Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

8. Income Taxes

The components of the provision for income taxes are as follows:

Year ended December 31,	2023		2022		2021
Canadian:
Current tax expense	$	43.4	$	60.9	$	21.7
Deferred tax expense	(2.7)		2.7		5.6
Foreign:
Current tax expense before application of operating loss carryforwards	100.2		29.6		30.1
Tax benefit of operating loss carryforwards	(1.4)		(4.0)		(2.2)
Total current tax expense	98.8		25.6		27.9
Deferred tax expense	(63.1)		(3.0)		(1.8)
Total deferred tax (recovery) expense	(63.1)		(3.0)		(1.8)
	$	76.4	$	86.2	$	53.4

The provision for income taxes was different from the Canadian and provincial statutory rate applied to income before taxes and is reconciled as follows:

Year ended December 31,	2023			2022			2021
Earnings before income tax	$	282.4		$	406.0		$	205.3
Statutory federal and provincial tax rate in British Columbia, Canada	27.00		%	27.00		%	27.00		%
Expected income tax expense	$	76.2		$	109.6		$	55.4
Different tax rates of subsidiaries operating in foreign jurisdictions	(3.7)			(6.4)			(6.3)
Non-deductible expenses	11.1			7.7			6.3
Executive compensation and fringe benefits	5.0			0.3			1.6
Non-taxable gain on capital items	(0.4)			(19.4)			(0.3)
U.S. tax reform impacts	(6.9)			—			3.6
Changes in the valuation of deferred tax assets	0.3			(1.6)			(0.3)
Unrecognized tax benefits	2.0			(1.5)			(0.5)
Equity compensation	(3.9)			(2.3)			(4.8)
Revaluation of opening US deferred liability	(1.4)			—			—
Other	(1.9)			(0.2)			(1.3)
	$	76.4		$	86.2		$	53.4

Permanently reinvested undistributed earnings of the Company's foreign subsidiaries were approximately $113.1 million for the year ended December 31, 2023. Because these amounts have been or are expected to be permanently reinvested in properties and working capital, the Company has not recorded the deferred taxes associated with these earnings. If the undistributed earnings of foreign subsidiaries were to be remitted, income tax expense and withholding tax expense would need to be recognized, net of any applicable foreign tax credits. It is not practical for the Company to determine the additional tax that would be incurred upon remittance of these earnings.

The Company offsets all deferred tax assets and liabilities by tax filing jurisdiction, as well as any related valuation allowance, and presents them as a single non-current deferred income tax asset or non-current deferred income tax liability. Deferred tax assets and deferred tax liabilities were as follows:

At December 31,	2023		2022
Deferred tax assets:
Working capital	$	33.6	$	15.4
Property, plant and equipment	5.2		5.0
Share-based compensation	11.9		10.6
Tax losses and tax credit carryforwards	37.9		22.1
Lease liabilities	356.2		29.6
Notes receivable/payable	2.3		4.3
Other	9.6		7.4
	456.7		94.4
Deferred tax liabilities:
Property, plant and equipment	$	(86.4)	$	(18.2)
Goodwill	(12.8)		(10.6)
Intangible assets	(653.5)		(59.9)
Right-of-use assets	(354.7)		(26.0)
Long-term debt	(0.9)		(0.1)
Notes receivable/payable	(5.6)		(9.9)
Other	(6.0)		(7.7)
	(1,119.9)		(132.4)
Net deferred tax liabilities	$	(663.2)	$	(38.0)
Valuation allowance	(9.1)		(9.3)
Net deferred tax	$	(672.3)	$	(47.3)

At December 31, 2023, 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:

2024	$	0.2
2025	0.1
2026	—
2027	—
2028 and thereafter	59.2
	$	59.5

The Company has capital loss carryforwards of approximately $73.4 million (2022: $82.5 million) available to reduce future capital gains and interest deduction carryforwards of $60.7 million (2022: $1.8 million), 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.

A reconciliation of the beginning and ending amount of unrecognized tax benefits from uncertain tax positions is as follows:

At December 31,	2023		2022
Unrecognized tax benefits, beginning of year	$	16.0	$	18.9
Increases – tax positions related to acquisitions	8.0		—
Increases – tax positions taken in prior period	1.2		0.6
Decreases – tax positions taken in prior period	(0.4)		—
Increases – tax positions taken in current period	4.1		0.6
Settlement and lapse of statute of limitations	(4.0)		(3.6)
Currency translation adjustment	0.2		(0.5)
Unrecognized tax benefits, end of year	$	25.1	$	16.0

At December 31, 2023, the Company had gross unrecognized tax benefits of $25.1 million (2022: $16.0 million). Of this total, $13.6 million (2022: $6.9 million) represents the net amount of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate.

The Company records interest expense and penalties related to unrecognized tax benefits within the Company's provision for income taxes on the consolidated income statement. At December 31, 2023, the Company had accrued $4.4 million (2022: $3.5 million) for interest and penalties that have been included in the above reconciliation table, and during the year ended December 31, 2023 the Company has recognized $0.6 million (2022: $0.4 million recovery) in interest and penalties in the consolidated income statement.

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 2023 remain subject to examination in Canada, the United States, Luxembourg, and the Netherlands.

The Canada Revenue Agency (“CRA”) has been conducting audits of the Company’s 2014, 2015, 2018, 2019 and 2020 taxation years. If the CRA challenges the manner in which the Company has filed its tax returns and reported its income with respect to any of the audits, the Company will have the option to appeal any such decision. While the Company believes it is, and has been, in full compliance with Canadian tax laws and expects to vigorously contest any proposed assessments or any notice of assessments or reassessments received from the CRA, the Company is unable to predict the ultimate outcome of these audits and the final disposition of any appeals pertaining to such audits. If the CRA makes an adverse determination and the Company is unsuccessful in appealing such determination reflected in any assessment or reassessment, then the Company could incur additional income taxes, penalties, and interest, which could have a material negative effect on its operations.

On February 13, 2023, the CRA issued a proposal letter to Ritchie Bros. Auctioneers (International) Ltd. asserting that one of its Luxembourg subsidiaries was resident in Canada from 2010 through 2015 and that its worldwide income should be subject to Canadian income taxation. The Luxembourg subsidiary was in operation from 2010 until 2020. In the event that the CRA issues a notice of assessment or reassessment, the Company expects to vigorously contest such notice as the Company disagrees with the assertion regarding Canadian residency. In the event that a court of competent jurisdiction makes a final determination that the income of the Luxembourg subsidiary for 2010 through 2015 was subject to Canadian income tax laws, the Company may ultimately be liable for additional total Canadian federal and provincial income tax of approximately $26.0 million - $30.0 million, exclusive of interest and penalties, for the period specified in the proposal letter. The CRA may also challenge the manner in which the Company has filed its tax returns and reported its income with respect to 2016 to 2020 taxation years and may assert that the income of the Luxembourg subsidiary was subject to Canadian income tax because the Luxembourg subsidiary was also resident in Canada during these years. The Company could then incur additional income taxes, penalties and interest, which could have a material negative effect on its operations.

The Company replied to the CRA's proposal letter on June 12, 2023 and is awaiting a response. This matter with the CRA could take numerous years to be ultimately resolved.