8. Income taxes

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



Year ended December 31,		2017		2016		2015
Income before income taxes	$	77,394	$	130,494	$	176,436
Statutory federal and provincial tax
rate in Canada		26.00%		26.00%		26.00%

Expected income tax expense	$	20,122	$	33,928	$	45,873
Impairment of goodwill		-		6,129		-
Non-deductible expenses		5,668		3,891		2,579
Non-taxable income		(105)		(624)		-
Sale of capital property		-		-		(1,291)
Changes in the valuation of deferred tax assets		(1,089)		(259)		(5,828)
Different tax rates of subsidiaries
operating in foreign jurisdictions		(12,269)		(3,786)		(3,426)
Change in enacted rates		(10,299)		51		307
Change in estimate of deductibility
of stock options		(1,557)		-		-
Unrecognized tax benefits		3,291		799		1,362
Benefits of deductible stock options vested
and exercised		(1,359)		(1,042)		(666)
Deductions for tax purposes in excess of
accounting expenses		(380)		(490)		(232)
Other		65		(1,615)		(817)
	$	2,088	$	36,982	$	37,861

8. Income taxes (continued)

The income tax expense (recovery) consists of:



Year ended December 31,		2017			2016		2015
Canadian:
Current tax expense	$	14,245	30,525	$	30,525	$	27,623
Deferred tax expense		(10,192)			(2,068)		1,880

Foreign:
Current tax expense before application
of operating loss carryforwards		8,987			12,126		16,707
Tax benefit of operating loss carryforwards		(3,876)			(2,310)		(1,910)
Total foreign current tax expense		5,111			9,816		14,797

Deferred tax expense before adjustment
to opening valuation allowance		(6,317)			(1,291)		(273)
Adjustment to opening valuation allowance		(759)			-		(6,166)
Total foreign deferred tax expense		(7,076)			(1,291)		(6,439)
	$	2,088		$	36,982	$	37,861

The foreign provision for income taxes is based on foreign pre-tax earnings of $64,252,000, $25,139,000, and $64,139,000 in 2017, 2016, and 2015, respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings. As of December 31, 2017, income taxes have not been provided on a cumulative total of $466,000,000 of such earnings that are not indefinitely reinvested. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $8,600,000. Earnings retained by subsidiaries and equity-accounted investments amount to approximately $469,000,000 in 2017 (2016: $450,000,000; 2015: $411,000,000). 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.

Recent Tax Legislation

The TCJA was enacted on December 22, 2017. The TCJA reduces the United States federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and certain other provisions. At December 31, 2017, we have not completed our accounting for the tax effects of the TCJA. However, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. We have recognized a provisional amount of $9,734,000, which is included as a component of income tax expense.

We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. However, we are still analyzing certain aspects of the TCJA and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred amounts. The provisional amount resulted in a reduction of our net deferred tax liabilities of $10,070,000 and a corresponding deferred income tax benefit in 2017.

The one-time transition tax is based on our total post-1986 earnings and profits (“E&P”) of controlled foreign affiliates of our US subsidiaries that we previously deferred from US income tax. Upon enactment, there is a one-time deemed repatriation tax on undistributed E&P (the “transition tax”). We recognized tax expense of $336,000 related to the transition tax in 2017.

8. 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,		2017			2016
Deferred tax assets:
Working capital	$	9,583		$	3,991
Property, plant and equipment		6,495			5,475
Goodwill		1,016			341
Share-based compensation		5,733			3,154
Unused tax losses		50,967			17,790
Other		8,919			8,251
		82,713	-		39,002
Deferred tax liabilities:
Property, plant and equipment	$	(9,779)		$	(10,019)
Goodwill		(9,202)			(12,976)
Intangible assets		(54,401)			(11,062)
Other		(8,628)			(2,565)
		(82,010)			(36,622)
Net deferred tax assets	$	703		$	2,380

Valuation allowance		(14,363)			(10,411)
	$	(13,660)		$	(8,031)

Certain comparative figures have been reclassified to conform to current year presentation. Details of the reclassifications are as follows:



		December 31,
		2016
Deferred tax assets
As reported	$	19,129
Reclassified to Other non-current assets (note 19)		(10,035)
Current presentation		9,094

Deferred tax liabilities
As reported	$	36,387
Reclassified to Other non-current liabilities (note 26)		(19,262)
Current presentation		17,125

Net deferred tax assets (liabilities)
As reported	$	(17,258)
Net reclassification detailed above		9,227
Current presentation		(8,031)

8. Income taxes (continued)

At December 31, 2017, 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:



2018	$	510
2019		148
2020		6,267
2021		5,125
2022 and thereafter		199,986
	$	212,036

The Company has capital loss carryforwards of approximately $11,343,000 in 2017 (2016: $16,564,000) 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 loss and research tax credit carryforwards 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 carryforwards or tax credits can be utilized. Management considers projected future taxable income and tax planning strategies in making our assessment.

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, 2017, the Company had gross unrecognized tax benefits of $25,910,000 (2016: $19,262,000). Of this total, $13,737,000 (2016: $9,227,000) 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,		2017		2016
Unrecognized tax benefits, beginning of year	$	19,262	$	15,904
Increases - tax positions taken in prior period		4,426		846
Decreases - tax positions taken in prior period		(124)		-
Increases - tax positions taken in current period		2,346		2,785
Settlement and lapse of statute of limitations		-		(273)
Unrecognized tax benefits, end of year	$	25,910	$	19,262

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, 2017, the Company had accrued $3,677,000 (2016: $2,695,000) for interest and penalties.

8. Income taxes (continued)

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 2012 to 2017 remain subject to examination in Canada, the United States, Luxembourg, and the Netherlands.