6. INCOME TAXES
The Company is subject to United States federal and state income taxes at an approximate rate of 34.0% and to Canadian federal and British Columbia provincial taxes in Canada at an approximate rate of 26%. The reconciliation of the provision (recovery) for income taxes at the United States federal statutory rate compared to the Company’s income tax expense is as follows:
| 2017 | 2016 | |||||
| $ | $ | |||||
| Tax at U.S. statutory rates | 98,000 | (64,000 | ) | |||
| Permanent differences | 2,000 | 2,000 | ||||
| Stock option compensation | 16,000 | 17,000 | ||||
| Effect of lower foreign tax in Canada | (21,000 | ) | 18,000 | |||
| Effect of research tax credits claims filed in respect of prior years | (128,000 | ) | (36,000 | ) | ||
| Foreign exchange and other adjustments | (89,000 | ) | 25,000 | |||
| Change in valuation allowance | 122,000 | 38,000 | ||||
| Provision for deferred income taxes | — | — |
Included in other adjustments and change in valuation allowance for the year ended August 31, 2017 is $87,000 (2016: ($15,000)) for the effect of changes in foreign exchange rates and $2,000 (2016: $40,000) in respect of a change in estimates and provisions.
Deferred income taxes reflect the net tax 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 Company has recognized a valuation allowance for those deferred tax assets for which realization is not more likely than not to occur.
Significant components of the Company’s deferred tax assets as of August 31 are as follows:
| 2017 | 2016 | |||||
| $ | $ | |||||
| Deferred tax assets: | ||||||
| Net operating loss carryforwards | 1,196,000 | 1,324,000 | ||||
| Excess of book over tax depreciation | 561,000 | 501,000 | ||||
| Tax Credit Carryforwards | 1,411,000 | 1,220,000 | ||||
| Total deferred tax asset | 3,168,000 | 3,045,000 | ||||
| Valuation allowance | (3,168,000 | ) | (3,045,000 | ) | ||
| Net deferred tax asset | — | — |
Net income (loss) before income tax by geographic region is as follows:
| 2017 | 2016 | |||||
| $ | $ | |||||
| United States | 64,866 | 86,193 | ||||
| Canada | 223,915 | (274,444 | ) | |||
| 288,781 | (188,251 | ) |
If not utilized to reduce future taxable income, the Company’s net operating loss carryforwards will expire as follows:
| Canada | United States | |||||
| $ | $ | |||||
| 2021 and thereafter | 34,000 | 3,499,000 | ||||
| 34,000 | 3,499,000 |
If not utilized to reduce future taxable payable, the Company’s investment tax credit carryforwards will expire as follows:
| $ | $ | |||||
| 2028 and thereafter | 1,349,000 | — | ||||
| 1,349,000 | — |