsections 66.7(1), (2) or (2.3) to (5). Transfer of cumulative unused excess capacity (4) For the purposes of this section, a taxpayer and another taxpayer (referred to in this section as the “transferor” and the “transferee”, respectively) may jointly elect in prescribed form to designa