Income taxes

The following is a summary of the major components of the Company’s income tax expense:



(in millions of Canadian dollars)	2016			2015		2014
Current income tax expense	$	233		$	373	$	208
Deferred income tax expense
Origination and reversal of temporary differences	336			105		317
Effect of tax rate increases	—			23		—
Effect of hedge of net investment in foreign subsidiaries	(20		)	100		42
Other	4			6		(5		)
Total deferred income tax expense	320			234		354
Total income taxes	$	553		$	607	$	562
Income before income tax expense
Canada	$	1,513		$	1,099	$	1,269
Foreign	639			860		769
Total income before income tax expense	$	2,152		$	1,959	$	2,038
Income tax expense
Current
Canada	$	165		$	173	$	50
Foreign	68			200		158
Total current income tax expense	233			373		208
Deferred
Canada	207			163		292
Foreign	113			71		62
Total deferred income tax expense	320			234		354
Total income taxes	$	553		$	607	$	562

The provision for deferred income taxes arises from temporary differences in the carrying values of assets and liabilities for financial statement and income tax purposes and the effect of loss carry forwards. The items comprising the deferred income tax assets and liabilities are as follows:



(in millions of Canadian dollars)	2016		2015
Deferred income tax assets
Amount related to tax losses carried forward	$	18	$	16
Liabilities carrying value in excess of tax basis	149		89
Future environmental remediation costs	30		33
Tax credits carried forward including minimum tax	—		—
Other	58		72
Total deferred income tax assets	255		210
Deferred income tax liabilities
Properties carrying value in excess of tax basis	3,796		3,553
Other	30		48
Total deferred income tax liabilities	3,826		3,601
Total net deferred income tax liabilities	$	3,571	$	3,391

The Company’s consolidated effective income tax rate differs from the expected Canadian statutory tax rates. Expected income tax expense at statutory rates is reconciled to income tax expense as follows:



(in millions of Canadian dollars, except percentage)	2016			2015			2014
Statutory federal and provincial income tax rate (Canada)	26.65		%	26.47		%	26.31		%
Expected income tax expense at Canadian enacted statutory tax rates	$	573		$	519		$	536
Increase (decrease) in taxes resulting from:
(Gains) losses not subject to tax	(23		)	28			(5		)
Canadian tax rate differentials	—			1			(1		)
Foreign tax rate differentials	—			39			36
Effect of tax rate increases	—			23			—
Other	3			(3		)	(4		)
Income tax expense	$	553		$	607		$	562

The Company has no unrecognized tax benefits from capital losses at December 31, 2016 and 2015.

The Company has not provided a deferred liability for the income taxes, if any, which might become payable on any temporary difference associated with its foreign investments because the Company intends to indefinitely reinvest in its foreign investments and has no intention to realize this difference by a sale of its interest in foreign investments. It is not practical to calculate the amount of the deferred tax liability.

During the second quarter of 2015, legislation was enacted to increase the province of Alberta's corporate income tax rate. As a result, the Company recalculated its deferred income taxes as at January 1, 2015 based on this change and recorded an income tax expense of $23 million in the second quarter of 2015.

At December 31, 2016, the Company had income tax operating losses carried forward of $48 million, which have been recognized as a deferred tax asset. Certain of these losses carried forward will begin to expire in 2027, with the majority expiring between 2029 and 2035. The Company also has minimum tax credits of approximately $1 million that are carried forward indefinitely without expiration. The Company did not have any investment tax credits carried forward.

It is more likely than not that the Company will realize the majority of its deferred income tax assets from the generation of future taxable income, as the payments for provisions, reserves and accruals are made and losses and tax credits carried forward are utilized.

The following table provides a reconciliation of uncertain tax positions in relation to unrecognized tax benefits for Canada and the United States for the year ended December 31, 2016:



(in millions of Canadian dollars)	2016			2015			2014
Unrecognized tax benefits at January 1	$	15		$	17		$	16
Increase in unrecognized:
Tax benefits related to the current year	—			4			2
Dispositions:
Gross uncertain tax benefits related to prior years	(2		)	(6		)	(1		)
Unrecognized tax benefits at December 31	$	13		$	15		$	17

If these uncertain tax positions were recognized, all of the amount of unrecognized tax positions as at December 31, 2016 would impact the Company’s effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense in the Company’s Consolidated Statements of Income. The total amount of accrued interest and penalties in 2016 was $1 million (2015 – $4 million; 2014 – $1 million). The total amount of accrued interest and penalties associated with the unrecognized tax benefit at December 31, 2016 was $10 million (2015 – $9 million; 2014 – $5 million).

The Company and its subsidiaries are subject to either Canadian federal and provincial income tax, U.S. federal, state and local income tax, or the relevant income tax in other international jurisdictions. The Company has substantially concluded all Canadian federal and provincial income tax matters for the years through 2012. The federal and provincial income tax returns filed for 2013 and subsequent years remain subject to examination by the Canadian taxation authorities. The Internal Revenue Service ("IRS") of the United States has completed their examinations and issued notices of deficiency for the tax years 2012 and 2013. The Company disagrees with many of their proposed adjustments, and is at the IRS Appeals for those years. The income tax returns for 2014 and subsequent years continue to remain subject to examination by the IRS. Additionally, various U.S. state tax authorities are examining the Company's state income tax returns for the years 2011 through 2015. The Company believes that it has recorded sufficient income tax reserves at December 31, 2016 with respect to these income tax examinations.

The Company does not anticipate any material changes to the unrecognized tax benefits previously disclosed within the next twelve months as at December 31, 2016.