v3.22.2.2
Income taxes
 12 Months Ended
Oct. 31, 2022
Text Block [Abstract]  
Income taxes
Note 22    Income taxes
Components of tax expense
 
 
 
 
  
For the year ended
 
     
(Millions of Canadian dollars)
  
October 31
2022
 
  
October 31
2021
 
Income taxes (recoveries) in Consolidated Statements of Income
  
      
  
      
Current tax
  
      
  
      
Tax expense for current year
   
$
4,151
 
    $ 4,893  
Adjustments for prior years
   
 
(230
 )      (92 ) 
Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference of a prior period
   
 
–
 
      (16 ) 
 
   
 
3,921
 
      4,785  
Deferred tax
                  
Origination and reversal of temporary difference
     
232
        (216 ) 
Effects of changes in tax rates
     
4
        (4 ) 
Adjustments for prior years
   
 
231
 
      74  
Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference of a prior period, net
   
 
(86
 )      (58 ) 
 
   
 
381
 
      (204 ) 
 
   
 
4,302
 
      4,581  
Income taxes (recoveries) in Consolidated Statements of Comprehensive Income and Changes in Equity
                  
Other comprehensive income
                  
Net unrealized gains (losses) on debt securities and loans at fair value through other comprehensive income
   
 
(633
) 
      (35 ) 
Provision for credit losses recognized in income
   
 
(2
) 
      –  
Reclassification of net losses (gains) on debt securities and loans at fair value through other comprehensive income to income
   
 
2
 
      (28 ) 
Unrealized foreign currency translation gains (losses)
   
 
2
 
      1  
Net foreign currency translation gains (losses) from hedging activities
   
 
(478
) 
      591  
Reclassification of losses (gains) on net investment hedging activities to income
   
 
6
 
      –  
Net gains (losses) on derivatives designated as cash flow hedges
   
 
628
 
      485  
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income
   
 
70
 
      97  
Remeasurements of employee benefit plans
   
 
287
 
      796  
Net fair value change due to credit risk on financial liabilities designated at fair value through profit or loss
   
 
622
 
      20  
Net gains (losses) on equity securities designated at fair value through other comprehensive income
   
 
(3
) 
      17  
Share-based compensation awards
   
 
10
 
      (17 ) 
Distributions on other equity instruments and issuance costs
   
 
(45
 )      (42 ) 
 
   
 
466
 
      1,885  
Total income taxes
   
$
4,768
 
    $ 6,466  
The effective income tax rate of
 21.4%
 
decreased 80 bps, primarily due to higher tax-exempt income and an increase in income from lower tax rate jurisdictions in the current year.
The following is an analysis of the differences between the income tax expense reflected in the Consolidated Statements of Income and the amounts calculated at the Canadian statutory rate.
Reconciliation to statutory tax rate
 
  
  
For the year ended
 
     
(Millions of Canadian dollars, except for percentage amounts)
  
October 31, 2022
 
  
October 31, 2021
 
Income taxes at Canadian statutory tax rate
   
$
5,269
 
   
 
26.2
%
 
    $ 5,405        26.2 % 
Increase (decrease) in income taxes resulting from:
                                    
Lower average tax rate applicable to subsidiaries
   
 
(428
)
   
 
(2.1
)
      (361 )       (1.8 ) 
Tax-exempt
income from securities
   
 
(437
)
   
 
(2.2
)
      (379 )       (1.8 ) 
Tax rate change
   
 
4
 
   
 
–
 
      (4 )       –  
Other
   
 
(106
)
   
 
(0.5
)
      (80 )       (0.4 ) 
Income taxes in Consolidated S
tate
ments of Income / effective tax rate
   
$
4,302
 
   
 
21.4
%
 
    $ 4,581        22.2 % 
Deferred tax assets and liabilities result from tax loss and tax credit carryforwards and temporary differences between the tax basis of assets and liabilities and their carrying amounts on our Consolidated Balance Sheets.
Significant components of deferred tax assets and
liabilities
 
  
 
As at and for the year ended October 31, 2022
 
               
(Millions of Canadian dollars)
 
Net asset
beginning of
period
 
 
Change
through
equity
 
 
Change
through
profit or loss
 
 
Exchange
rate
differences
 
 
Acquisitions/
disposals
 
 
Other
 
 
Net asset
end of
period
 
Net deferred tax asset/(liability)
 
      
 
      
 
      
 
      
 
      
 
      
 
      
Allowance for credit losses
  
$
974
 
  
$
–
 
  
$
2
 
  
$
11
 
  
$
–
 
  
$
–
 
  
$
987
 
Deferred compensation
  
 
1,614
 
  
 
(10
 )  
 
(211
 )  
 
101
 
  
 
10
 
  
 
–
 
  
 
1,504
 
Business realignment charges
  
 
11
 
  
 
–
 
  
 
1
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
12
 
Tax loss and tax credit carryforwards
  
 
242
 
  
 
–
    
 
67
 
  
 
2
 
  
 
8
 
  
 
3
 
  
 
322
 
Deferred (income) expense
  
 
110
 
  
 
(1
)
  
 
(126
 )  
 
23
 
  
 
–
 
  
 
–
 
  
 
6
 
Financial instruments measured at fair value through other comprehensive income
  
 
(19
) 
  
 
(2
)
  
 
–
 
  
 
5
 
  
 
–
 
  
 
–
 
  
 
(16
) 
Premises and equipment and intangibles
  
 
(836
) 
  
 
  
 
  
 
4
 
  
 
(57
)
  
 
(345
)
 
  
 
–
 
  
 
(1,234
) 
Pension and post-employment related
  
 
(163
) 
  
 
(287
)
  
 
19
 
  
 
4
 
  
 
