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kraychik

NDP's Revenge Tax Cause Hundreds Of Millions Of Dollars In Losses

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http://www.breitbart.com/big-government/2015/08/20/alberta-oil-companies-hemorrhage-cash-after-ndp-tax-hike/

So the "environmentalist" (i.e. "pro-science" Luddites) NDP seizes control in Alberta due to faux conservative prior leadership, and now massive profits have turned into massive losses. Well, at least now Alberta's NDP has an extra billion dollars laying around with which to purchase votes - which is what it's all about.

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Are you Robert Kraychick? Did you author those articles you're posting?

I'm just happy that the PC's (Petroleum Conservative Party) have deemed this forum worthy of trolling and disseminating their propaganda.

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I'm just happy that the PC's (Petroleum Conservative Party) have deemed this forum worthy of trolling and disseminating their propaganda.

I was inclined to actually look at the 2 companies financial statements... then it tweaked on me! That "revenge tax" comes directly from "The Rebel", Ezrant!... and the OP gave no credit to poor Ez!

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Not to mention the fact that transfer payments to all provinces and territories have almost doubled since 2007.
And still they blat about cuts to the provinces.
Now that Alberta's economy is in tough times, the provinces can expect a significant reduction in equalization payments.
So how does a province like Ontario with their free spending liberal government, reconcile their promises to the public sector unions when their cash flow is going to be reduced dramatically.
How are they going to convince the ratings agencies of their ability to meet their debt reduction commitments?
Lots of pain coming.
Lots of pain to go around.
New Brunswick's unemployment rate just jumped from 9.6% to 11.5 now that all them East Coast fellas are not bring home pay cheques from the patch.
Just for starters.
The media in this country, are... by and large, a freaking joke.

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Just like in the previous election. Canada can't afford the NDP. We just can't.

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I was inclined to actually look at the 2 companies financial statements... then it tweaked on me! That "revenge tax" comes directly from "The Rebel", Ezrant!... and the OP gave no credit to poor Ez!

Him again! Now there's a real fountain of wisdom.

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I bet this poster is from the same hive-mind that our favourite poster Socialist is from.


"Hey what can we do to make the leftists like us?"

"How about we pretend to be overly socialist, like to the point where it's annoying and overwhelming, to the point that no one would ever actually take it, then we pretend to have a major breakthrough. An overnight breakthrough, an epiphany, these people are just dumb lefties, they'll buy it."

Go figure a writer from an american conservative news network is trolling a Canadian political forum, possibly under multiple aliases. What is it with these people and trolling on forums? Need some click-bait for your article bud?

Edited by PrimeNumber

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Quick reality check:

On July 1 the NDP raised the corporate tax rate from 10% to 12%.

And if you're wondering how a 2% change in the tax rate that came into effect on July 1 cost CNR Ltd $579 million in the financial quarter that ended June 30, you're not alone. I found this baffling as heck.

Well, it turns out that this $579 million is actually a "deferred income tax liability". This is basically accounting hijinx... for whatever reasons they' have used accounting techniques to kick some of their income down the road to future fiscal quarters. And now the tax on income that they could have paid tax on earlier but decided to put into the future will be paid at a rate of 12% instead of 10%. Oops.

The claim of 4100 jobs is, likewise, hijinx. While dumb-guys might look at that statement and think "wow, this tax hike killed 4100 jobs!" that's not the case. It's a speculative figure based on the premise that if they had an extra $579 million they could hire up to 4100 people with it. Well, hypothetically with $579 million in free cash they could hire that many people, but they wouldn't, unless the oil market improves to the point that it would be profitable for them to do so.

To make a long story short, this is just corporate grandstanding.

-k

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Quick reality check:

On July 1 the NDP raised the corporate tax rate from 10% to 12%.

And if you're wondering how a 2% change in the tax rate that came into effect on July 1 cost CNR Ltd $579 million in the financial quarter that ended June 30, you're not alone. I found this baffling as heck.

Well, it turns out that this $579 million is actually a "deferred income tax liability". This is basically accounting hijinx... for whatever reasons they' have used accounting techniques to kick some of their income down the road to future fiscal quarters. And now the tax on income that they could have paid tax on earlier but decided to put into the future will be paid at a rate of 12% instead of 10%. Oops.

