| (4) | Income Taxes |
The Company is subject to income tax in Australia and is required to pay taxes on its Australian profits. As provided under the Australian income tax laws, UBI and its wholly owned resident subsidiary UBS have formed a tax-consolidated group. UBI is required to lodge U.S. federal income tax returns and HRL is required to lodge tax returns in Canada. UBI and HRL are currently in a tax loss situation.
A reconciliation of the (benefit)/provision for income taxes is as follows:
| Years ended December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||
| A$ | % | A$ | % | A$ | % | |||||||||||||||||||
|
Profit/(loss) before income taxes |
(764,717 | ) | 1,250,276 | (6,576,416 | ) | |||||||||||||||||||
|
Computed by applying income tax rate of home jurisdiction |
(229,415 | ) | 30 | 375,083 | 30 | (1,972,925 | ) | 30 | ||||||||||||||||
|
Effect of tax rates in foreign jurisdictions |
30,589 | (4 | ) | (50,011 | ) | (4 | ) | |||||||||||||||||
|
Research & development incentive |
3,986,640 | (521 | ) | 2,664,682 | 213 | 3,560,728 | (54 | ) | ||||||||||||||||
|
Disallowed expenses/(income): |
||||||||||||||||||||||||
|
Share based payment |
84,750 | (11 | ) | (395,343 | ) | (32 | ) | (19,480 | ) | 0 | ||||||||||||||
|
Other |
135,846 | (18 | ) | 66,732 | 5 | 120,837 | (2 | ) | ||||||||||||||||
|
Change in valuation allowance |
(4,008,410 | ) | 524 | (2,661,143 | ) | (212 | ) | (1,689,160 | ) | 26 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Income tax expense/(benefit) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The components of our net income/(loss) before income taxes as either domestic or foreign is as follows:
| As of December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| A$ | A$ | A$ | ||||||||||
|
Foreign |
(596,189 | ) | (97,271 | ) | 0 | |||||||
|
Domestic (Australia) |
(168,528 | ) | 1,347,547 | (6,576,416 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| (764,717 | ) | 1,250,276 | (6,576,416 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
Significant component of the Company’s deferred tax assets are shown below:
| As of December 31, | ||||||||
| 2017 A$ | 2016 A$ | |||||||
|
Deferred tax assets: |
||||||||
|
Operating loss carry forwards |
3,491,300 | 6,784,868 | ||||||
|
Depreciation and amortization |
1,454,394 | 1,372,387 | ||||||
|
Asset retirement obligations |
780,000 | 780,000 | ||||||
|
Employee entitlements |
477,783 | 493,406 | ||||||
|
Accruals |
1,292,788 | 1,513,551 | ||||||
|
Decline in value of patents |
1,184,629 | 1,096,101 | ||||||
|
Unrealised exchange loss |
(660,410 | ) | 75,887 | |||||
|
Other |
(88,877 | ) | (9,791 | ) | ||||
|
|
|
|
|
|||||
|
Total deferred tax assets |
7,931,607 | 12,106,409 | ||||||
|
Valuation allowance for deferred tax assets |
(7,931,607 | ) | (12,106,409 | ) | ||||
|
|
|
|
|
|||||
|
Net deferred tax asset |
0 | 0 | ||||||
|
|
|
|
|
|||||
Significant components of deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. A valuation allowance has been established, as realization of such assets is not more likely than not.
The recent US Federal Tax Reform has established a mandatory repatriation of foreign accumulated undistributed earnings and profits (the “E&Ps”) for US companies’ subsidiaries. In the past, none of these E&Ps’ were repatriated since such E&Ps’ were considered to be reinvested indefinitely in the foreign location. The Reform provisions are applicable to our Company commencing with our fiscal year 2018, however the E&Ps’ mandatory repatriation provisions establishes measurement dates for various computations. In our Company’s case this date is December 31, 2017. The Company’s estimated tax for the mandatory repatriation is estimated to be nil. However, the final tax due must be assessed with our December 31, 2018 closing figures. The tax liability might be paid over a period of eight years starting on February 28, 2019. As of the issuance date of this report the Securities and Exchange Commission and the Financial Accounting Standards Board have issued some preliminary guidance, but have not issued final rules on how the effects of the Reform will be required to be reported for financial statements purposes.
At December 31, 2017 the Company has A$11,637,669 (A$22,616,230 at December 31, 2016) of accumulated tax losses available for carry forward against future earnings, which under Australian tax laws do not expire but may not be available under certain circumstances. The Company also has A$10,963,961 (A$5,800,672 at December 31, 2016) of non-refundable R&D tax offset as at December 31, 2017. The R&D Tax offset is a non-refundable tax offset, which assists to reduce a company’s tax liability. Once the liability has been reduced to zero, any excess offset may be carried forward into future income years. UBI has US tax losses available for carry forward against future earnings of US$1,011,321 as of December 31, 2017 and 2016. Pursuant to the US Federal Tax Reform, the effective tax rate of UBI has been reduced from 34% to 21%. The deferred tax benefit based on this new rate for UBI is US$212,377. HRL has Canadian tax losses available for carry forward against future earnings of CAD$676,899 and CAD$95,096 as at December 31, 2017 and 2016, respectively.