9. Income taxes

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



Year ended December 31,		2018		2017		2016
Income before income taxes	$	152,512	$	77,394	$	130,494
Statutory federal and provincial tax
rate in Canada		27.00%		26.00%		26.00%

Expected income tax expense	$	41,178	$	20,122	$	33,928

Non-deductible expenses		4,810		5,668		3,891
Adjustment to prior year provision to statutory
tax returns		1,323		(528)		(824)
Changes in the valuation of deferred tax assets		(771)		(1,089)		(259)
Different tax rates of subsidiaries
operating in foreign jurisdictions		(17,145)		(12,269)		(3,786)
U.S. tax reform impacts		4,899		(9,734)		-
Impairment of goodwill		-		-		6,129
Change in estimate of deductibility
of stock options		-		(1,557)		-
Unrecognized tax benefits		(1,800)		3,291		799
Benefits of deductible stock options vested
and exercised		(2,434)		(1,359)		(1,042)
Deductions for tax purposes in excess of
accounting expenses		(383)		(380)		(490)
Other		1,329		(77)		(1,364)
	$	31,006	$	2,088	$	36,982

9. Income taxes (continued)

The income tax expense (recovery) consists of:



Year ended December 31,		2018			2017		2016
Canadian:
Current tax expense	$	13,209	30,525	$	14,245	$	30,525
Deferred tax expense (recovery)		3,958			(10,192)		(2,068)

Foreign:
Current tax expense before application
of operating loss carryforwards		19,851			8,987		12,126
Tax benefit of operating loss carryforwards		(8,293)			(3,876)		(2,310)
Total foreign current tax expense		11,558			5,111		9,816

Deferred tax expense before adjustment
to opening valuation allowance		2,386			(6,317)		(1,291)
Adjustment to opening valuation allowance		(105)			(759)		-
Total foreign deferred tax expense (recovery)		2,281			(7,076)		(1,291)
	$	31,006		$	2,088	$	36,982

The foreign provision for income taxes is based on foreign pre-tax earnings of $102,824,000, $64,252,000, and $25,139,000 in 2018, 2017, and 2016, respectively. The Company’s consolidated financial statements provide for any related tax liability on undistributed earnings. As of December 31, 2018, income taxes have not been provided on a cumulative total of $484,510,000 of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $8,799,000. Earnings retained by subsidiaries and equity-accounted investments amount to approximately $484,510,000 in 2018 (2017: $469,000,000; 2016: $450,000,000). 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

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted into law, which significantly changed existing U.S. tax law and included numerous provisions that affected our business, such as imposing a one-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate limiting the deductibility of interest and executive compensation, creating new minimum taxes such as the Base Erosion Anti-Abuse Tax (“BEAT”) and Global Low Taxed Income (“GILTI”) tax, and adopting a territorial tax system.

In 2017, we recorded provisional amounts for certain enactment-date effects of the TCJA by applying the guidance in SAB 118 which was issued to address the application of U.S. GAAP in situations when a registrant did not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In accordance with the TCJA, we recorded $9,734,000 as additional income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The total benefit included $10,070,000 related to the remeasurement of certain deferred tax assets and liabilities and $336,000 expense related to the transition tax.

December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis based on legislative updates relating to the TCJA currently available which resulted in tax expense of $203,000 in the fourth quarter of 2018. The computations which have now been determined to be complete, resulted in a $10,017,000 total benefit related to the remeasurement of certain deferred tax assets and liabilities and a total transition tax obligation of $486,000. We elected to account for GILTI as a current-period expense when incurred.

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,		2018		2017
Deferred tax assets:
Working capital	$	4,703	$	9,583
Property, plant and equipment		6,385		6,495
Goodwill		-		1,016
Share-based compensation		4,923		5,733
Tax losses and tax credit carryforwards		48,881		52,251
Other		14,844		7,635
		79,736		82,713
Deferred tax liabilities:
Property, plant and equipment	$	(10,918)	$	(9,779)
Goodwill		(8,390)		(9,202)
Intangible assets		(54,810)		(54,401)
Other		(12,051)		(8,628)
		(86,169)		(82,010)
Net deferred tax assets (liabilities)	$	(6,433)	$	703

Valuation allowance		(13,438)		(14,363)
	$	(19,871)	$	(13,660)

At December 31, 2018, 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:



2019	$	106
2020		4,232
2021		5,017
2022		3,543
2023 and thereafter		154,593
	$	167,491

The Company has capital loss carryforwards of approximately $9,292,000 in 2018 (2017: $11,343,000) available to reduce future capital gains and interest deduction carryforwards of $22,111,000 (2017: $4,602,000), 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 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.

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, 2018, the Company had gross unrecognized tax benefits of $22,584,000 (2017: $25,910,000). Of this total, $10,556,000 (2017: $13,737,000) 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,		2018		2017
Unrecognized tax benefits, beginning of year	$	25,910	$	19,262
Increases - tax positions taken in prior period		725		4,426
Decreases - tax positions taken in prior period		(107)		(124)
Increases - tax positions taken in current period		2,644		2,346
Settlement and lapse of statute of limitations		(4,944)		-
Currency translation adjustment		(1,644)		-
Unrecognized tax benefits, end of year	$	22,584	$	25,910

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, 2018, the Company had accrued $4,170,000 (2017: $3,677,000) 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 2013 to 2018 remain subject to examination in Canada, the United States, Luxembourg, and the Netherlands.