Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income (Loss) Before Income Taxes

Income (loss) before income taxes, classified by source of income (loss), is as follows (in millions):

	2018		2017			2016
Canadian	$	1,111	$	1,223		$	1,050
Foreign	271		(122		)	150
Income before income taxes	$	1,382	$	1,101		$	1,200

Income Tax Expense (Benefit) Attributable to Income from Continuing Operations

Income tax (benefit) expense attributable to income from continuing operations consists of the following (in millions):

	2018			2017			2016
Current:
Canadian	$	25		$	438		$	79
U.S. Federal	95			113			45
U.S. state, net of federal income tax benefit	17			3			2
Other Foreign	72			54			38
	$	209		$	608		$	164
Deferred:
Canadian	$	78		$	(302	)	$	49
U.S. Federal	(65		)	(473		)	37
U.S. state, net of federal income tax benefit	13			34			(7		)
Other Foreign	3			(1		)	1
	$	29		$	(742	)	$	80
Income tax (benefit) expense	$	238		$	(134	)	$	244

Schedule of Statutory Rate Reconciles to Effective Income Tax Rate

The statutory rate reconciles to the effective income tax rate as follows:

	2018		2017		2016
Statutory rate	26.5	%	26.5	%	26.5	%
Costs and taxes related to foreign operations	4.2		8.9		9.6
Foreign exchange gain (loss)	(0.1	)	(7.7	)	0.1
Foreign tax rate differential	(6.1	)	(1.9	)	(1.0	)
Change in valuation allowance	3.2		12.0		0.2
Change in accrual for tax uncertainties	0.1		(0.4	)	1.0
Intercompany financing	(4.4	)	(19.5	)	(16.0	)
Impact of Tax Act	(1.9	)	(27.4	)	—
Benefit from stock option exercises	(5.0	)	(4.9	)	—
Other	0.7		2.3		(0.1	)
Effective income tax rate	17.2	%	(12.1	)%	20.3	%

Schedule of Income Tax Expense (Benefit) Allocated to Continuing Operations and Amounts Separately Allocated to Other Items

Income tax (benefit) expense allocated to continuing operations and amounts separately allocated to other items was (in millions):

	2018			2017			2016
Income tax (benefit) expense from continuing operations	$	238		$	(134	)	$	244
Cash flow hedge in accumulated other comprehensive income (loss)	(2		)	5			(2		)
Net investment hedge in accumulated other comprehensive income (loss)	101			(13		)	12
Pension liability in accumulated other comprehensive income (loss)	—			(2		)	(2		)
Stock option tax benefit in common shares	—			—			(9		)
Total	$	337		$	(144	)	$	243

Schedule of Deferred Income Tax Expense (Benefit) Attributable to Income from Continuing Operations

The significant components of deferred income tax (benefit) expense attributable to income from continuing operations are as follows (in millions):

	2018			2017			2016
Deferred income tax (benefit) expense	$	(14	)	$	(449	)	$	78
Change in valuation allowance	43			133			2
Change in effective Canadian income tax rate	(3		)	—			—
Change in effective U.S. federal income tax rate	(8		)	(433		)	—
Change in effective U.S. state income tax rate	15			4			(3		)
Change in effective foreign income tax rate	(4		)	3			3
Total	$	29		$	(742	)	$	80

Schedule of the Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in millions):

	As of December 31,
	2018			2017
Deferred tax assets:
Accounts and notes receivable	$	5		$	5
Accrued employee benefits	49			49
Unfavorable leases	123			146
Liabilities not currently deductible for tax	176			74
Tax loss and credit carryforwards	509			550
Derivatives	25			136
Other	8			—
Total gross deferred tax assets	895			960
Valuation allowance	(325		)	(282		)
Net deferred tax assets	570			678
Less deferred tax liabilities:
Property and equipment, principally due to differences in depreciation	43			33
Intangible assets	1,734			1,791
Leases	105			129
Statutory impairment	31			26
Outside basis difference	35			68
Total gross deferred tax liabilities	1,948			2,047
Net deferred tax liability	$	1,378		$	1,369

Summary of Changes in Valuation Allowance

Changes in the valuation allowance are as follows (in millions):

	2018		2017		2016
Beginning balance	$	282	$	133	$	125
Additions due to acquisition	—		9		—
Change in estimates recorded to deferred income tax expense	43		133		2
Changes from foreign currency exchange rates	—		6		(1		)
True-ups from changes in losses and credits	—		1		7
Ending balance	$	325	$	282	$	133

Summary of Amount and Expiration Dates of Operating Loss and Tax Credit Carry-forwards

The gross amount and expiration dates of operating loss and tax credit carry-forwards as of December 31, 2018 are as follows (in millions):

	Amount		Expiration Date
Canadian net operating loss carryforwards	$	735	2036-2038
Canadian capital loss carryforwards	1,139		Indefinite
U.S. state net operating loss carryforwards	595		2019-2038
U.S. foreign tax credits	81		2019-2028
Other foreign net operating loss carryforwards	192		Indefinite
Other foreign net operating loss carryforwards	57		2020-2037
Other foreign capital loss carryforward	30		Indefinite
Foreign credits	2		2019-2036
Total	$	2,831

A Reconciliation of Beginning and Ending Amounts of Unrecognized Tax Benefits

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in millions):

	2018			2017			2016
Beginning balance	$	461		$	241		$	239
Additions on tax position related to the current year	1			186			2
Additions for tax positions of prior years	18			41			6
Additions for tax positions taken in conjunction with acquisition of Tim Hortons	—			2			—
Reductions for tax positions of prior year	(18		)	—			(1		)
Reductions for settlement	(18		)	(2		)	(5		)
Reductions due to statute expiration	(3		)	(7		)	—
Ending balance	$	441		$	461		$	241