The claim of 4100 jobs is, likewise, hijinx. While dumb-guys might look at that statement and think "wow, this tax hike killed 4100 jobs!" that's not the case. It's a speculative figure based on the premise that if they had an extra $579 million they could hire up to 4100 people with it. Well, hypothetically with $579 million in free cash they could hire that many people, but they wouldn't, unless the oil market improves to the point that it would be profitable for them to do so.

To make a long story short, this is just corporate grandstanding.

-k

I'd highly recommend that people NOT take your advice on accounting/bookeeping (which I do for a living).

Deferred income taxes are incurred due to accounting and tax regulations, which require businesses to postpone their payments in taxes for various reasons. This was NOT voluntary on the part of any company, as you're portraying it to be.

Also, framing the tax hike as a 2% increase is misleading. It's a 20% increase in the total money paid in taxes, given that it jumped from ten to twelve percent.

The $567 million dollars noted in the article were NEW TAXES resulting from the tax increase. You realize earnings can vary greatly across years due to variable costs, right?

There are resources online that can help explain this stuff to you if you're genuinely curious.

Edited by kraychik

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Not to mention the fact that transfer payments to all provinces and territories have almost doubled since 2007.

And still they blat about cuts to the provinces.

Now that Alberta's economy is in tough times, the provinces can expect a significant reduction in equalization payments.

So how does a province like Ontario with their free spending liberal government, reconcile their promises to the public sector unions when their cash flow is going to be reduced dramatically.

How are they going to convince the ratings agencies of their ability to meet their debt reduction commitments?

Lots of pain coming.

Lots of pain to go around.

New Brunswick's unemployment rate just jumped from 9.6% to 11.5 now that all them East Coast fellas are not bring home pay cheques from the patch.

Just for starters.

The media in this country, are... by and large, a freaking joke.

socialist, u do know that the health care funds by the feds used to be 50% and now they are down to 10-20% and still dropping to the provinces, while health care expense are going up.

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Quick reality check:

On July 1 the NDP raised the corporate tax rate from 10% to 12%.

And if you're wondering how a 2% change in the tax rate that came into effect on July 1 cost CNR Ltd $579 million in the financial quarter that ended June 30, you're not alone. I found this baffling as heck.

Well, it turns out that this $579 million is actually a "deferred income tax liability". This is basically accounting hijinx... for whatever reasons they' have used accounting techniques to kick some of their income down the road to future fiscal quarters. And now the tax on income that they could have paid tax on earlier but decided to put into the future will be paid at a rate of 12% instead of 10%. Oops.

To make a long story short, this is just corporate grandstanding.

-k

Deferred income taxes (whether as an asset or a liability) are not accounting hijinx.

They arise from various factors.

An asset can arise when a company has had losses. So if a company has had some terrible years and is carrying losses forward because it expects to use the loss to reduce taxable income in a future year, then it will record a deferred income tax asset.

For example, a $1 m loss carry forward would lead to $120,000 in tax savings when the company next earns enough taxable income to use the loss (and since losses can be carried forward for 20 years a company will use it eventually unless it is a going concern).

Deferred income tax liabilities (DITL) tend to come from differences between the accounting treatment of capital assets and their tax treatment.

This tends to lead to DITL's because for accounting purposes the company is supposed to match the amortization of the asset (I.e. to expense the cost of the asset over its useful life) as compared to amortization for tax purposes which is often at accelerated rates.

And that is where I call BS on CNR and the rest of the oil patch (and businesses in general ).

They get to write off their assets at rates that are in excess of the true economic substance.

Let me put it this way: a company may write off $100 for accounting puposes. But on their tax return they get to write off $200.

IOW, taking time value of money into account, the companies are getting a nice tax break as they get to expense their capital assets quickly.

So, what happens is a company will look at its total capital assets at accounting net book value and compare that to the capital assets schedule on their tax return.

Deduct the difference, apply the tax rate and voila! you get the DITL.

