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Income taxes
 12 Months Ended
Dec. 31, 2019
Income taxes
                                                          
millions of Canadian dollars
    
 
2019
 
    
 
2018
 
    
 
2017
 
Current income tax expense
(a)
  
 
140
 
    
(14
)
    
(58
)
Deferred income tax expense
(a)
  
 
(294
)
    
773
 
    
150
 
Total income tax expense
(a)
 
 
 
 
 
(154
)
    
759
 
    
92
 
Statutory corporate tax rate
(percent)
  
 
26.0
 
    
26.9
 
    
26.9
 
Increase (decrease) resulting from:
    
 
    
 
    
 
Disposals
(b)
  
 
(0.6
)
    
(0.3
)
    
(5.3
)
Enacted tax rate change
(a)
  
 
(31.9
)
    
-
 
    
0.9
 
Other 
(c)
  
 
(1.0
)
    
(1.9
)
    
(6.6
)
Effective income tax rate
  
 
(7.5
)
    
24.7
 
    
15.9
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) On June 28, 2019 the Alberta government enacted a 4 percent decrease in the provincial tax rate, from 12 percent to 8 percent by 2022. On November 2, 2017 the British Columbia government enacted a 1 percent increase in the provincial tax rate from 11 percent to 12 percent.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b) 2017 disposals
we
re primarily associated with the sale of surplus property in Ontario.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(c)
Other decreases in 2017 and 2018 were primarily related to prior year adjustments and re-assessments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred income taxes are based on differences between the accounting and tax values of assets and liabilities. These differences in value are
re-measured
at each
year-end
using the tax rates and tax laws expected to apply when those differences are realized or settled in the future.
Components of deferred income tax liabilities and asset
s
as at December 31 were:
                               
millions of Canadian dollars
    
 
2019
 
    
 
   2018
 
    
 
  2017
 
Depreciation and amortization
 
 
 
 
 
5,164
 
 
 
 
 
  
5,726
     
5,564
 
Successful drilling and land acquisitions
  
 
750
 
    
856
     
762
 
Pension and benefits
  
 
(469
)
    
(336
)
    
(422
)
Asset retirement obligation
  
 
(336
)
    
(381
)
    
(376
)
Capitalized interest
  
 
117
 
    
121
 
    
118
 
LIFO inventory valuation
  
 
(276
)
    
(107
)
    
(318
)
Tax loss carryforwards
  
 
(141
)
    
(658
)
    
(936
)
Other
  
 
(161
)
    
(150
)
    
(196
)
Net deferred income tax liabilities
  
 
4,648
 
    
5,071
     
4,196
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrecognized tax benefits
Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements.
The following table summarizes the movement in unrecognized tax benefits:
 
                         
millions of Canadian dollars
  
 
2019
 
 
 
            2018
 
 
 
            2017
 
Balance as of January 1
 
 
 
36
 
    
78
     
106
 
Additions for prior years’ tax positions
  
 
1
 
    
9
     
2
 
Reductions for prior years’ tax positions
  
 
-
 
    
(2
)
    
-
 
Reductions due to lapse of the statute of limitations
  
 
-
 
    
-
 
    
-
 
Settlements with tax authorities
  
 
(2
)
    
(49
)
    
(30
)
Balance as of December 31
  
 
35
 
    
36
 
    
78
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The unrecognized tax benefit balances shown above are predominately related to tax positions that would reduce the company’s effective tax rate if the positions are favourably resolved. Unfavourable resolution of these tax positions generally would not increase the effective tax rate. The 2019, 2018 and 2017 changes in unrecognized tax benefits did not have a material effect on the company’s net income or cash flow. The company’s tax filings from 2015 to 2019 are subject to examination by the tax authorities. Tax filings from 2003 to 2014 have open objections and therefore are also subject to examination by the tax authorities. The Canada Revenue Agency has made certain adjustments to the company’s filings. Management has evaluated these adjustments and is formally disputing those matters to which the company disagrees. Many of these outstanding matters will not be resolved until after 2020. The impact on unrecognized tax benefits and the company’s effective income tax rate from these matters is not expected to be material.
Resolution of the related tax positions could take many years to complete. It is difficult to predict the timing of resolution for tax positions since such timing is not entirely within the control of the company.
The company classifies interest on income tax related balances as interest expense or interest income and classifies tax related penalties as operating expense.