content_image/1059389.jpg
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense in the Company’s Consolidated Statements of Income. The net amount of accrued interest and penalties in 2018 was $nil (2017 – $1 million; 2016 – $1 million). The total amount of accrued interest and penalties associated with the unrecognized tax benefit at December 31, 2018 was $11 million (2017 – $11 million; 2016 – $10 million). 

The Company and its subsidiaries are subject to either Canadian federal and provincial income tax, U.S. federal, state and local income tax, or the relevant income tax in other international jurisdictions. The Company has substantially concluded all Canadian federal and provincial income tax matters for the years through 2012. The federal and provincial income tax returns filed for 2013 and subsequent years remain subject to examination by the Canadian taxation authorities. The Internal Revenue Service ("IRS") audit for 2012 and 2013 has been settled. The income tax returns for 2014 and subsequent years continue to remain subject to examination by the IRS and U.S. state tax jurisdictions. The Company believes that it has recorded sufficient income tax reserves at December 31, 2018 with respect to these income tax examinations. 

The Company does not anticipate any material changes to the unrecognized tax benefits previously disclosed within the next twelve months as at December 31, 2018. 

## 7 Earnings per share 

Basic earnings per share have been calculated using Net income for the year divided by the weighted average number of shares outstanding during the year. 

Diluted earnings per share have been calculated using the treasury stock method which assumes that any proceeds received from the exercise of in-the-money options would be used to purchase CP Common Shares at the average market price for the period. For purposes of this calculation, at December 31, 2018, there were 1.3 million dilutive options outstanding (2017 – 1.4 million; 2016 – 2.2 million). 

The number of shares used and the earnings per share calculations are reconciled as follows: 

<img src='content_image/1059389.jpg'>

In 2018, the number of options excluded from the computation of diluted earnings per share because their effect was not dilutive was 0.2 million (2017 – 0.3 million; 2016 – 0.4 million). 

