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Income Taxes
 9 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

11.  Income Taxes

 

 

(a)

Income Tax Expense

For the three months ended September 30, 2021, the Company recorded income tax expense of $4.4 million (2020 — income tax expense of $19.3 million). For the three months ended September 30, 2021, the Company’s effective tax rate of (226.6)% varies from the Canadian statutory tax rate of 26.2% that was in effect during the period as follows:

 

 

Three Months Ended

 

 

Three Months Ended

 

September 30, 2021

 

 

September 30, 2020

(In thousands of U.S. Dollars, except rates)

Amount

 

 

Rate

 

 

Amount

 

 

Rate

Income tax benefit at combined statutory rates

$

509

 

 

26.2%

 

 

$

7,279

 

 

26.2%

Adjustments resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains not taxable

 

—

 

 

 

—

 

 

 

420

 

 

1.5%

Increase of valuation allowance

 

(4,270

)

 

(219.8%)

 

 

 

(23,707

)

 

(85.3%)

Changes to tax reserves

 

(215

)

 

(11.1%)

 

 

 

(181

)

 

(0.7%)

Withholding taxes resulting from management's decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries

 

—

 

 

 

—

 

 

 

(186

)

 

(0.7%)

Reduction in tax benefits resulting from the vesting of share-based compensation

 

(4

)

 

(0.2%)

 

 

 

(38

)

 

(0.1%)

Other non-deductible/non-taxable items

 

(422

)

 

(21.7%)

 

 

 

(2,936

)

 

(10.5%)

Income tax expense

$

(4,402

)

 

(226.6%)

 

 

$

(19,349

)

 

(69.6%)

 

For the three months ended September 30, 2021, the Company recorded an additional $4.3 million valuation allowance against deferred tax assets in jurisdictions where management could not reliably forecast that future tax liabilities would arise, principally due to the uncertainties around the long-term impact of the COVID-19 global pandemic. Accordingly, the tax benefit associated with the current period losses in these jurisdictions is not ultimately reflected in the Company’s Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2021, the Company recorded income tax expense of $9.4 million (2020 — $24.6 million). For the nine months ended September 30, 2021, the Company’s effective tax rate of (69.5)% varies from the Canadian statutory tax rate of 26.2% that was in effect during the period as follows:

 

 

Nine Months Ended

 

Nine Months Ended

 

 

September 30, 2021

 

September 30, 2020

 

(In thousands of U.S. Dollars, except rates)

Amount

 

 

Rate

 

Amount

 

 

Rate

 

Income tax benefit at combined statutory rates

$

3,548

 

 

26.2%

 

$

29,201

 

 

26.2%

 

Adjustments resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and unrealized investment gains (losses) not taxable

 

1,367

 

 

10.1%

 

 

(239

)

 

(0.2%)

 

Increase of valuation allowance

 

(14,248

)

 

(105.2%)

 

 

(23,706

)

 

(21.3%)

 

Changes to tax reserves

 

1,234

 

 

9.1%

 

 

(4,978

)

 

(4.5%)

 

Withholding taxes resulting from management's decision to no longer indefinitely reinvest the historical earnings of certain foreign subsidiaries

 

(547

)

 

(4.0%)

 

 

(18,661

)

 

(16.7%)

 

Increase in tax benefits resulting from the vesting of share-based compensation

 

709

 

 

5.2%

 

 

33

 

 

 

—

 

Other non-deductible/non-taxable items

 

(1,479

)

 

(10.9%)

 

 

(6,256

)

 

(5.6%)

 

Income tax expense

$

(9,416

)

 

(69.5%)

 

$

(24,606

)

 

(22.1%)

 

 

 

As of September 30, 2021, the Company’s Condensed Consolidated Balance Sheets include net deferred income tax assets of $18.7 million, net of a valuation allowance of $45.5 million (December 31, 2020 — $18.0 million, net of a valuation allowance of $28.8 million). The $16.7 million valuation allowance change recorded during the nine months ended September 30, 2021 is reflected within Income Tax Expense in the Company’s Condensed Consolidated Statements of Operations ($14.2 million) and within Shareholder’s Equity on the Company’s Condensed Consolidated Balance Sheets ($2.5 million). The valuation allowance is expected to reverse at the point in time when management determines it is more likely than not that the Company will incur sufficient tax liabilities to allow it to utilize the deferred tax assets against which the valuation allowance is recorded. Despite the valuation allowance recorded against its deferred tax assets, the Company remains entitled to benefit from tax attributes which currently have a valuation allowance applied to them.

During the three and nine months ended September 30, 2021, $20.4 million of historical earnings from a subsidiary in China were repatriated and, as a result $2.0 million of foreign withholding taxes were paid in the period (2020 — $nil).  

 

(b)

Income Tax Effect on Other Comprehensive (Loss) Income

 

For the three and nine months ended September 30, 2021 and 2020, the income tax expense related to the following items in Other Comprehensive (Loss) Income are:

 

 

Three Months Ended

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands of U.S. Dollars)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Unrealized change in cash flow hedging instruments

 

$

199

 

 

$

(160

)

 

 

$

42

 

 

 

$

235

 

Realized change in cash flow hedging instruments

 

 

82

 

 

 

(29

)

 

 

 

358

 

 

 

 

(211

)

Reclassification of unrealized change in ineffective cash flow hedging instruments

 

 

7

 

 

 

—

 

 

 

 

83

 

 

 

 

—

 

Defined benefit and postretirement benefit plans

 

 

(12

)

 

 

—

 

 

 

 

(37

)

 

 

 

40

 

 

 

$

276

 

 

$

(189

)

 

 

$

446

 

 

 

$

64