25. Income Taxes
As the company operates in a specialized industry and in several tax jurisdictions, its income is subject to various rates of taxation.
The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income tax rates to income before income taxes as follows:
| 2007 | 2006 | 2005 | ||||
| Income before income taxes | ||||||
Canada |
$ | 495.5 | $ | 338.2 | $ | 381.5 |
United States |
634.1 | 219.3 | 170.0 | |||
Trinidad |
268.6 | 148.5 | 175.6 | |||
Other |
121.6 | 83.9 | 83.2 | |||
| $ | 1,519.8 | $ | 789.9 | $ | 810.3 | |
| Federal and provincial statutory tax rates | 35.55% | 39.25% | 42.52% | |||
| Tax at statutory rates | $ | 540.3 | $ | 310.0 | $ | 344.5 |
| Adjusted for the effect of: | ||||||
Recoveries upon Canadian tax rate reductions |
(40.1) | (44.8) | – | |||
Refunds upon deduction of Saskatchewan resource surcharge |
– | (34.1) | – | |||
Net non-deductible provincial taxes and royalties and resource allowances |
– | (6.3) | (1.2) | |||
Production-related deductions |
(17.6) | – | – | |||
Stock-based compensation deduction |
(0.1) | (5.8) | (13.2) | |||
Additional tax deductions |
(15.4) | (15.5) | (14.8) | |||
Difference between Canadian rate and rates applicable to subsidiaries in other countries |
(45.9) | (43.8) | (48.9) | |||
Other |
(5.0) | (1.6) | 1.0 | |||
| Income tax expense | $ | 416.2 | $ | 158.1 | $ | 267.4 |
Details of income tax expense are as follows:
| 2007 | 2006 | 2005 | ||||
| Canada | ||||||
Current |
$ | 154.1 | $ | 51.8 | $ | 170.5 |
Future |
(17.6) | (4.3) | 12.6 | |||
| United States – Federal | ||||||
Current |
32.4 | 2.3 | 0.8 | |||
Future |
137.6 | 43.7 | 30.8 | |||
| United States – State | ||||||
Current |
12.8 | 2.6 | 2.2 | |||
Future |
0.7 | 5.7 | (12.8) | |||
| Trinidad and other | ||||||
Current |
97.3 | 51.4 | 53.8 | |||
Future |
(1.1) | 4.9 | 9.5 | |||
| Income tax expense | $ | 416.2 | $ | 158.1 | $ | 267.4 |
The tax effects of temporary differences that give rise to significant portions of the net future income tax liability are:
| 2007 | 2006 | ||||
| Future income tax assets: | |||||
Loss and credit carryforwards |
$ | 119.4 | $ | 189.9 | |
Accrued pension and other post-retirement benefits |
51.5 | 44.5 | |||
Other |
54.7 | 56.1 | |||
| Total future income tax assets | 225.6 | 290.5 | |||
| Future income tax liabilities: | |||||
Basis difference in fixed assets |
731.3 | 715.2 | |||
Basis difference in long-term debt |
75.6 | 52.3 | |||
Basis difference in investments |
213.8 | 10.3 | |||
Basis difference in cash flow hedges |
50.3 | – | |||
Other |
142.7 | 144.8 | |||
| Total future income tax liabilities | 1,213.7 | 922.6 | |||
| Net future income tax liability | $ | 988.1 | $ | 632.1 | |
At December 31, 2007, the company has income tax operating losses carried forward of $234.1, certain of which will begin to expire in 2021. As well, it has income tax capital losses carried forward of $222.0 that do not expire. In addition, it has alternative minimum tax credits of approximately $6.4 that carry forward indefinitely. The benefit relating to these amounts has been recognized by reducing future income tax liabilities. The company also has $38.5 of deductible temporary differences, which have been offset by a valuation allowance. As a result, no future income tax asset has been recognized on these differences.
The company has determined that it is more likely than not that the future income tax assets, net of the valuation allowance, will be realized through a combination of future reversals of temporary differences and taxable income.