7. Income taxes

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



Year ended December 31,		2015		2014		2013
Income before income taxes	$	176,436	$	129,038	$	134,755
Statutory federal and provincial tax
rate in Canada		26.00%		26.00%		25.75%

Expected income tax expense	$	45,873	$	33,550	$	34,699
Non-deductible expenses		2,579		2,392		2,396
Sale of capital property		(1,291)		(407)		-
Changes in valuation allowance		(5,828)		7,083		4,512
Different tax rates of subsidiaries
operating in foreign jurisdictions		(3,426)		(4,773)		(2,798)
Other		(46)		(1,370)		1,501
	$	37,861	$	36,475	$	40,310

The income tax expense (recovery) consists of:



Year ended December 31,		2015		2014		2013
Canadian:
Current tax expense	$	27,623	$	21,712	$	21,824
Deferred tax expense		1,880		1,680		324

Foreign:
Current tax expense before application
of operating loss carryforwards		16,707		12,236		15,712
Tax benefit of operating loss carryforwards		(1,910)		(627)		(627)
Total foreign current tax expense		14,797		11,609		15,085

Deferred tax expense before adjustment
to opening valuation allowance		(273)		1,474		3,077
Adjustment to opening valuation allowance		(6,166)		-		-
Total foreign deferred tax expense		(6,439)		1,474		3,077

	$	37,861	$	36,475	$	40,310

7.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,		2015		2014
Deferred tax assets:
Working capital	$	4,082	$	1,518
Property, plant and equipment		5,236		4,287
Goodwill		286		447
Share-based compensation		3,243		1,635
Unused tax losses		17,079		20,798
Other		14,704		18,061
		44,630		46,746
Deferred tax liabilities:
Property, plant and equipment	$	(11,292)	$	(14,255)
Goodwill		(12,587)		(12,549)
Intangible assets		(9,370)		(7,425)
Other		(17,308)		(17,812)
		(50,557)		(52,041)
Net deferred tax assets (liabilities)	$	(5,927)	$	(5,295)

Valuation allowance		(11,781)		(18,906)
	$	(17,708)	$	(24,201)

At December 31, 2015, 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:



2016	$	35
2017		758
2018		270
2019		2,385
2020 and thereafter		47,239
		50,687

The Company has capital loss carry-forwards of approximately $8,604,000 available to reduce future capital gains 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 losses 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 can be utilized. Management considers projected future taxable income and tax planning strategies in making our assessment.

7. Income taxes (continued)

The foreign provision for income taxes is based on foreign pre-tax earnings of $64,139,000, $42,221,000 and $56,683,000 in 2015, 2014 and 2013, respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings. As of December 31, 2015, income taxes have not been provided on a cumulative total of $393,000,000 of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $3,600,000. Earnings retained by subsidiaries and equity-accounted investments amount to approximately $411,000,000 (2014: $380,000,000; 2013: $415,000,000). 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.

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, 2015, the Company had gross unrecognized tax benefits of $15,904,000 (2014: $16,131,000). Of this total, $8,419,000 (2014: $6,509,000) 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,		2015		2014
Unrecognized tax benefits, beginning of year	$	16,131	$	17,919
Increases - tax positions taken in prior period		800		292
Decreases - tax positions taken in prior period		(30)		(3,866)
Increases - tax positions taken in current period		1,770		2,121
Settlement and lapse of statute of limitations		(2,767)		(335)
Unrecognized tax benefits, end of year	$	15,904	$	16,131

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, 2015, the Company had accrued $2,102,000 (2014: $1,864,000) 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 2010 to 2015 remain subject to examination in Canada, the United States, and Luxembourg.