Air Canada 2006 Annual Report Download - page 93

8. FUTURE INCOME TAXES
The following income tax related amounts appear in the Corporation’s combined consolidated statement of
financial position:
2006 2005
Future income tax asset recorded in current assets (a) $ 345 $ -
Current taxes payable (a) $ (345) $ -
Future income tax liability (c) $ (134) $ (217)
a) Current Taxes Payable
As part of a tax loss utilization strategy that was planned in conjunction with the initial public offering of Air
Canada and corporate restructuring, a current tax payable of $345 was created. This tax payable arose upon a
transaction to transfer tax assets from Air Canada to ACE. This tax payable will be recoverable from future
income tax assets of Air Canada. The recovery is expected to settle within twelve months.
b) Valuation Allowance
The Corporation has determined that it is more likely than not that future income tax assets of $1,169 are not
recoverable and have been offset by a valuation allowance. However, the future tax deductions underlying the
future tax assets remain available for use in the future to reduce taxable income.
Prior to the completion of the Air Canada IPO, it was determined that a portion of valuation allowance recorded
by ACE should be reversed as it was more likely than not that certain future income tax assets of $504, which a
valuation allowance had been recorded against at the time of fresh start reporting, would be realized. Consistent
with the income tax accounting policy of Air Canada while it was wholly owned by ACE, the reversal of the
valuation allowance by ACE results in a reduction of Air Canada’s intangible assets (on a pro-rata basis) of
$374.
The benefit of future income tax assets that existed at fresh start, including the benefit recognized by affiliates of
the Corporation, and for which the valuation allowance has been reversed, are recognized on a pro rata basis
as a reduction of intangible assets of the Corporation and a debit or credit to shareholders’ equity. The pro rata
allocation of the reversal of the valuation allowance has been based on the aggregate carrying value of
intangible assets of the Corporation and other entities of ACE on the basis that under the Plan, these intangible
assets were transferred to the other entities from Air Canada. The accumulated credit to shareholders’ equity as
at December 31, 2006 is $340, as disclosed in Note 12 (2005 – $49).
As described in Note 1, the income of certain inter-company investments held by Air Canada are excluded from
these combined consolidated financial statements. The income from these investments resulted in the utilization
of non-capital losses carried forward of Air Canada and, as a result, the related future income tax expense has
been charged to shareholders’ equity. The accumulated debit to shareholders’ equity as at December 31, 2006
is $177, as disclosed in Note 12 (2005 - $105).
Subsequent to the completion of the Air Canada IPO, the future income tax accounting of Air Canada is
independent from ACE, and as such, Air Canada’s intangible assets and shareholders’ equity are not expected
to be affected by accounting events from ACE.
c) Future Income Tax Liability
It has been assumed that certain intangibles and other assets with no underlying tax cost and a carrying value
of approximately $836, have indefinite lives and accordingly, the associated future income tax liability of $134 is
not expected to reverse until the assets are disposed of or become amortizable, resulting in the reporting of a
future income tax liability of $134.
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Combined Consolidated Financial Statements 2006