INCOME TAXES

12 Months Ended

Dec. 31, 2020

INCOME TAX RATE RECONCILIATION


Year ended December 31,	2020		2019		2018
(millions of Canadian dollars)
Earnings before income taxes	4,190		7,535		3,570
Canadian federal statutory income tax rate	15	%	15	%	15	%
Expected federal taxes at statutory rate	629		1,130		536
Increase/(decrease) resulting from:
Provincial and state income taxes1	288		415		(24)
Foreign and other statutory rate differentials2	(53)		129		94
Impact of US tax reform	—		—		(2)
Effects of rate-regulated accounting3	(145)		(63)		(163)
Foreign allowable interest deductions4	(4)		(29)		(134)
Part VI.1 tax, net of federal Part I deduction5	76		78		76
Impairment of goodwill	—		—		192
US BEAT	44		67		43
Non-taxable portion of gain on sale of investment to unrelated party6	—		—		31
Valuation allowance7	(6)		26		(172)
Intercorporate investments8	—		(14)		(149)
Noncontrolling interests	(8)		(13)		(47)
Other	(47)		(18)		(44)
Income tax expense	774		1,708		237
Effective income tax rate	18.5	%	22.7	%	6.6	%

1.The change in provincial and state income taxes from 2019 to 2020 reflects the decrease in earnings from operations and the impact of state tax apportionment and rate changes in both the US and Canada.

2.The change in foreign and other statutory rate differentials from 2019 to 2020 reflects the decrease in earnings from US operations.

3.The amount in 2019 included the federal component of the tax benefit of the write-off of regulatory assets.

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 US, 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 decrease in 2020 is due to the federal component of the tax effect of a valuation allowance on the deferred tax assets that, in 2019, were not more likely than not to be realized.

8.The amounts in 2019 and 2018 relate 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 and for Renewable Assets, respectively.

COMPONENTS OF PRETAX EARNINGS AND INCOME TAXES


Year ended December 31,	2020	2019	2018
(millions of Canadian dollars)
Earnings before income taxes
Canada	2,789	3,560	118
US	407	3,115	2,582
Other	994	860	870
	4,190	7,535	3,570
Current income taxes
Canada	165	347	311
US	64	107	66
Other	98	98	8
	327	552	385
Deferred income taxes
Canada	378	490	(598)
US	66	672	439
Other	3	(6)	11
	447	1,156	(148)
Income tax expense	774	1,708	237

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,	2020	2019
(millions of Canadian dollars)
Deferred income tax liabilities
Property, plant and equipment	(7,786)	(7,290)
Investments	(4,649)	(4,620)
Regulatory assets	(1,156)	(1,052)
Other	(127)	(40)
Total deferred income tax liabilities	(13,718)	(13,002)
Deferred income tax assets
Financial instruments	518	679
Pension and OPEB plans	251	206
Loss carryforwards	2,005	1,693
Other	1,461	1,641
Total deferred income tax assets	4,235	4,219
Less valuation allowance	(79)	(84)
Total deferred income tax assets, net	4,156	4,135
Net deferred income tax liabilities	(9,562)	(8,867)
Presented as follows:
Total deferred income tax assets	770	1,000
Total deferred income tax liabilities	(10,332)	(9,867)
Net deferred income tax liabilities	(9,562)	(8,867)

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, 2020 and 2019, we recognized the benefit of unused tax loss carryforwards of $2.6 billion and $3.2 billion, respectively, in Canada which expire in 2026 and beyond.

As at December 31, 2020 and 2019, we recognized the benefit of unused tax loss carryforwards of $5.8 billion and $3.6 billion, respectively, in the US 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 $5.5 billion and $5.3 billion for the period December 31, 2020 and 2019, 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 US and other foreign jurisdictions. The material jurisdictions in which we are subject to potential examinations include the US (Federal) and Canada (Federal, Alberta and Ontario). We are open to examination by Canadian tax authorities for the 2013 to 2020 tax years and by US tax authorities for the 2017 to 2020 tax years. We are currently under examination for income tax matters in Canada for the 2014 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.

UNRECOGNIZED TAX BENEFITS


Year ended December 31,	2020	2019
(millions of Canadian dollars)
Unrecognized tax benefits at beginning of year	129	139
Gross increases for tax positions of current year	1	1

Gross decreases for tax positions of prior year	(1)	(1)
Change in translation of foreign currency	(3)	(4)
Lapses of statute of limitations	(5)	(6)

Unrecognized tax benefits at end of year	121	129

The unrecognized tax benefits as at December 31, 2020, 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. Interest and penalties included in income taxes for the years ended December 31, 2020 and 2019 were $3 million expense and $3 million expense, respectively, of interest and penalties. As at December 31, 2020 and 2019, interest and penalties of $17 million and $15 million, respectively, have been accrued.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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