Bank of Montreal 2003 Annual Report Download - page 99

BMO Financial Group 186th Annual Report 2003 95
We report our provision for income taxes in our Consolidated State-
ment of Income based upon transactions recorded in our consolidated
financial statements regardless of when they are recognized for in-
come tax purposes, with the exception noted below for repatriation
of retained earnings from our foreign subsidiaries.
In addition, we record income tax expense or benefit directly
in retained earnings for the tax effects of those items recorded in
shareholders’ equity.
The net future income tax asset included in other assets is the
cumulative amount of tax applicable to temporary differences
between the accounting and tax values of our assets and liabilities.
Future income tax assets and liabilities are measured at the tax
rates expected to apply when these differences reverse. Changes
in future income tax assets and liabilities related to a change in tax
rates are recorded in income in the period of the tax rate change.
We expect that we will realize our future income tax assets in the
normal course of our operations.
Components of Future Income Tax Balances
(Canadian $ in millions) 2003 2002
Future Income Tax Assets
Allowance for credit losses $ 500 $ 508
Employee future benefits 159 165
Deferred compensation benefits 148 140
Other 136 119
Total future income tax assets 943 932
Future Income Tax Liabilities
Premises and equipment (307) (394)
Pension (360) (290)
Amortization of intangibles (80) (81)
Other (50) (58)
Total future income tax liabilities (797) (823)
Net future income tax asset $ 146 $ 109
Income which we earn in foreign countries through our branches
or subsidiaries is generally subject to tax in those countries. We
are also subject to Canadian taxation on the income earned in our
foreign branches. Canada allows a credit for foreign taxes paid on
this income. Upon repatriation of earnings from certain foreign
subsidiaries, we would be required to pay tax on certain of these
Provision for Income Taxes
(Canadian $ in millions) 2003 2002 2001
Consolidated Statement of Income
Provision for income taxes $ 688 $ 424 $ 501
Income tax (benefit) related to
amortization of goodwill
–– (6)
Shareholders’ Equity
Income tax expense (benefit) related to:
Foreign currency gains (losses)
on translation of net investments
in foreign operations 601 81 (178)
Other – (4) (172)
Total $ 1,289 $ 501 $ 145
Components of Total Income Taxes
Canada: Current income taxes
Federal $ 752 $ 207 $ 95
Provincial 294 46 32
1,046 253 127
Canada: Future income taxes
Federal 7132 (108)
Provincial 244 (36)
9176 (144)
Total Canadian 1,055 429 (17)
Foreign: Current income taxes 280 (35) 198
Future income taxes (46) 107 (36)
Total foreign 234 72 162
Total $ 1,289 $ 501 $ 145
earnings. As repatriation of such earnings is not planned in the
foreseeable future, we have not recorded the related future income
tax liability. Canadian and foreign taxes that would be payable
if all of our foreign subsidiaries’ earnings were repatriated as at
October 31, 2003, 2002 and 2001 are estimated to be $490 million,
$530 million and $501 million, respectively.
Note 20 Income Taxes
Set out below is a reconciliation of our statutory tax rates and income tax that would be payable at these rates to the effective income tax
rates and provision for income taxes that we have recorded in our Consolidated Statement of Income:
(Canadian $ in millions, except as noted) 2003 2002 2001
Combined Canadian federal and provincial income taxes at the statutory tax rate $ 935 36.2% $ 727 38.3% $ 848 41.0%
Increase (decrease) resulting from:
Tax-exempt income (112) (4.4) (99) (5.2) (93) (4.5)
Foreign operations subject to different tax rates (153) (5.9) (197) (10.3) (161) (7.8)
Non-taxable portion of gain on sale of investment in Bancomer
–– –– (83) (4.0)
Large corporations tax 7 0.3 15 0.8 15 0.7
Change in tax rate for future income taxes 10 0.4 9 0.4 38 1.9
Intangible assets not deductible for tax purposes 14 0.6 16 0.8 11 0.5
Other (13) (0.5) (47) (2.5) (74) (3.6)
Provision for income taxes and effective tax rate $ 688 26.7% $ 424 22.3% $ 501 24.2%