The Bank carries on many businesses in many different locations with differing outcomes, resulting in a mix of tax payments and tax recoveries. The Bank continues to pay significant amounts of tax to governments across Canada. Supplementary table 8 on page 38 lists the various taxes we’ve paid over the past five years.
Note 12 of the Bank’s consolidated financial statements sets out the key tax measurements under generally accepted accounting principles. It should be noted that for the year just ended, taxes of approximately $4.5 million are required to change the effective income tax rate by one percentage point as compared with $13 million last year and $14 million in 2000.
While the rate of reduction of Canadian corporate taxes has slowed, it still holds promise for lower future taxes. However, as governments tend to tax income before it is recognized for accounting purposes, the decline in rates tends to increase tax expense as this prepayment of taxes will be recovered at lower tax rates.
In the ordinary course, future tax assets tend to increase in banks. This trend was accelerated by the substantial sectoral loan provisions recorded in 2002. Together with the amortization of purchase-related intangibles (which decreased our future tax liability), this increase led to the creation of a net future tax asset. The effective use of this asset is dependent upon a return to ordinary levels of profitability, particularly in the Bank’s U.S. operations.