INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2016

INCOME TAXES

Schedule of income tax rate reconciliation

Year ended December 31,	2016		2015		2014
(millions of Canadian dollars)
Earnings before income taxes and discontinued operations	2,451		11		2,173
Canadian federal statutory income tax rate	15%		15%		15%
Expected federal taxes at statutory rate	368		2		326
Increase/(decrease) resulting from:
Provincial and state income taxes1	34		(204	)	(36	)
Foreign and other statutory rate differentials	(56	)	310		394
Effects of rate-regulated accounting2	(116	)	(52	)	(97	)
Foreign allowable interest deductions	(107	)	(84	)	(65	)
Part VI.1 tax, net of federal Part I deduction	56		55		47
Intercompany sale of investment3	6		23		68
Non-taxable portion of gain on sale of investment to unrelated party4	(61	)	-		-
Valuation allowance5	22		154		2
Noncontrolling interests	(15	)	(28	)	(28	)
Other6	11		(6	)	-
Income taxes on earnings before discontinued operations	142		170		611
Effective income tax rate	5.8%		1,545.5%		28.1%

1 The change in provincial and state income taxes from 2015 to 2016 reflects the increase in earnings from the Canadian operations and the decrease in earnings from the United States operations.

2 The increase in 2016 is due to the federal component of the tax effect of the 2015 impairment of regulatory receivables.

3 In November 2016, September 2015 and November 2014, 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.

4 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.

5 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.

6 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

Year ended December 31,	2016		2015		2014
(millions of Canadian dollars)
Earnings/(loss) before income taxes and discontinued operations
Canada	2,034		(1,365	)	114
United States	(333	)	808		1,614
Other	750		568		445
	2,451		11		2,173
Current income taxes
Canada	74		157		35
United States	21		3		(15	)
Other	4		3		4
	99		163		24
Deferred income taxes
Canada	188		(558	)	(193	)
United States	(151	)	565		780
Other	6		-		-
	43		7		587
Income taxes on earnings before discontinued operations	142		170		611

Schedule of major components of deferred income tax assets and liabilities

December 31,	2016		2015
(millions of Canadian dollars)
Deferred income tax liabilities
Property, plant and equipment	(3,867	)	(3,423	)
Investments	(2,938	)	(3,024	)
Regulatory assets	(439	)	(354	)
Other	(47	)	(85	)
Total deferred income tax liabilities	(7,291	)	(6,886	)
Deferred income tax assets
Financial instruments	1,215		1,374
Pension and OPEB plans	219		202
Loss carryforwards	1,189		848
Other	374		274
Total deferred income tax assets	2,997		2,698
Less valuation allowance	(572	)	(538	)
Total deferred income tax assets, net	2,425		2,160
Net deferred income tax liabilities	(4,866	)	(4,726	)
Presented as follows:1
Accounts receivable and other (Note 7)	-		367
Deferred income taxes	1,170		839
Total deferred income tax assets	1,170		1,206
Accounts payable and other	-		(17	)
Deferred income taxes	(6,036	)	(5,915	)
Total deferred income tax liabilities	(6,036	)	(5,932	)
Net deferred income tax liabilities	(4,866	)	(4,726	)

1 Effective January 1, 2016, the Company elected to early adopt ASU 2015-17 (Note 3).

Schedule of unrecognized tax benefits

Year ended December 31,	2016		2015
(millions of Canadian dollars)
Unrecognized tax benefits at beginning of year	65		51
Gross increases for tax positions of current year	27		5
Change in translation of foreign currency	(2	)	9
Lapses of statute of limitations	(6	)	-
Unrecognized tax benefits at end of year	84		65