TD Bank 2006 Annual Report Download - page 26

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis
22
(millions of Canadian dollars) 2006 2005 2004
Provision for income taxes – reported $ 874 $ 699 $ 803
Increase (decrease) resulting from items of note:
Amortization of intangibles 205 192 149
Dilution gain on Ameritrade transaction, net of costs 34 ––
Balance sheet restructuring charge in TD Banknorth 18 – –
Wholesale Banking restructuring charge 15 14 –
Hedging impact due to AcG-13 (4) (10) 28
Tax charges related to reorganizations –(163) –
Other tax items (24) 98 –
Loss on structured derivative portfolio –53 –
Litigation charge –130 105
Non-core portfolio loan loss recoveries (sectoral related) –(102) (229)
General allowance release (21) (12) (24)
Initial set up of specific allowance for credit card and overdraft loans 10 – –
Tax effect – items of note 233 200 29
Provision for income taxes – adjusted 1,107 899 832
Other taxes:
Payroll 199 222 178
Capital and premium taxes 197 161 133
GST and provincial 184 178 146
Municipal and business 93 84 85
Total other taxes 673 645 542
Total taxes – adjusted $1,780 $1,544 $1,374
Effective income tax rate – adjusted 24.4% 23.1% 25.1%
1Total income and other taxes as a percentage of net income before income and other taxes.
RECONCILIATION OF NON-GAAP PROVISIONS FOR INCOME TAXES
TABLE 11
FINANCIAL RESULTS OVERVIEW
Taxes
Reported total income and other taxes increased by $203 million,
or 15%, from 2005. Income tax expense, on a reported basis,
was up $175 million, or 25%, from 2005. Other taxes were up
$28 million, or 4%, from 2005. Adjusted total income and other
taxes were up $236 million, or 15%, from 2005. Current income
tax expense, on an adjusted basis, was up $208 million, or 23%,
from 2005.
The Bank’s effective income tax rate, on a reported basis, was
15.8% for 2006, compared with 22.8% in 2005. The decrease
was largely due to the net dilution gains in 2006, which had
limited associated tax expense. Partially offsetting this item was
a lower impact on the tax rate from non-taxable dividends
received and international operations as compared with 2005.
On an adjusted basis, the effective income tax rate was 24.4%
for 2006, compared with 23.1% in 2005.
Prior to the sale of TD Waterhouse U.S.A. to Ameritrade to
create TD Ameritrade, the financial statements reported the
pre-tax and tax results of TD Waterhouse U.S.A. separately.
TD Ameritrade results are now reported as equity in net income
of associated company, net of income taxes; tax expense of
$84 million for the year is not part of the tax rate reconciliation.
The Government of Canada has the practice of announcing
proposed legislation and enacting it only years, in some cases,
many years later. However, such enactment is often retroactive
to the original announcement date although the form of the
legislation may have greatly altered over the time period. Neither
Canadian nor U.S. GAAP allows for any provision of the estimat-
ed impact of such proposals, even where they have a high
likelihood of passage. Currently, there is a very large amount of
proposed legislation which would affect the Bank. Because of its
complexity and uncertainty it is not possible to estimate a total
impact. Generally, however, we believe that the net impact will
be favourable to the Bank.
(millions of Canadian dollars) 2006 2005 2004
Income taxes at Canadian statutory income tax rate $1,934 35.0% $1,072 35.0% $1,065 35.1%
Increase (decrease) resulting from:
Dividends received (234) (4.2)% (232) (7.6)% (205) (6.8)%
Rate differentials on international operations (248) (4.5)% (215) (7.0)% (215) (7.1)%
Federal large corporations tax (3) (0.1)% 90.3% 12 0.4%
Items related to dilution gains and losses (582) (10.5)% 163 5.3% – –%
Future tax rate reduction – future tax assets 340.6% –– (17) (0.6)%
Future tax rate reduction – intangibles (24) (0.4)% –– 69 2.3%
Other (3) (0.1)% (98) (3.2)% 94 3.2%
Provision for income taxes and effective income tax rate – reported $874 15.8% $699 22.8% $803 26.5%
TAXES
TABLE 10