INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

INCOME TAX RATE RECONCILIATION

Year ended December 31,	2019		2018		2017
(millions of Canadian dollars)
Earnings before income taxes	7,535		3,570		569
Canadian federal statutory income tax rate	15	%	15	%	15	%
Expected federal taxes at statutory rate	1,130		536		85
Increase/(decrease) resulting from:
Provincial and state income taxes1	415		(24	)	133
Foreign and other statutory rate differentials	129		94		(601	)
Impact of United States tax reform2	—		(2	)	(2,045	)
Effects of rate-regulated accounting3	(63	)	(163	)	(189	)
Foreign allowable interest deductions4	(29	)	(134	)	(124	)
Part VI.1 tax, net of federal Part I deduction5	78		76		68
Impairment of goodwill	—		192		15
United States BEAT tax	67		43		—
Non-taxable portion of gain/(loss) on sale of investment to unrelated party6	—		31		—
Valuation allowance7	26		(172	)	(17	)
Intercorporate investments8	(14	)	(149	)	77
Noncontrolling interests	(13	)	(47	)	(80	)
Other	(18	)	(44	)	(19	)
Income tax (recovery)/expense	1,708		237		(2,697	)
Effective income tax rate	22.7	%	6.6	%	(474.0	)%

1 The change in provincial and state income taxes from 2018 to 2019 reflects the increase in earnings from operations and the impact of state tax rate changes in both the United States and Canada.

2 The amount was related to the enactment of the Tax Cuts and Jobs Act (TCJA) 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 in 2019 included the federal component of the tax effect of the write-off of regulatory assets (Note 7).

4 The decrease in foreign allowable interest deductions in 2019 was due to changes in the related loan portfolio and tax legislative changes in Canada, the United States, and Europe.

5 Part VI.1 tax is a tax levied on preferred share dividends paid in Canada.

6 The amount represents the federal component of the non-taxable portion of the gain on the sales of the Canadian Natural Gas Gathering and Processing Businesses in 2018.

7 The increase in 2018 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 2018, was more likely than not to be realized.

8 The amount relates to the federal component of changes in assertions regarding the manner of recovery of intercorporate investments such that deferred tax related to outside basis temporary differences was required to be recorded for MATL (Note 8), Renewable Assets in 2018 and for EIPLP in 2017.

COMPONENTS OF PRETAX EARNINGS AND INCOME TAXES

Year ended December 31,	2019		2018		2017
(millions of Canadian dollars)
Earnings/(loss) before income taxes
Canada	3,560		118		2,200
United States	3,115		2,582		(2,431	)
Other	860		870		800
	7,535		3,570		569
Current income taxes
Canada	347		311		129
United States	107		66		46
Other	98		8		5
	552		385		180
Deferred income taxes
Canada	490		(598	)	299
United States	672		439		(3,160	)
Other	(6	)	11		(16	)
	1,156		(148	)	(2,877	)
Income tax (recovery)/expense	1,708		237		(2,697	)

COMPONENTS OF DEFERRED INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between carrying amounts of assets and liabilities and their respective tax bases. Major components of deferred income tax assets and liabilities are as follows:

December 31,	2019		2018
(millions of Canadian dollars)
Deferred income tax liabilities
Property, plant and equipment	(7,290	)	(7,018	)
Investments	(4,620	)	(4,441	)
Regulatory assets	(1,052	)	(756	)
Other	(40	)	(192	)
Total deferred income tax liabilities	(13,002	)	(12,407	)
Deferred income tax assets
Financial instruments	679		1,103
Pension and OPEB plans	206		181
Loss carryforwards	1,693		1,820
Other	1,641		1,274
Total deferred income tax assets	4,219		4,378
Less valuation allowance	(84	)	(51	)
Total deferred income tax assets, net	4,135		4,327
Net deferred income tax liabilities	(8,867	)	(8,080	)
Presented as follows:
Total deferred income tax assets	1,000		1,374
Total deferred income tax liabilities	(9,867	)	(9,454	)
Net deferred income tax liabilities	(8,867	)	(8,080	)

A valuation allowance has been established for certain loss and credit carryforwards, and outside basis temporary differences on investments that reduce deferred income tax assets to an amount that will more likely than not be realized.

As at December 31, 2019 and 2018, we recognized the benefit of unused tax loss carryforwards of $3.2 billion and $3.4 billion, respectively, in Canada which expire in 2026 and beyond.

