Page 69 - Suncor AR English

in the average credit-adjusted discount rate (2013 – 4.51%; Income Taxes

2012 – 3.75%).
Management evaluates tax positions, annually or when
circumstances require, which involves judgment and could

Employee Future Benefits
be subject to differing interpretations of applicable tax
The company provides benefits to employees, including legislation. The company recognizes a tax provision when a

pensions and other post-retirement benefits. The cost of payment to tax authorities is considered probable.
defined benefit pension plans and other post-retirement However, the results of audits and reassessments and

benefits received by employees is estimated based on changes in the interpretations of standards may result in
actuarial valuation methods that require professional changes to those positions and potentially a material

judgment. Estimates typically used in determining these increase or decrease in the company’s assets, liabilities and
amounts include, as applicable, rates of employee turnover, net earnings.

future claim costs, discount rates, future salary and benefit In January 2013, the company received a proposal letter
levels, the return on plan assets, mortality rates and future
from the Canada Revenue Agency (CRA) relating to the
medical costs. Changes to these estimates may have a income tax treatment of realized losses in 2007 on the
material impact on the amounts presented.
settlement of certain derivative contracts. Following
The fair value of plan assets is determined using market Suncor’s response to a number of information requests in
2013, the CRA informed the company that it has not
values. The estimated rate of return on plan assets in the
portfolio considers the current level of returns on fixed changed its original proposed position.

income assets, the historical level of risk premium In the event that the CRA issues a formal Notice of
associated with other asset classes and the expected future Reassessment (NOR), Suncor plans to file a Notice of
returns on all asset classes. The discount rate assumption is
Objection to dispute this matter. However, notwithstanding
based on the year-end interest rates for high-quality bonds the filing of an objection, the company would be required
that mature at times concurrent with the company’s benefit
to make a minimum payment of 50% of the amount
obligations. The estimated rate for compensation increases payable under the NOR, estimated to be $600 million,
is based on management’s judgment.
which would remain on account until the dispute
Actuarial valuations are subject to management’s judgment. is resolved.

Actuarial gains and losses comprise changes to
Suncor strongly disagrees with the CRA’s position and
assumptions related to discount rates, expected return on
firmly believes it will be able to successfully defend its
plan assets and annual rates for compensation increases. original filing position so that, ultimately, no increased
They are accounted for on a prospective basis and may
income tax payable will result from the CRA’s actions. If the
have a material impact on the amounts presented.
company is unsuccessful in defending its tax filing position,

it could be subject to an earnings impact of up to
Other Provisions
$1.2 billion.
The determination of other provisions, including, but not

limited to, provisions for royalty disputes, onerous Deferred Income Taxes
contracts, litigation and constructive obligations, is a
Deferred tax assets are recognized when it is considered
complex process that involves judgments about the probable that deductible temporary differences will be
outcomes of future events, the interpretation of laws and
recovered in the foreseeable future. To the extent that
regulations, and estimates on timing and amount of future taxable income and the application of existing tax
expected future cash flows and discount rates.
laws in each jurisdiction differ significantly from the
In December 2013, Suncor reached an agreement with the company’s estimate, the ability of the company to realize

Government of Alberta concerning several outstanding the deferred tax assets could be impacted.
issues under the RAA entered into in 2008. The impacts of
Deferred tax liabilities are recognized when there are
the final settlements were not material to the company’s taxable temporary differences that will reverse and result in
results. The company is no longer recording a provision
a future outflow of funds to a taxation authority. The
related to royalty disputes under the RAA.
company records a provision for the amount that is

The company is involved in litigation and claims in the expected to be settled, which requires judgment as to the
normal course of operations. As at December 31, 2013, ultimate outcome. Deferred tax liabilities could be impacted

management believes the result of any settlements related by changes in the company’s judgment of the likelihood of
to such litigation or claims would not materially affect the a future outflow, estimates of the expected settlement

financial position of the company.
amount, timing of reversals, and the tax laws in the
jurisdictions in which the company operates.

SUNCOR ENERGY INC. ANNUAL REPORT 2013 65