INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of income tax rate reconciliation

INCOME TAX RATE RECONCILIATION


Year ended December 31,	2021		2020		2019
(millions of Canadian dollars)
Earnings before income taxes	7,729		4,190		7,535
Canadian federal statutory income tax rate	15	%	15	%	15	%
Expected federal taxes at statutory rate	1,159		629		1,130
Increase/(decrease) resulting from:
Provincial and state income taxes1	228		288		415
Foreign and other statutory rate differentials2	134		(53)		129

Effects of rate-regulated accounting3	(139)		(145)		(63)
Foreign allowable interest deductions4	—		(4)		(29)
Part VI.1 tax, net of federal Part I deduction5	73		76		78

US Minimum Tax6	—		44		67
Non-taxable portion of gain on sale of investment7	(23)		—		—
Valuation allowance8	5		(6)		26
Intercorporate investments9	—		—		(14)
Noncontrolling interests	(17)		(8)		(13)
Other	(5)		(47)		(18)
Income tax expense	1,415		774		1,708
Effective income tax rate	18.3%		18.5%		22.7%

1 The change in provincial and state income taxes from 2020 to 2021 reflects the 2020 impact of state tax apportionment and rate changes in both the US and Canada offset by the increase in earnings from US and Canadian operations in 2021.

2 The change in foreign and other statutory rate differentials from 2020 to 2021 reflects the increase in earnings from US operations partially offset by higher rate benefits from foreign 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 from 2019 to 2021 was due to changes in the related loan portfolio.

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

6 There was no US Minimum Tax in 2021 as a result of tax losses from bonus tax depreciation.

7 The amount in 2021 relates to the federal impact of the gain on sale of the investment in Noverco.

8 The increase in 2021 is due to the federal component of the tax effect of a valuation allowance on additional deferred tax assets that are not more likely than not to be realized.

9 The amount in 2019 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.

Schedule of components of pretax earnings and income taxes

COMPONENTS OF PRETAX EARNINGS AND INCOME TAXES


Year ended December 31,	2021	2020	2019
(millions of Canadian dollars)
Earnings before income taxes
Canada	3,399	2,789	3,560
US	3,336	407	3,115
Other	994	994	860
	7,729	4,190	7,535
Current income taxes
Canada	162	165	347
US	80	64	107
Other	82	98	98
	324	327	552
Deferred income taxes
Canada	344	378	490
US	741	66	672
Other	6	3	(6)
	1,091	447	1,156
Income tax expense	1,415	774	1,708

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,	2021	2020
(millions of Canadian dollars)
Deferred income tax liabilities
Property, plant and equipment	(8,721)	(7,786)
Investments	(6,097)	(4,649)
Regulatory assets	(1,245)	(1,156)
Other	(208)	(127)
Total deferred income tax liabilities	(16,271)	(13,718)
Deferred income tax assets
Financial instruments	315	518
Pension and OPEB plans	110	251
Loss carryforwards	3,081	2,005
Other	1,648	1,461
Total deferred income tax assets	5,154	4,235
Less valuation allowance	(84)	(79)
Total deferred income tax assets, net	5,070	4,156
Net deferred income tax liabilities	(11,201)	(9,562)
Presented as follows:
Total deferred income tax assets	488	770
Total deferred income tax liabilities	(11,689)	(10,332)
Net deferred income tax liabilities	(11,201)	(9,562)

Schedule of unrecognized tax benefits

UNRECOGNIZED TAX BENEFITS


Year ended December 31,	2021	2020
(millions of Canadian dollars)
Unrecognized tax benefits at beginning of year	121	129
Gross increases for tax positions of current year	1	1

Gross decreases for tax positions of prior year	(26)	(1)
Change in translation of foreign currency	(1)	(3)
Lapses of statute of limitations	(19)	(5)

Unrecognized tax benefits at end of year	76	121