Finning International

FINNING INTERNATIONAL INC.

(a) A review of the Consolidated Statements of Income and Retained Earnings for the two years provided indicates that Finning International applied intraperiod allocation in the two years presented. This is apparent from the fact that there is “Loss from discontinued operations“ on the statements of income and the statements of retained earnings and related note disclosure, Note 14, shows that “Loss from discontinued operations” includes $3,002 thousand of “Provision for income taxes – recovery” in 2006 and $2,372 thousand in 2005.

(b) The statutory tax rates and effective tax rates for 2005 and 2006 are presented below. There are significant differences between the rates in both years. The main item that caused the effective rate to be less than the statutory rate in both years was the lower statutory rates on the earnings of foreign subsidiaries. Non-taxable capital gains also decreased the effective rates in both years. Large-corporation tax caused an increase in the effective rate in 2005. The income not subject to tax caused an increase in the effective rate in 2006 and a decrease in the effective rate in 2005.

(CDN$ in thousands ) 2006 2005

Statutory rate 33.21% 34.18%

Income tax expense $71,343 $ 46,764

Income before taxes $ 312,081 $ 216,321

Effective rate 22.86% 21.62%

(c) The total income tax expense reported on the Consolidated Statements of Income and Retained Earnings for the two years, broken down into the provisions for current income tax and future income tax, is presented below.

(CDN $ in thousands) 2006 2005

Total Income tax expense $ 71,343 $ 46,764

Consists of:

Currently payable

Canada 51,703 25,113

International 29,158 24,278

80,861 49,391

Future taxes

Canada (10,459) (3,386)

International 941 759

(9,518) (2,627)

Total $ 71,343 $ 46,764

(d) Finning International has complied...