12. Income Taxes

 

The Company’s U.S. and foreign source income/(loss) is as follows:

 

 

During the years ended December 31, 2017, 2016 and 2015, the Company has recognized ‘nil’ current and  deferred income tax expense or benefit in each of the US,  Canadian, and other foreign jurisdictions, due to full valuation allowances within each jurisdiction.

 

Rate Reconciliation

 

A reconciliation of the combined income taxes at the statutory rates and the Company’s effective income tax benefit is as follows:

 

 

Deferred Taxes

 

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of our deferred tax assets and liabilities as at December 31 are as follows:

 

 

Valuation Allowance on Canadian and Foreign Tax Assets

 

We establish a valuation allowance against the future income tax assets if, based on available information, it is more likely than not that all of the assets will not be realized.  The valuation allowance of $51,406,  $50,209, and $50,816 at December 31, 2017, 2016 and 2015, respectively, relates mainly to net operating loss carryforwards, in Canada and other foreign tax jurisdictions, where the utilization of such attributes is not more likely than not.  The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that deferred tax assets can be realized prior to their expiration. 

 

Loss Carryforwards

 

The Company has available income tax losses of $73,532, which may be carried forward and applied against future taxable income when earned.

 

The losses expire as follows:

 

 

During 2016, an income tax benefit and the corresponding valuation allowance of $370 related to share-issuance cost was recorded directly to equity.

 

Accounting for uncertainty in taxes

 

Accounting Standards Codification Topic 740 guidance requires that the Company evaluate all income tax positions taken, and recognize a liability for any uncertain tax positions that are not more likely than not to be sustained by the tax authorities.  As of December 31, 2017, the Company believes it has no liability for unrecognized tax positions.  If the Company were to determine there were any uncertain tax positions, the Company would recognize the liability and related interest and penalties within income tax expense.  

 

Tax statute of limitations

 

The Company files income tax returns in Canada, U.S. federal and state jurisdictions and other foreign jurisdictions.  There are currently no tax examinations underway for these jurisdictions.  Furthermore, the Company is no longer subject to Canadian tax examinations by the Canadian Revenue Authority for years ended on or before December 31, 2014 or U.S. federal income tax examinations by the Internal Revenue Service for years ended on or before December 31, 2014.  Some U.S. state and other foreign jurisdictions are still subject for tax examination for years ended on or before December 31, 2013.

 

Although certain tax years are closed under the statute of limitations, tax authorities can still adjust losses being carried forward into open years.

 

Tax reform

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act of 2017 (“TCJA”).  The passage of this legislation resulted in the change in the U.S. statutory rate from 35% to 21% beginning in January of 2018, the elimination of the corporate alternative minimum tax (“AMT”), the acceleration of depreciation for US tax purposes, limitations on deductibility of interest expense, the elimination of net operating loss carrybacks, and limitations on the use of future losses.  In accordance with ASC 740, Income Taxes, the impact of a change in tax law is recorded in the period of enactment.  Consequently, the Company has recorded a decrease to its net deferred tax assets of $2,487 with a corresponding net adjustment to the valuation allowance for the year ended December 31, 2017. Based on the Company's current interpretation and subject to the release of the related regulations and any future interpretive guidance, the Company believes the effects of the change in tax law incorporated herein are substantially complete.  As a result of other changes introduced by the TCJA, starting with compensation paid in 2018, Section 162(m) will limit us from deducting compensation, including performance-based compensation, in excess of $1,000 paid to anyone who, starting in 2018, serves as the Chief Executive Officer or Chief Financial Officer, or who is among the three most highly compensated executive officers for any fiscal year.  The only exception to this rule is for compensation that is paid pursuant to a binding contract in effect on November 2, 2017 that would have otherwise been deductible under the prior Section 162(m) rules.  Accordingly, any compensation paid in the future pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1,000 fiscal year deduction limit if paid to a covered executive. Additional information that may affect our income tax accounts and disclosures would include further clarification and guidance on how the Internal Revenue Service will implement tax reform, including guidance with respect to 100% bonus depreciation on self-constructed assets and Section 162(m), further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on our state income tax returns, completion of our 2017 tax return filings, and the potential for additional guidance from the SEC or the FASB related to tax reform.