Income taxes

12 Months Ended

Dec. 31, 2019

21. Income taxes

A. Significant components of deferred tax assets and liabilities



		Recognized in earnings				As at December 31
		2019		2018		2019		2018


Assets
Property, plant and equipment	$	74,039	$	119,132	$	319,185	$	245,206
Provision for reclamation		2,325		(36,622)		193,514		191,189
Inventories		(2,163)		1,137		-		2,163
Foreign exploration and development		(14)		(14)		5,267		5,281
Income tax losses (gains)		(108,839)		39,289		390,341		499,180
Defined benefit plan actuarial losses		-		-		7,947		5,646
Long-term investments and other		(17,377)		24,169		40,423		57,347

Deferred tax assets		(52,029)		147,091		956,677		1,006,012


Liabilities
Inventories		301		-		301		-

Deferred tax liabilities		301		-		301		-


Net deferred tax asset (liability	$	(52,330)	$	147,091	$	956,376	$	1,006,012



Deferred tax allocated as		2019		2018

Deferred tax assets	$	956,376	$	1,006,012
Deferred tax liabilities		-		-

Net deferred tax asset	$	956,376	$	1,006,012

Cameco has recorded a deferred tax asset of $956,376,000 (December 31, 2018 - $1,006,012,000). The realization of this deferred tax asset is dependent upon the generation of future taxable income in certain jurisdictions during the periods in which the Company’s deferred tax assets are available. The Company considers whether it is probable that all or a portion of the deferred tax assets will not be realized. In making this assessment, management considers all available evidence, including recent financial operations, projected future taxable income and tax planning strategies. Based on projections of future taxable income over the periods in which the deferred tax assets are available, realization of these deferred tax assets is probable and consequently the deferred tax assets have been recorded.

B. Movement in net deferred tax assets and liabilities



		2019		2018


Deferred tax asset at beginning of year	$	1,006,012	$	848,704
Recovery (expense) for the year in net earnings		(52,330)		147,091
Recovery (expense) for the year in other comprehensive income		2,754		(851)
Change to equity accounting - JV Inkai		-		10,849
Effect of movements in exchange rates		(60)		219

End of year	$	956,376	$	1,006,012

C. Significant components of unrecognized deferred tax assets



		2019		2018


Income tax losses	$	280,330	$	270,154
Property, plant and equipment		2,321		2,344
Provision for reclamation		75,082		88,036
Long-term investments and other		70,380		72,500

Total	$	428,113	$	433,034

D. Tax rate reconciliation

The provision for income taxes differs from the amount computed by applying the combined expected federal and provincial income tax rate to earnings before income taxes. The reasons for these differences are as follows:


				2019		2018


Earnings before income taxes and non-controlling interest			$	135,018	$	39,929
Combined federal and provincial tax rate				26.9%		26.9%

Computed income tax expense				36,320		10,741
Increase (decrease) in taxes resulting from:
	Difference between Canadian rates and rates
		applicable to subsidiaries in other countries		5,558		(78,138)
	Change in unrecognized deferred tax assets			19,646		18,027
	Share-based compensation plans			1,146		1,292
	Change in tax provision related to transfer pricing			-		(61,000)
	Non-deductible (non-taxable) capital amounts			-		(13,249)
	Income in equity-accounted investee			(12,074)		-
	Change in uncertain tax positions			2,572		(3,517)
	Other permanent differences			7,909		(462)

Income tax expense (recovery)			$	61,077	$	(126,306)

E. Earnings and income taxes by jurisdiction



			2019		2018


Earnings (loss) before income taxes
	Canada	$	229,429	$	(257,291)
	Foreign		(94,411)		297,220

		$	135,018	$	39,929


Current income taxes
	Canada	$	7,969	$	5,913
	Foreign		778		14,872

		$	8,747	$	20,785
Deferred income taxes (recovery)
	Canada	$	60,010	$	(149,284)
	Foreign		(7,680)		2,193

		$	52,330	$	(147,091)

Income tax expense (recovery)		$	61,077	$	(126,306)

F. Reassessments

Canada

In 2008, as part of the ongoing annual audits of Cameco's Canadian tax returns, Canada Revenue Agency (CRA) disputed the transfer pricing structure and methodology used by Cameco and its wholly owned Swiss subsidiary, Cameco Europe Ltd., in respect of sale and purchase agreements for uranium products. From December 2008 to date, CRA issued notices of reassessment for the taxation years 2003 through 2013, which in aggregate have increased Cameco's income for Canadian tax purposes by approximately $5,700,000,000. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2011 in the amount of $371,000,000. It is uncertain whether CRA will reassess Cameco's tax returns for subsequent years on a similar basis and if these will require Cameco to make future remittances or provide security on receipt of the reassessments.