As at December 31, 2019 and 2018, we recognized the benefit of unused tax loss carryforwards of $3.6 billion and $3.4 billion, respectively, in the United States which expire in 2023 and beyond.

We have not provided for deferred income taxes on the difference between the carrying value of substantially all of our foreign subsidiaries and their corresponding tax basis as the earnings of those subsidiaries are intended to be permanently reinvested in their operations. As such these investments are not anticipated to give rise to income taxes in the foreseeable future. The difference between the carrying values of the investments and their tax bases is largely a result of unremitted earnings and currency translation adjustments. The unremitted earnings and currency translation adjustment for which no deferred taxes have been recognized in respect of foreign subsidiaries were $5.3 billion and $5.8 billion for the period December 31, 2019 and 2018, respectively. If such earnings are remitted, in the form of dividends or otherwise, we may be subject to income taxes and foreign withholding taxes. The determination of the amount of unrecognized deferred income tax liabilities on such amounts is not practicable.

Enbridge and certain of our subsidiaries are subject to taxation in Canada, the United States and other foreign jurisdictions. The material jurisdictions in which we are subject to potential examinations include the United States (Federal) and Canada (Federal, Alberta and Ontario). We are open to examination by Canadian tax authorities for the 2010 to 2019 tax years and by United States tax authorities for the 2015 to 2019 tax years. We are currently under examination for income tax matters in Canada for the 2013 to 2017 tax years. We are not currently under examination for income tax matters in any other material jurisdiction where we are subject to income tax.

United States Tax Reform

On December 22, 2017, the United States enacted the TCJA. As a result of the TCJA we recorded $67 million and $43 million in tax expense for the years ended December 31, 2019 and 2018, respectively in connection with the Base erosion and Anti-abuse tax (BEAT). We recorded no provisions for the Global Intangible Low Taxed Income Tax (GILTI).

Most changes to the TCJA are effective for taxation years beginning after December 31, 2017. While the changes are broad and complex, the most significant change was the reduction in the corporate federal income tax rate from 35% to 21%. In 2017 we were also impacted by a one-time deemed repatriation or “toll” tax on undistributed earnings and profits of United States controlled foreign affiliates, including Canadian subsidiaries.

During the first quarter of 2018 we refined our calculation of the regulatory liability associated with the TCJA which resulted in a $30 million reduction to the overall regulatory liability. An additional reduction to the regulated liability in the amount of $223 million was recorded in the fourth quarter of 2018 in connection with rate cases filed that eliminated a portion of regulated liability formerly included in SEP's rate base.

In 2017 we made reasonable estimates for the measurement and accounting of certain effects of the TCJA in accordance with SEC Staff Accounting Bulletin No.118 (SAB 118). Accordingly, we recorded a $34 million increase to our 2017 current income tax provision related to the toll tax, payable over eight years. We recorded a $2.0 billion decrease to our 2017 deferred income tax provision related to the reduction in the corporate federal income tax rate. The accounting for these items decreased our accumulated deferred income tax liability by $3.1 billion and increased our regulatory liability by $1.1 billion in 2017. We have also adjusted our valuation allowance for certain deferred tax assets existing at December 31, 2016 for the reduction in the corporate federal income tax rate by $0.2 billion. We have recognized these tax impacts and included these amounts in our consolidated financial statements for the year ended December 31, 2017.

UNRECOGNIZED TAX BENEFITS

Year ended December 31,	2019		2018
(millions of Canadian dollars)
Unrecognized tax benefits at beginning of year	139		150
Gross increases for tax positions of current year	1		2
Gross decreases for tax positions of prior year	(1	)	(12	)
Change in translation of foreign currency	(4	)	3
Lapses of statute of limitations	(6	)	(3	)
Settlements	—		(1	)
Unrecognized tax benefits at end of year	129		139

The unrecognized tax benefits as at December 31, 2019, if recognized, would impact our effective income tax rate. We do not anticipate further adjustments to the unrecognized tax benefits during the next 12 months that would have a material impact on our consolidated financial statements.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income taxes. Income taxes for the years ended December 31, 2019 and 2018 were $3 million expense and $5 million expense, respectively, of interest and penalties. As at December 31, 2019 and 2018, interest and penalties of $15 million and $12 million, respectively, have been accrued.