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INCOME TAXES (Tables)
 12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Schedule of income tax rate reconciliation
INCOME TAX RATE RECONCILIATION
Year ended December 31,
2017

2016

2015

(millions of Canadian dollars)
 

 

 

Earnings before income taxes
569

2,451

11

Canadian federal statutory income tax rate
15
%
15
%
15
%
Expected federal taxes at statutory rate
85

368

2

Increase/(decrease) resulting from:
 

 

 

Provincial and state income taxes1
133

34

(204
)
Foreign and other statutory rate differentials
(601
)
(56
)
310

Impact of United States tax reform2

(2,045
)
—

—

Effects of rate-regulated accounting
(189
)
(116
)
(52
)
Foreign allowable interest deductions
(124
)
(107
)
(84
)
Part VI.1 tax, net of federal Part I deduction
68

56

55

Goodwill write-down3
15

—

—

Intercompany sale of investment4
—

6

23

Non-taxable portion of gain on sale of investment to unrelated party5
—

(61
)
—

Valuation allowance6
(17
)
22

154

    Intercorporate investment in EIPLP7
77

—

—

Noncontrolling interests
(80
)
(15
)
(28
)
Other8
(19
)
11

(6
)
Income tax (recovery)/expense
(2,697
)
142

170

Effective income tax rate
(474.0
)%
5.8
%
1,545.5
%
1
The change in provincial and state income taxes from 2016 to 2017 reflects the increase in earnings from the Canadian operations and the impact of the United States tax reform on state income tax expense.
2
The amount was due to the enactment of the “Tax Cuts and Jobs Act” by the United States on December 22, 2017, which included a reduction in the federal corporate income tax rate from 35% to 21% effective for taxation years beginning after December 31, 2017.
3
The amount relates to the federal component of the tax effect a goodwill write-down pursuant to ASU 2017-04.
4
In November 2016 and September 2015, certain assets were sold to entities under common control. The intercompany gains realized on these transfers were eliminated. However, because these transactions involved the sale of partnership units, tax consequences have been recognized in earnings.
5
The amount in 2016 represents the federal component of the non-taxable portion of the gain on the sale of the South Prairie Region assets to unrelated party.
6
The decrease from 2015 to 2016 is due to the federal component of the tax effect of a valuation allowance on the deferred tax assets related to an outside basis temporary difference that, in 2015, was no longer more likely than not to be realized.
7
There was a change in assertion regarding the manner of recovery of the intercorporate investment in EIPLP such that deferred tax related to outside basis temporary differences was required to be recorded.
8
2015 included $17 million recovery related to the federal component of the tax effect of adjustments related to prior periods.
Schedule of components of pretax earnings and income taxes
COMPONENTS OF PRETAX EARNINGS AND INCOME TAXES
Year ended December 31,
2017

2016

2015

(millions of Canadian dollars)
 

 

 

Earnings/(loss) before income taxes
 

 

 

Canada
2,200

2,034

(1,365
)
United States
(2,431
)
(333
)
808

Other
800

750

568

 
569

2,451

11

Current income taxes
 

 

 

Canada
129

74

157

United States
46

21

3

Other
5

4

3

 
180

99

163

Deferred income taxes
 

 

 

Canada
299

188

(558
)
United States
(3,160
)
(151
)
565

Other
(16
)
6

—

 
(2,877
)
43

7

Income tax (recovery)/expense

(2,697
)
142

170
Schedule of major components of deferred income tax assets and liabilities
Major components of deferred income tax assets and liabilities are as follows:
December 31,
2017

2016

(millions of Canadian dollars)
 

 

Deferred income tax liabilities
 

 

Property, plant and equipment
(4,089
)
(3,867
)
Investments
(6,596
)
(2,938
)
Regulatory assets
(977
)
(439
)
Other
(50
)
(47
)
Total deferred income tax liabilities
(11,712
)
(7,291
)
Deferred income tax assets
 

 

Financial instruments
697

1,215

Pension and OPEB plans
258

219

Loss carryforwards
1,781

1,189

Other
1,057

374

Total deferred income tax assets
3,793

2,997

Less valuation allowance
(286
)
(572
)
Total deferred income tax assets, net
3,507

2,425

Net deferred income tax liabilities
(8,205
)
(4,866
)
Presented as follows:
 
 
Total deferred income tax assets
1,090

1,170

Total deferred income tax liabilities
(9,295
)
(6,036
)
Net deferred income tax liabilities
(8,205
)
(4,866
)
Schedule of unrecognized tax benefits
UNRECOGNIZED TAX BENEFITS
Year ended December 31,
2017

2016

(millions of Canadian dollars)
 
 
Unrecognized tax benefits at beginning of year
84

65

Gross increases for tax positions of current year
15

27

Gross increases for tax positions of prior year
65

—

Change in translation of foreign currency
(2
)
(2
)
Lapses of statute of limitations
(8
)
(6
)
Settlements
(4
)
—

Unrecognized tax benefits at end of year
150

84