Bank of Montreal 2010 Annual Report Download - page 157

Notes
BMO Financial Group 193rd Annual Report 2010 155
Note 24: 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 (recovery of) income taxes that we have recorded in our Consolidated Statement of Income:
(Canadian $ in millions, except as noted) 2010 2009 2008
Combined Canadian federal and provincial income taxes
at the statutory tax rate 1,086 30.4% 657 31.6% 648 32.7%
Increase (decrease) resulting from:
Tax-exempt income (240) (6.7) (161) (7.7) (197) (9.9)
Foreign operations subject to different tax rates (83) (2.3) (212) (10.2) (317) (16.0)
Change in tax rate for future income taxes 6 0.2 5 0.2 5 0.2
Intangible assets not deductible for tax purposes 3 – 8 0.3 9 0.4
Other (1) (85) (2.4) (80) (3.7) (219) (11.0)
Provision for (recovery of) income taxes and effective tax rate 687 19.2% 217 10.5% (71) (3.6)%
(1) Includes recovery of prior years’ income taxes in the amount of $54 million in 2010, $75 million in 2009 and $160 million in 2008.
We report our provision for income taxes in our Consolidated Statement
of Income based upon transactions recorded in our consolidated financial
statements regardless of when they are recognized for income tax
purposes, with the exception of repatriation of retained earnings from
our foreign subsidiaries, as noted below.
In addition, we record an income tax expense or benefit directly
in shareholders’ equity when the taxes relate to amounts recorded in
shareholders’ equity. For example, income tax expense (recovery) on
hedging gains (losses) related to our net investment in foreign operations
is recorded in shareholders’ equity as part of accumulated other compre-
hensive income (loss) on translation of net foreign operations.
The future income tax balances included in other assets of
$559 million and in other liabilities of $332 million as at October 31, 2010
($513 million and $330 million, respectively, in 2009) are 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 the tax rate change is substantively enacted.
Components of Future Income Tax Balances
(Canadian $ in millions) 2010 2009
Future Income Tax Assets
Allowance for credit losses 536 547
Employee future benefits 212 222
Deferred compensation benefits 213 197
Other comprehensive income 17 17
Tax loss carryforwards 202 84
Other 203 135
1,383 1,202
Valuation allowance (125) (100)
Total future income tax assets 1,258 1,102
Future Income Tax Liabilities
Premises and equipment (186) (196)
Pension benefits (563) (416)
Intangible assets (95) (100)
Securities (193) (184)
Other 6 (23)
Total future income tax liabilities (1,031) (919)
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Included in future income tax assets is $80 million related to Canadian
tax loss carryforwards that will expire in 2030, $24 million (net of
valuation allowance) related to U.S. operations that will expire in 2031
and $1 million related to Chinese operations that will expire in 2016.
The valuation allowance as at October 31, 2010 and 2009 is primarily
attributable to future income tax assets generated in certain U.S. states
for which management believes it is more likely than not that realiza-
tion of these assets will not occur.
Income that 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 earnings. As repatriation
of such earnings is not planned in the foreseeable future, we have
not recorded the related future income tax liability. The Canadian and
foreign taxes that would be payable, at existing tax rates, if all of our
foreign subsidiaries’ earnings were repatriated as at October 31, 2010,
2009 and 2008 are estimated to be $236 million, $266 million and
$329 million, respectively.
Provision for (Recovery of) Income Taxes
(Canadian $ in millions) 2010 2009 2008
Consolidated Statement of Income
Provision for (recovery of) income taxes
– Current 786 120 46
– Future (99) 97 (117)
687 217 (71)
Shareholders’ Equity
Income tax expense (recovery) related to:
Unrealized gains (losses) on
available-for-sale securities,
net of hedging activities (4) 279 (53)
Gains (losses) on cash flow hedges 21 (108) 204
Impact of hedging unrealized
gains (losses) on translation
of net foreign operations 206 382 (881)
Other 2 (13) (7)
Total 912 757 (808)
Components of Total Provision for (Recovery of) Income Taxes
(Canadian $ in millions) 2010 2009 2008
Canada: Current income taxes
Federal 639 544 (525)
Provincial 341 290 (217)
980 834 (742)
Canada: Future income taxes
Federal (20) 120 (16)
Provincial (12) 69 (27)
(32) 189 (43)
Total Canadian 948 1,023 (785)
Foreign: Current income taxes 34 (179) 81
Future income taxes (70) (87) (104)
Total foreign (36) (266) (23)
Total 912 757 (808)