Income taxes

9 Months Ended

Sep. 30, 2022

Income taxes

Income taxes

9.    Income taxes

At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year. The estimate reflects, among other items, management’s best estimate of operating results. It does not include the estimated impact of foreign exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.

For the three months ended September 30, 2022, income tax expense was $14.7 million, compared to an income tax expense of $13.1 million for the same period in 2021. The effective tax rate was 26% in the third quarter of 2022, compared to 29% in the third quarter of 2021.

The effective tax rate decreased in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to a lower estimate of non-deductible expenses and lower income taxes related to tax uncertainties. Partially offsetting this decrease was higher estimated expenses related to the U.S. tax reform of 2017.

For the nine months ended September 30, 2022, income tax expense was $72.6 million, compared to an income tax expense of $42.5 million for the same period in 2021. The effective tax rate was 21% for the nine months ended September 30, 2022, compared to 26% for the nine months ended September 30, 2021.

The effective tax rate decreased in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to the non-taxable gain portion on the sale of a parcel of land including all buildings in Bolton, Ontario and a decrease in the estimate of non-deductible expenses. Partially offsetting this decrease was a higher estimate of income taxed in jurisdictions with higher tax rates and a lower tax deduction for performance share units (“PSUs”) and restricted share units (“RSUs”) expenses that exceeded the related compensation expense.

The Canada Revenue Agency (“CRA”) is currently conducting an audit of the Company’s 2014, 2015, 2017, 2018 and 2019 taxation years. Management believes that the Company is in full compliance with Canadian tax laws. However, the CRA could challenge the manner in which the Company has filed its income tax returns and reported its income. In the event that the CRA challenges the manner in which the Company has filed its tax returns and reported its income, the Company will have the option to appeal any such decision. If the Company is not successful, however, the CRA audit could potentially result in additional income taxes, penalties, and interest, which could have a material adverse effect on the Company.