Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

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):

	2019		2018		2017
Canadian	$	685	$	1,111	$	1,223
Foreign	767		271		(122		)
Income before income taxes	$	1,452	$	1,382	$	1,101

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):

	2019		2018			2017
Current:
Canadian	$	47	$	25		$	438
U.S. Federal	122		95			113
U.S. state, net of federal income tax benefit	20		17			3
Other Foreign	94		72			54
	$	283	$	209		$	608
Deferred:
Canadian	$	43	$	78		$	(302	)
U.S. Federal	8		(65		)	(473		)
U.S. state, net of federal income tax benefit	—		13			34
Other Foreign	7		3			(1		)
	$	58	$	29		$	(742	)
Income tax expense (benefit)	$	341	$	238		$	(134	)

Schedule of Statutory Rate Reconciles to Effective Income Tax Rate

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

	2019		2018		2017
Statutory rate	26.5	%	26.5	%	26.5	%
Costs and taxes related to foreign operations	5.8		4.2		8.9
Foreign exchange gain (loss)	0.1		(0.1	)	(7.7	)
Foreign tax rate differential	(10.8	)	(6.1	)	(1.9	)
Change in valuation allowance	0.5		3.2		12.0
Change in accrual for tax uncertainties	5.0		0.1		(0.4	)
Intercompany financing	(2.4	)	(4.4	)	(19.5	)
Impact of Tax Act	(0.1	)	(1.9	)	(27.4	)
Benefit from stock option exercises	(2.2	)	(5.0	)	(4.9	)
Other	1.1		0.7		2.3
Effective income tax rate	23.5	%	17.2	%	(12.1	)%

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):

	2019			2018			2017
Income tax (benefit) expense from continuing operations	$	341		$	238		$	(134	)
Cash flow hedge in accumulated other comprehensive income (loss)	(23		)	(2		)	5
Net investment hedge in accumulated other comprehensive income (loss)	(32		)	101			(13		)
Pension liability in accumulated other comprehensive income (loss)	(1		)	—			(2		)
Total	$	285		$	337		$	(144	)

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):

	2019			2018			2017
Deferred income tax (benefit) expense	$	30		$	(14	)	$	(449	)
Change in valuation allowance	7			43			133
Change in effective Canadian income tax rate	(1		)	(3		)	—
Change in effective U.S. federal income tax rate	—			(8		)	(433		)
Change in effective U.S. state income tax rate	6			15			4
Change in effective foreign income tax rate	16			(4		)	3
Total	$	58		$	29		$	(742	)

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,
	2019			2018
Deferred tax assets:
Accounts and notes receivable	$	4		$	5
Accrued employee benefits	48			49
Unfavorable leases	99			123
Operating lease liabilities	332			—
Liabilities not currently deductible for tax	198			176
Tax loss and credit carryforwards	493			509
Derivatives	83			25
Other	3			8
Total gross deferred tax assets	1,260			895
Valuation allowance	(329		)	(325		)
Net deferred tax assets	931			570
Less deferred tax liabilities:
Property and equipment, principally due to differences in depreciation	40			43
Intangible assets	1,792			1,734
Leases	88			105
Operating lease assets	325			—
Statutory impairment	28			31
Outside basis difference	42			35
Total gross deferred tax liabilities	2,315			1,948
Net deferred tax liability	$	1,384		$	1,378

Summary of Changes in Valuation Allowance

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

	2019			2018		2017
Beginning balance	$	325		$	282	$	133
Additions due to acquisition	—			—		9
Change in estimates recorded to deferred income tax expense	8			43		133
Changes from foreign currency exchange rates	—			—		6
Changes in losses and credits	(2		)	—		1
Additions related to other comprehensive income	(2		)	—		—
Ending balance	$	329		$	325	$	282

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, 2019 are as follows (in millions):

	Amount		Expiration Date
Canadian net operating loss carryforwards	$	697	2036-2039
Canadian capital loss carryforwards	975		Indefinite
U.S. state net operating loss carryforwards	562		2020-2036
U.S. foreign tax credits	97		2020-2029
Other foreign net operating loss carryforwards	185		Indefinite
Other foreign net operating loss carryforwards	80		2020-2039
Other foreign capital loss carryforward	31		Indefinite
Foreign credits	1		2020-2036
Total	$	2,628

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):

	2019		2018			2017
Beginning balance	$	441	$	461		$	241
Additions for tax positions related to the current year	9		1			186
Additions for tax positions of prior years	56		18			41
Additions for tax positions taken in conjunction with acquisition of Tim Hortons	—		—			2
Reductions for tax positions of prior year	—		(18		)	—
Reductions for settlement	—		(18		)	(2		)
Reductions due to statute expiration	—		(3		)	(7		)
Ending balance	$	506	$	441		$	461