For the years ended December 31, 2007 and 2006
($Cdn thousands except per share amounts and as noted)
The significant components of future income tax assets and liabilities at December 31 are as follows:
| 2007 | 2006 | |||
| Assets | ||||
Property, plant and equipment |
$ | 201,560 | $ | 173,774 |
Provision for reclamation |
78,335 | 65,234 | ||
Foreign exploration and development |
46,389 | 31,144 | ||
Other |
65,060 | 37,031 | ||
Future income tax assets before valuation allowance |
391,344 | 307,183 | ||
Valuation allowance |
(113,092) | (128,771) | ||
Future income tax assets, net of valuation allowance |
$ | 278,252 | $ | 178,412 |
| Liabilities | ||||
Property, plant and equipment |
$ | 473,734 | $ | 502,579 |
Inventories |
19,601 | 18,935 | ||
Long-term investments and other |
116,506 | 42,638 | ||
Future income tax liabilities |
$ | 609,841 | $ | 564,152 |
Net future income tax liabilities |
$ | 331,589 | $ | 385,740 |
Less current portion |
(84,653) | (46,289) | ||
| $ | 246,936 | $ | 339,451 | |
The provision for income taxes differs from the amount computed by applying the combined expected federal and provincial income tax rate to earnings before income taxes. The reasons for these differences are as follows:
| 2007 | 2006 | |||
| Earnings before income taxes and minority interest | $ | 465,932 | $ | 345,426 |
Combined federal and provincial tax rate |
35.7% | 39.3% | ||
| Computed income tax expense | 166,338 | 135,752 | ||
| Increase (decrease) in taxes resulting from: | ||||
Reduction in income tax rates |
(18,036) | (66,749) | ||
Provincial royalties and other taxes |
1,240 | 1,092 | ||
Federal and provincial resource allowance |
(492) | (6,617) | ||
Manufacturing and processing deduction |
(5,112) | (5,719) | ||
Difference between Canadian rate and rates applicable to subsidiaries in other countries |
(187,328) | (133,988) | ||
Restructuring of gold business |
40,156 | – | ||
Change in valuation allowance |
(4,827) | 19,126 | ||
Capital and other taxes |
1,938 | 2,296 | ||
Stock-based compensation plans |
(306) | 6,700 | ||
Recovery of taxes due to amendment of tax treatment |
– | (16,950) | ||
Other permanent differences |
35,897 | (3,786) | ||
| Income tax expense (recovery) | $ | 29,468 | $ | (68,843) |
In 2007, the federal government introduced amendments to the Canadian Income Tax Act that provide for a 4% reduction in the general corporate income tax rate. The federal tax rate will decline in 2012 from 19% to 15%. This legislation was substantively enacted in 2007.
Under Canadian accounting rules, the cumulative effect of a change in income tax legislation on future income tax assets and liabilities is included in a company's financial statements in the period of substantive enactment. Accordingly, Cameco reduced its balance sheet provision for future income taxes and recognized a non-cash income tax adjustment of $25,400,000 in 2007.
During 2006, the federal and provincial governments enacted amendments to current tax legislation, which provided for a reduction in corporate tax rates. The cumulative effect of the change in income tax legislation on Cameco's future income tax liability was a reduction of $73,000,000.
| 2007 | 2006 | |||
| Earnings before income taxes and minority interest | ||||
Canada |
$ | (297,519) | $ | (17,703) |
Foreign |
763,451 | 363,129 | ||
| $ | 465,932 | $ | 345,426 | |
| Current income taxes | ||||
Canada |
$ | 99,066 | $ | 91,730 |
Foreign |
64,531 | 24,066 | ||
| $ | 163,597 | $ | 115,796 | |
| Future income taxes (recovery) | ||||
Canada |
$ | (126,303) | $ | (167,189) |
Foreign |
(7,826) | (17,450) | ||
| $ | (134,129) | $ | (184,639) | |
| Income tax expense (recovery) | $ | 29,468 | $ | (68,843) |
Other comprehensive income included on the consolidated statements of shareholders' equity and the consolidated statements of comprehensive income is presented net of income taxes. The following income tax amounts are included in each component of other comprehensive income.
| 2007 | 2006 | |||
| Net gains on derivatives designated as cash flow hedges | $ | 92,860 | $ | – |
| Net gains on derivatives designated as cash flow hedges transferred to net earnings | (28,104) | – | ||
| Unrealized losses on assets available-for-sale | (1,152) | – | ||
| Total income tax expense included in OCI | $ | 63,604 | $ | – |