(8
)
 
  
 
–
 
  
 
(435
) 
Other
  
 
4
 
  
 
22
 
  
 
(137
)
  
 
(6
)
  
 
4
 
  
 
–
 
  
 
(113
 )
 
  
$
1,937
 
  
$
(278
)
  
$
(381
)
  
$
83
 
  
$
(331
)
  
$
3
 
  
$
1,033
 
Comprising
                                                        
Deferred tax assets
  
$
2,011
 
                                          
$
1,472
 
Deferred tax liabilities
  
 
(74
) 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
(439
 )
 
  
$
1,937
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
$
1,033
 
       
     As at and for the year ended October 31, 2021  
               
(Millions of Canadian dollars)
   Net asset
beginning of
period		    
Change
through
equity
    
Change
through
profit or loss
    
Exchange
rate
differences
    
Acquisitions/
disposals
     Other    
Net asset
end of
period
  
Net deferred tax asset/(liability)
                                                        
Allowance for credit losses
   $ 1,362     $ –     $ (372 )    $ (16 )    $ –     $ –     $ 974  
Deferred compensation
     1,269       17       396       (68 )      –       –       1,614  
Business realignment charges
     9       –       2       –       –       –       11  
Tax loss and tax credit carryforwards
     204       –       40       (2 )      –       –       242  
Deferred (income) expense
     (104 )      6       205       3       –       –       110  
Financial instruments measured at fair value through other comprehensive income
     (68 )      45       (1 )      5       –       –       (19 ) 
Premises and equipment and intangibles
     (784 )      –       (82 )      30               –       (836 ) 
Pension and post-employment related
     592       (796 )      45       (4 )      –       –       (163 ) 
Other
     47       (12 )      (29 )      3       –       (5 )      4  
 
   $ 2,527     $ (740 )    $ 204     $ (49 )    $ –     $ (5 )    $ 1,937  
Comprising
                                                        
Deferred tax assets
   $ 2,579                                             $ 2,011  
Deferred tax liabilities
     (52 )   
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
     (74 ) 
 
   $ 2,527    
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
   $ 1,937  
The tax loss and tax credit carryforwards amount of deferred tax assets primarily relates to losses and tax credits in our Canadian, U.S., and Caribbean operations. Deferred tax assets of $322 million were recognized at October 31, 2022 (October 31, 2021 – $242 million) in respect of tax losses and tax credits incurred in current or preceding years for which recognition is dependent on the projection of future taxable profits. Management’s forecasts support the assumption that it is probable that the results of future operations will generate sufficient taxable income to utilize the deferred tax assets. The forecasts rely on continued liquidity and capital support to our business operations, including tax planning strategies implemented in relation to such support.
As at October 31, 2022, unused tax losses and tax credits of $429 million and $130 million (October 31, 2021 – $384 million and $207 million) available to be offset against potential tax adjustments or future taxable income were not recognized as deferred tax assets. There are no unused tax losses that will expire within one year (October 31, 2021 – $nil),
or
in two to four years (October 31, 2021 – $2 million) and
there are
$429 million
of unus
ed tax los
ses
 
that will expire after four years (October 31, 2021 – $382 million). There are no tax credits that will expire in one year (October 31, 2021 – $nil), $93 million that will expire in two to four years (October 31, 2021 – $115 million) and $37 million that will expire after four years (October 31, 2021 – $92 million).
The amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures for which deferred tax liabilities have not been recognized in the parent bank is $26 billion as at October 31, 2022 (October 31, 2021 – $20 billion).
Tax examinations and assessments
During the year, we received a reassessment from the Canada Revenue Agency (CRA) in respect of the
2017
taxation year, which suggests that Royal Bank of Canada owes additional taxes of approximately $237 million as they denied the deductibility of certain dividends. The reassessment received during the year is consistent with the reassessments received for taxation years 2012 to 2016 of approximately $1,391 million of additional income taxes and the reassessments received for taxation years 2009 to 2011 of approximately $434 million of additional income taxes and interest in respect of the same matter. These amounts represent the maximum additional taxes owing for those years.
Legislative amendments introduced in the 2015 Canadian Federal Budget resulted in disallowed deduction of dividends from transactions with Taxable Canadian Corporations including those hedged with Tax Indifferent Investors, namely pension funds and
non-resident
entities with prospective application effective May 1, 2017. The dividends to which the reassessments relate include both dividends in transactions similar to those which are the target of the 2015 legislative amendments and dividends which are unrelated to the legislative amendments.
It is possible that the CRA will reassess us for significant additional income tax for subsequent years on the same basis. In all cases, we are confident that our tax filing position was appropriate and intend to defend ourselves vigorously.
Government of Canada Budget 2022
O
n April 7, 2022, the Government of Canada presented its 2022 budget, which included measures focused on ensuring banking and life insurers’ groups help pay a portion of the costs of the Canadian federal government’s COVID-19 pandemic response. On November 22, 2022, Bill C-32, Fall Economic Statement Implementation Act, 2022 (the Bill) received second reading in the House of Commons. The Bill includes a Canada Recovery Dividend (CRD) and a permanent increase in the corporate income tax rate. The CRD is a one-time
15
%
 
tax for 2022 determined based on the average taxable income above
 $
1
billion for taxation years 2020 and 2021 and payable in equal installments over five years. The permanent increase in the corporate income tax rate is
 1.5%
on taxable income above $100 million and would apply to taxation years that end after April 7, 2022. 
The Bill is not yet substantively enacted and timing of enactment remains uncertain. Based on the draft legislation, which remains subject to amendments prior to enactment, the CRD is expected to reduce net income by approximately
 $1
billion and other comprehensive income by approximately
 $0.1
billion when substantively enacted.