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## ALGONQUIN POWER & UTILITIES CORP. 

## Notes to the Consolidated Financial Statements 

December 31, 2012 and 2011 

 (in thousands of Canadian dollars except as noted and amounts per share) 

## 17. Income taxes (continued) 

The tax effect of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2012 and 2011 are presented below: 

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The valuation allowance for deferred tax assets as of December 31, 2012 and 2011 was $15,062. The net change in the total valuation allowance was nil in 2012 and a decrease of $16,834 in 2011. The valuation allowance at December 31, 2012 was primarily related to operating losses that, in the judgment of management, are not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income, and tax-planning strategies in making this assessment. 

Deferred income taxes are classified in the financial statements as: 

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