On September 26, 2018, the Tax Court of Canada (Tax Court) ruled in our favour in our case with the Canada Revenue Agency (CRA) for the 2003, 2005 and 2006 tax years.

The Tax Court ruled that our marketing and trading structure involving foreign subsidiaries and the related transfer pricing methodology used for certain intercompany uranium purchase and sale agreements were in full compliance with Canadian laws for the three tax years in question. While the decision applies only to the three tax years in question, we believe there is nothing in the decision that would warrant a materially different outcome for subsequent tax years. We expect to recover any amounts remitted or secured as a result of the reassessments.

On October 25, 2018, CRA filed a notice of appeal with the Federal Court of Appeal. We anticipate that it will take about two years from the start of the appeal process to receive a decision from the Federal Court of Appeal.

We expect the Tax Court’s decision to be upheld on appeal. We expect any further actions regarding the tax years 2007 through 2013 will be suspended until the three years covered in the decision are finally resolved. Despite the fact that we believe there is no basis to do so, and it is not our view of the likely outcome, CRA may continue to reassess us using the methodology it used to reassess the 2003 through 2013 tax years. In that scenario, and including the $5,700,000,000 already reassessed, we expect to receive notices of reassessment for a total of approximately $8,700,000,000 for the years 2003 through 2019, which would increase Cameco’s income for Canadian tax purposes and result in a related tax expense of approximately $2,600,000,000. In addition to penalties already imposed, CRA may continue to apply penalties to taxation years subsequent to 2011. As a result, we estimate that cash taxes and transfer pricing penalties would be between $1,950,000,000 and $2,150,000,000. In addition, we estimate there would be interest and instalment penalties applied that would be material to Cameco. While in dispute, we would be responsible for remitting or otherwise securing 50% of the cash taxes and transfer pricing penalties (between $970,000,000 and $1,070,000,000), plus related interest and instalment penalties assessed, which would be material to Cameco.

Under Canadian federal and provincial tax rules, the amount required to be remitted each year will depend on the amount of income reassessed in that year and the availability of elective deductions. CRA disallowed the use of any loss carry-backs to be applied to any transfer pricing adjustment, starting with the 2008 tax year. In light of our view of the likely outcome of the case, we expect to recover the amounts remitted to CRA, including cash taxes, interest and penalties totalling $303,222,000 already paid as at December 31, 2019 (December 31, 2018 - $303,222,000) (note 10). In addition to the cash remitted, we have provided $480,000,000 in letters of credit to secure 50% of the cash taxes and related interest.

Management believes that the ultimate resolution will not be material to Cameco's financial position, results of operations or liquidity in the year(s) of resolution. Resolution of this matter as stipulated by CRA would be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution and other unfavourable outcomes for the years 2003 to date could be material to Cameco's financial position, results of operations and cash flows in the year(s) of resolution.

G. Income tax losses

At December 31, 2019, income tax losses carried forward of $2,509,669,000 (2018 - $2,809,926,000) are available to reduce taxable income. These losses expire as follows:


Date of expiry		Canada		US		Other		Total


2026	$	-	$	-	$	80,000	$	80,000
2030		47		-		-		47
2031		-		20,859		-		20,859
2032		272		22,464		-		22,736
2033		173,691		38,296		-		211,987
2034		322,359		21,125		-		343,484
2035		372,558		14,699		-		387,257
2036		209,265		44,674		-		253,939
2037		143		33,462		-		33,605
2038		5,581		51,896		-		57,477
2039		6,524		40,559		-		47,083
No expiry		-		-		1,051,195		1,051,195

	$	1,090,440	$	288,034	$	1,131,195	$	2,509,669

Included in the table above is $1,048,264,000 (2018 - $987,639,000) of temporary differences related to loss carry forwards where no future benefit has been recognized.