Air Canada 2008 Annual Report Download - page 33

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2008 Management’s Discussion and Analysis
33
• In2007,AirCanadarecordedagainondisposalof$14millionfrominsuranceproceedsrelatedtoaCRJ-100aircraft
owned by Air Canada and leased to Jazz which was damaged beyond repair and gains of $5 million mainly pertaining
to the sale of one real estate property.
Net losses on foreign exchange amounted to $655 million in 2008
Net losses on foreign exchange amounted to $655 million in 2008 compared to gains of $317 million in 2007. The losses in
2008 were attributable to a weaker Canadian dollar at December 31, 2008 compared to December 31, 2007, partially offset
by gains of $327 million related to foreign currency derivatives. The December 31, 2008 noon day exchange rate was $1US
= Cdn $1.2246 while the December 31, 2007 noon day exchange rate was $1US = Cdn $0.9881.
Provision of income taxes of $24 million in 2008
Air Canada recorded a provision for income taxes of $24 million in 2008. The tax provision reflected future income tax
that has been reclassified from other comprehensive income to income for realized gains on fuel derivatives. A potential
recovery of future income taxes of $148 million on the current year loss has been offset by a valuation allowance. This
compared to a provision for income taxes of $190 million, at an effective income tax rate of 31%, for the same period in
2007. The effective income tax rate for 2007 was favourably impacted by the capital portion of certain foreign exchange
gains reported in the year, which were tax-affected at 50% of the income tax rate. In addition, the favourable impact of a
reduction in the federal corporate income tax rate was recognized in 2007. In 2007, Air Canada also recorded a current tax
expense of $10 million related to the harmonization of Ontario and federal income taxes. This change in tax law resulted
in a tax liability of $10 million payable over a period of five years, beginning in 2010.