[Volas]

Originally Posted by firebug

Because it leads to you (and lots in the media) thinking this is a cash expense.

Look at their Q2 cash flow statement. What did you see? Right, they added back the deferred tax expense and end up with cash from operations of 1,285MM for the quarter. That means they didn't actually pay any of that right now but are letting investors know that over time (and assuming nothing changes) that will have to pay more taxes.

Last year they only paid $700 million in taxes in North America and let's assume that it was all in AB. Now lets raise this by 20% so the new value is 840MM. 140MM is a lot of money, but it is on over $5,000MM in pre-tax Profits (taxes would go from 14 to 16.8% of profits; 2.8% extra).

$579MM seems like a lot (and it is) but measuring it against 1 qtr of performance is the gimmick. In reality it reflects impact over a much greater amount of time and over a much larger value of revenues and profits.

Let's say you are the avg albertan with 1,000,000 in RRSPs. While individuals don't account for it this way, your personal 'balance sheet' would show the RRSP's on the asset side but on the liability side you would show a deferred tax liability, because when you withdraw them, you owe the gov't the taxes on them at whatever the future rate is.

So lets say you make some calculations and determine that at your forecast withdrawal rate you'll pay an average rate of 25% so on your personal Balance Sheet you'd show a Deferred tax liability of $250,000 (or more likely the PV of $250k). Now lets pretend that the Gov't increases the personal tax rate by 20% so you need to make a new deferred tax estimate on your next balance sheet which works out to 50k increase (or rather the PV of it). Your quarterly income statement would show that expense recognized now, even though the impact is far into the future and could make you show a loss even though the cash impact is zero right now.

Of course you'll be bitter at the gov't and may need to make some changes to your latte habit, but you are not going to have the house foreclosed upon.

I recognize corporate taxes are much more convoluted than my personal tax example, but my point is to show that how liabilities get accrued can cause lots of confusion when looking at them on a quarterly statement.

sorry not well versed here but what kind of time period would the 579 mm be incurred over?