Annual report pursuant to Section 13 and 15(d)

Note 13 - Income Taxes

v3.19.1
Note 13 - Income Taxes
 12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
13.
 Income taxes:
 
a) Recent tax legislation
 
In
December 2017
the U.S. government enacted comprehensive tax legislation, the Tax Cuts and Jobs Act (the "Tax Act"), which significantly revises the U.S. tax code, generally effective
January 1, 2018,
by lowering the U.S. federal corporate income tax rate from
35%
to
21%,
implementing a territorial tax system and setting limitations on the deductibility of certain costs (e.g. Interest expenses) among other things. As a Canadian entity, we generally would be classified as a foreign entity (and, therefore, a non-U.S. tax resident) under general rules of U.S. federal income taxation. However, we have a branch and U.S. subsidiary subject to U.S. federal income taxation. The Tax Act has impacted our consolidated results of operations during
2017
and
2018,
and is expected to continue to impact our consolidated results of operations in future periods. The ultimate impact of the Tax Act on our effective tax rate in future periods will depend on interpretations and regulatory changes from the Internal Revenue
 
b) Income taxes
 
For the years ended
December 31, 2017
and
2018,
the total comprehensive loss is as follows:
 
    December 31, 2018   December 31, 2017
         
Loss attributed to US foreign operations   $
(21,807
 )   $
(7,805
 )
Loss losses not attributed to Canadian operations    
(7,061
 )    
(3,856
 )
Income (loss) before income taxes    
(28,868
 )    
(11,661
 )
 
c) Tax rate reconciliation
 
Major items causing the Company’s income tax rate to differ from the statutory rate of approximately
26.5%
(
December 
31,
2017
–
26.5%
) are as follows:
 
    Year ended
December 31, 2018		   Year ended
December 31, 2017
         
Net loss   $
(28,868
 )   $
(11,661
 )
Statutory Canadian corporate tax rate    
26.5
 %    
26.5
 %
                 
Computed “expected” tax recovery   $
(7,650
 )   $
(3,090
 )
Non-deductible permanent differences    
1,422
      
220
  
Change in valuation allowance    
4,528
      
4,619
  
Foreign tax rate differential    
(325
 )    
(117
 )
Change in enacted rates    
-
      
51
  
Foreign exchange differences    
2,183
      
(1,391
 )
Other    
(158
 )    
(292
 )
    $ -     $ -  
 
d) Significant components of deferred taxes
 
The tax effects of temporary differences that give rise to significant portions of the unrecognized deferred tax assets are presented below:
 
    December 31, 2018   December 31, 2017
         
         
Net operating losses carried forward   $
19,567
     $
15,762
  
Research and development expenditures    
5,024
      
5,450
  
Intangible asset    
3,531
      
2,464
  
Equipment book over tax depreciation    
367
      
410
  
Ontario Research and Development Tax Credit    
394
      
427
  
Undeducted financing costs    
452
      
273
  
Cumulative eligible capital    
263
      
284
  
Total deferred tax assets    
29,598
      
25,070
  
Valuation allowance    
(29,598
 )    
(25,070
 )
Net deferred tax asset   $
-
     $
-
  
 
The valuation allowance at
December 31, 2018
was primarily related to net operating loss carryforwards 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 all or some portion of the deferred assets will
not
be realized. This ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those deductible temporary difference become deductible. Based on the history of losses and projections for future taxable income, management believes that it is
not
more-likely than-
not
that the Company will realize the benefits of these deductible temporary differences (e.g. deferred tax assets).
 
The Company has undeducted research and development expenditures, totaling
$18.95
million
that can be carried forward indefinitely. The Company also has Canadian non-refundable federal investment tax credits of approximately
$3.95
million which are available to reduce future federal taxes payable and begin to expire in
2019,
as well as non-refundable Ontario research and development tax credits of approximately
$393
thousand which are available to reduce future Ontario taxes payable and begin to expire in
2028.
 
In addition, the Company has non-capital loss carryforwards of
$72
million. To the extent that the non-capital loss carryforwards are
not
used, they begin to expire in
2026.
 
The Company files income tax returns with Canada and its provinces and territories. Generally we are subject to routine examinations by the Canada Revenue Agency ("CRA"). Income tax returns filed with various provincial jurisdictions are generally open to examination for periods of
four
to
five
years subsequent to the filing of the respective return.
 
The Company also files income tax returns for our U.S. operations and subsidiary with the U.S. federal and state tax jurisdictions. Generally, we are subject to routine examination by taxing authorities in the U.S. jurisdictions. There are presently
no
examination of our U.S. federal and U.S. state returns. We believe that our tax positions comply with the applicable tax law.