Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

9.     Income taxes

The expense for the year can be reconciled to income before income taxes as follows:

Year ended December 31,	2019			2018			2017
Earnings before income tax	$	190,763		$	152,512		$	77,394
Statutory federal and provincial tax rate in Canada		27.00	%		27.00	%		26.00	%
Expected income tax expense	$	51,506		$	41,178		$	20,122
Non-deductible expenses		3,705			4,810			5,668
Adjustment to prior year provision to statutory tax returns		4			1,323			(528)
Changes in the valuation of deferred tax assets		(550)			(771)			(1,089)
Different tax rates of subsidiaries operating in foreign jurisdictions		(11,818)			(17,145)			(12,269)
U.S. tax reform impacts		6,949			4,899			(9,734)
Change in enacted tax rates		(1,016)			93			(229)
Change in estimate of deductibility of stock options		—			—			(1,557)
Unrecognized tax benefits		(2,347)			(1,800)			3,291
Benefits of deductible stock options vested and exercised		(1,780)			(2,434)			(1,359)
Other		(3,030)			853			(228)
	$	41,623		$	31,006		$	2,088

The income tax expense (recovery) consists of:

Year ended December 31,	2019		2018		2017
Canadian:
Current tax expense	$	19,752	$	13,209	$	14,245
Deferred tax expense (recovery)		3,346		3,958		(10,192)
Foreign:
Current tax expense before application of operating loss carryforwards		24,815		19,851		8,987
Tax benefit of operating loss carryforwards		(11,770)		(8,293)		(3,876)
Total foreign current tax expense		13,045		11,558		5,111
Deferred tax expense before adjustment
to opening valuation allowance		5,727		2,386		(6,317)
Adjustment to opening valuation allowance		(247)		(105)		(759)
Total foreign deferred tax expense (recovery)		5,480		2,281		(7,076)
	$	41,623	$	31,006	$	2,088

The foreign provision for income taxes is based on foreign pre-tax earnings of $108,714,000, $102,824,000, and $64,252,000, in 2019, 2018, and 2017 respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings that we intend to repatriate in the foreseeable future. As of December 31, 2019, income taxes have not been provided on a cumulative total of $483,430,000 of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $10,506,000. Earnings retained by subsidiaries and equity-accounted investments amount to approximately $500,430,000 (2018: 484,510,000; 2017: 469,000,000). The Company accrues withholding and other taxes that would become payable on the distribution of earnings only to the extent that either the Company does not control the relevant entity or it is expected that these earnings will be remitted in the foreseeable future.

9.     Income taxes (continued)

The tax effects of temporary differences that give rise to significant deferred tax assets and deferred tax liabilities were as follows:

As at December 31,	2019		2018
Deferred tax assets:
Working capital	$	13,307	$	4,703
Property, plant and equipment		5,579		6,385
Share-based compensation		5,973		4,923
Tax losses and tax credit carryforwards		33,248		48,881
Lease liabilities		29,523		2,578
Other		3,088		12,266
		90,718		79,736
Deferred tax liabilities:
Property, plant and equipment	$	(14,783)	$	(10,918)
Goodwill		(8,499)		(8,390)
Intangible assets		(50,531)		(54,810)
Right-of-use assets		(25,244)		—
Other		(7,496)		(12,051)
		(106,553)		(86,169)
Net deferred tax assets (liabilities)	$	(15,835)	$	(6,433)
Valuation allowance		(12,913)		(13,438)
	$	(28,748)	$	(19,871)

At December 31, 2019, the Company had non-capital loss carryforwards that are available to reduce taxable income in the future years. These non-capital loss carryforwards expire as follows:

2020	$	4,983
2021		3,543
2022		4,878
2023		2,964
2024 and thereafter		69,462
	$	85,830

The Company has capital loss carryforwards of approximately $39,981,209 (2018: $9,292,000) available to reduce future capital gains and interest deduction carryforwards of $23,746,000 (2018: $22,112,000), both of which carryforward indefinitely.

Tax losses are denominated in the currency of the countries in which the respective subsidiaries are located and operate. Fluctuations in currency exchange rates could reduce the U.S. dollar equivalent value of these tax loss and tax credit carry forwards in future years.

In assessing the realizability of our deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible and the loss carry forwards or tax credits can be utilized. Management considers projected future taxable income and tax planning strategies in making our assessment.

9.     Income taxes (continued)

Uncertain tax positions

Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of the benefit to recognize in the financial statements. The tax position is measured as the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies unrecognized tax benefits that are not expected to result in the payment or receipt of cash within one year as non-current liabilities in the consolidated balance sheets.

At December 31, 2019, the Company had gross unrecognized tax benefits of $20,232,000 (2018: $22,584,000). Of this total, $8,854,000 (2018: $10,556,000) represents the amount of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.

Reconciliation of unrecognized tax benefits:

As at December 31,	2019		2018
Unrecognized tax benefits, beginning of year	$	22,584	$	25,910
Increases - tax positions taken in prior period		700		725
Decreases - tax positions taken in prior period		(57)		(107)
Increases - tax positions taken in current period		1,268		2,644
Settlement and lapse of statute of limitations		(4,364)		(4,944)
Currency translation adjustment		101		(1,644)
Unrecognized tax benefits, end of year	$	20,232	$	22,584

Interest expense and penalties related to unrecognized tax benefits are recorded within the provision for income tax expense on the consolidated income statement. At December 31, 2019, the Company had accrued $3,569,000 (2018: $4,170,000) for interest and penalties.

In the normal course of business, the Company is subject to audit by the Canadian federal and provincial taxing authorities, by the U.S. federal and various state taxing authorities and by the taxing authorities in various foreign jurisdictions. Tax years ranging from 2014 to 2019 remain subject to examination in Canada, the United States, Luxembourg, and the Netherlands.