9. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by the valuation allowances when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components at April 30:
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| 2017 | 2016 |
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| Deferred tax assets: |
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| Net operating loss carryforwards | $ 1,349,200 | $ 770,400 |
| Related party accrued interest | 9,000 | 27,900 |
| Accrued expenses – related parties | 127,100 | 220,500 |
| Valuation allowance | (1,485,300) | (1,018,800) |
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| Net deferred tax assets | $ - | $ - |
The income tax provision (benefit) differs from the amount of income tax determined by applying U.S. Federal corporate income tax rates to pre-tax loss due to the following:
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| Year Ended April 30, | |
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| 2017 | 2016 |
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| Book loss | $ (705,400) | $ (926,300) |
| Non deductible expenses | 441,600 | 746,800 |
| Gain on debt settlement | (142,900) | (41,600) |
| Related party accruals | (81,500) | 66,700 |
| Related party interest | (16,500) | 19,700 |
| Valuation allowance | 504,700 | 134,700 |
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| Total | $ - | $ - |
At April 30, 2017, the Company had net operating loss carry forwards of approximately $3,417,000 that may be offset against future taxable income through 2036. No tax benefit has been reported in the accompanying consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
The Company has adopted the Income Tax topic of FASB ASC 740, Accounting for Uncertainty in Income Taxes. Included in the balance at April 30, 2017 and 2016, are no tax positions for which the ultimate deductibility is uncertain. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.
The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Due to the change in ownership provisions of U.S. federal income tax laws, operating loss carryforwards are potentially subject to annual limitations. All tax years are open to audit.