IOW, if the company absolutely did correct amortization for accounting purposes and it sold all of its assets at those values, then the company would have a tax bill because the accounting values are higher than the tax values which means the company would end up having "recapture" on the sale.

Now to be fair, the NDP did raise taxes from 10 to 12% and that is a 2% point raise which is also a 20% raise.

So, my attitude is lower the rate back to 10% but reduce the accelerated capital cost allowance to make this tax neutral.

Of course that is unlikely to happen since it is the Feds who set the rates and it would be nuts for AB to divorce their tax system in this way from the Feds (administrative pain in the butt - easier to just raise the rate).

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Deferred income taxes (whether as an asset or a liability) are not accounting hijinx.

...

And that is where I call BS on CNR and the rest of the oil patch (and businesses in general ).

They get to write off their assets at rates that are in excess of the true economic substance.

Let me put it this way: a company may write off $100 for accounting puposes. But on their tax return they get to write off $200.

IOW, taking time value of money into account, the companies are getting a nice tax break as they get to expense their capital assets quickly.

So, what happens is a company will look at its total capital assets at accounting net book value and compare that to the capital assets schedule on their tax return.

Deduct the difference, apply the tax rate and voila! you get the DITL.

I read all of that as "accounting hijinx".

From your explanation it seems that the decision to write down their capital depreciation early is entirely discretionary, contrary to what Bob is saying.

Now, what I'm curious about is how far down the road can they kick the can? Can they keep creating early depreciation on capital expenses in perpetuity? Does the tax on the deferred income ever actually get paid?

Let me know if I'm doing this right, but it looks to me that for an increase in the tax rate from 10% to 12% to cost them $579 million, the value of the deferred income must be in the range of $29 billion dollars. Have I got that right? To me that's an astonishing figure.

-k

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And that is where I call BS on CNR and the rest of the oil patch (and businesses in general ).

.

.

Now to be fair, the NDP did raise taxes from 10 to 12% and that is a 2% point raise which is also a 20% raise.

is the deferred tax amount ($579 million) for that same period (2nd quarter) only... or is it also based on some future number of years projected earnings? Given such things as allowances, loopholes, etc., does the actual tax that ends up being paid typically match the deferral amount?

of note: the NDP 2% rate increase brings the tax level back to what it was during "Ralph Klein's" Conservative governing period... and this increase upsets some Albertans... some Canadians?

.

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Depreciation for tax purposes is subject to whatever rate the government allows.

If the government did not regulate this then business would simply write off an asset in the first year and take all the tax savings immediately.

So the government sets up classes - certain buildings are class 1 and are 4% per year, boats go in class 7 and get 15%. So far so good.

Then you get into other classes such as class 16 which would be for big rig trucks like tractor trailers - 40%.

Then other classes at even higher rates etc etc.

Does a company get to choose to take the deduction? Yes, it is an option to take or not take CCA (tax amortization).

But given that you can carry a loss forward for 20 years why would you not take the deduction?

As for the DITL actually equalling the amount of tax actually paid - it depends.

Since the company is amortizing the assets at accounting rates that should approximate closer to their true economic substance, if the company suddenly stopped doing business and sold the assets at accounting values (or higher) then, yes, the final tax cost would be close to the DITL (at least to the extent that the liability relates to timing differences in amortizing assets) or would exceed the DITL as there would be additional taxes for capital gains (which DITL does not take into account since it assumes accounting net book value is the true value of the assets as compared to the tax values - called UCC for undepreciated capital cost).

This is more than a theoretical concept: buy an asset for $100. Depreciate it to $80 for accounting purposes and $40 for tax purposes.

Then sell it for $120 (because it was a building so it went up in value).

You will have recapture of $60 ($100 cost minus the UCC value of $40) because you wrote off the building when it did not, in fact, go down in value. So you wrote off the $60 over x many years and got the tax savings and now you get to recapture the $60 into income all at once (which is not a big deal - companies do not pay graduated tax rates in the same manner as individuals do).

On top of that, you have a tax bill for the $20 capital gain ($120 minus the $100 cost).

So that is a reality and not hi jinx in anyway.

People get confused by this because it is a timing difference.

