FORM 10-K IMPERIAL OIL LIMITED

4. Income taxes
millions of dollars 2004 2003 2002
Current income tax expense 1 103 610 718
Deferred income tax expense ( a ) (128) 79 (144)
Total income tax expense ( b ) 975 689 574
Statutory corporate tax rate ( p e rc e n t ) 37.0 38.5 42.0
Increase/(decrease) resulting from:
Non-deductible royalty payments to governments 3.9 5.0 5.4
Resource allowance in lieu of royalty deduction (7.0) (7.5) (11.8)
Manufacturing and processing credit – 0.2 (0.3)
Enacted tax-rate and tax-law changes (1.8) (3.1) (0.9)
Other 0.1 (4.3) (2.3)
Effective income tax rate 32.2 28.8 32.1
( a ) The deferred income tax expense for the year is the diff e rence in net deferred income tax liabilities at the beginning and end of the year. The provisions for deferre d
income taxes include net (charg e s ) / c redits for the effect of changes in tax laws and rates of $25 million in 2004 (2003 – $72 million; 2002 – $15 million).
( b ) Cash outflow from income taxes, plus investment credits earned, was $641 million in 2004 (2003 – $573 million; 2002 – $935 million).
Deferred income taxes are based on differences between the accounting and tax values of assets and liabilities. These differences in
value are remeasured at each period-end using the tax rates and tax laws expected to apply when those differences are realized or
settled in the future. Components of deferred income tax liabilities and assets as at December 31 were:
millions of dollars 2004 2003
Depreciation and amortization 1 287 1 233
Successful drilling and land acquisitions 403 495
Pension and benefits ( a ) (343) (286)
Site restoration (158) (167)
Net tax loss carryforwards ( b ) (57) (57)
Capitalized interest 26 16
Other (3) (5)
Deferred income tax liabilities 1 155 1 229
LIFO inventory valuation (343) (268)
Other (105) (85)
Deferred income tax assets (448) (353)
Valuation allowance – –
Net deferred income tax liabilities 707 876
( a ) Income taxes charged directly to shareholders’ equity related to minimum pension liability adjustment were $41 million benefit in 2004 (2003 – $57 million expense;
2002 – $155 million benefit).
( b ) Tax losses can be carried forw a rd indefinitely.
The operations of the company are complex, and related tax interpretations, regulations and legislation are continually changing.
As a result, there are usually some tax matters in question. The company believes the provision made for income taxes is adequate.
5. Reporting of fuel consumed in operations
Beginning in 2004, fuel consumed in operations, previously included in purchases of crude oil and products, has been reclassified as
production and manufacturing expenses in the consolidated statement of income. Prior period amounts have been reclassified for
comparative purposes. This reclassification has no impact on total expenses and net income or on the cash-flow profile of the company.
6. Headquarters relocation
On September 29, 2004, the company announced its intention to relocate its head office from Toronto, Ontario, to Calgary, Alberta.
Completion of the move is expected by August 2005. Severance, relocation and other costs associated with the relocation are expected
to be recorded in 2005, consistent with management decisions and the spending profile of these costs.
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