Business pushes and claims they should get higher write offs because they are spending the money now so they should get the tax break now. Conveniently ignoring the fact that they are really trading one asset (cash) for another asset (capital asset) if we are to assume no financing.

IOW, the argument is bogus. The write off should try to approximate the true economic cost of the asset over its useful life ( which, to be fair, is not precise and varies by industry and even business to some degree).

At any rate, I note that CNQ (their stock ticker) had an increase in the DITL of $178 million in the same quarter in 2014.

So, they likely were going to have an increase anyway. So perhaps the AB tax increase is about $400 million.

But I don't really know because the statements are not going to give us that info.

We know they have capital assets at $53 billion which is little changed from q2 2014.

But we don't know what their UCC amount is on the tax return.

Presumably the difference between NBV and UCC is large since the DITL on the balance sheet was $8.9 billion at Dec 2014 and $9.3 billion at June 30, 2015 ( note this is a difference of $400 million).

We will need to look at their audited annual year end statements to have a chance to break it out further to see all the moving parts ( and even then there will be much guesswork).

Then throw in other areas that can lead to a DITL and we just won't know without getting a hold of the auditors working paper file.

But the best way to consider income taxes paid without this DITL noise?

Look at the bottom of the cash flow statement: income taxes paid June 30, 2014 $602 million versus the same 6 months in 2015 of $264.

Not a perfect way to look at it as earnings are lower and operating cash flow is lower so one would expect lower taxes.

There is still timing issues here as it deals in terms of cash being used to pay taxes rather than the proper accrual of taxes payable, but it does filter the noise to a large degree if you were to plot it on a graph comparing these factors over time.

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of note: the NDP 2% rate increase brings the tax level back to what it was during "Ralph Klein's" Conservative governing period... and this increase upsets some Albertans... some Canadians?

.

I have my doubts about the worthiness of all the corporate tax cuts which have taken place over the last some years, not only here but elsewhere in he world. However, I don't think the fastest, worst economic downturn in the oil industry in decades is really the proper time to throw a tax increase into the mix.

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I have my doubts about the worthiness of all the corporate tax cuts which have taken place over the last some years, not only here but elsewhere in he world. However, I don't think the fastest, worst economic downturn in the oil industry in decades is really the proper time to throw a tax increase into the mix.

and what would you call the motive behind BigOil pushing pump prices higher as price per barrel sinks ever lower... is this the proper time? What would you call the motive behind BigOil purposely keeping refinery inventories tight so that any disruption will drive pump prices up... is this the proper time? Is this the time for BigOil to gouge drivers?

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of note: the NDP 2% rate increase brings the tax level back to what it was during "Ralph Klein's" Conservative governing period... and this increase upsets some Albertans... some Canadians?.

Not to mention their taxes are still some of the lowest in the country North America.

Edited by cybercoma

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Not to mention their taxes are still some of the lowest in the country North America.

So the NDP implements new taxes/"royalties" on oil sands companies, causing over a billion dollars in losses, and you're cool with it because you think they're some of the lowest taxes in North America?

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Now that Alberta's economy is in tough times, the provinces can expect a significant reduction in equalization payments.

No, it doesn't mean that at all. Alberta still has higher average incomes than the toher provinces, so the have-nots aren't going to lose a dime.

Alberta and Albertans will though.

It's a race to the bottom.

Edited by overthere

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So the NDP implements new taxes/"royalties" on oil sands companies, causing over a billion dollars in losses, and you're cool with it because you think they're some of the lowest taxes in North America?

I think most people would be pretty happy to say they pay billions more in taxes with a 2 point increase in their taxes.

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I think most people would be pretty happy to say they pay billions more in taxes with a 2 point increase in their taxes.

It was a 20% increase in taxes. From 10% to 12%.

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It was a 20% increase in taxes. From 10% to 12%.

Yes, which is the same as a 2 point increase in the taxes - 10 to 12% is a 2 point increase or 20%.

And, yes, I would be happy to only pay 12% in taxes on billions of income.

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It was a 20% increase in taxes. From 10% to 12%.

Yes. That's what I said. 2 points. I would be pretty happy with my income if 2 points caused me to pay millions more.

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