The tax effects of the temporary differences that give rise to the Company's deferred tax assets and liabilities are as follows:
| | | December 31,
2017 | | December 31,
2016 | |
| Deferred Tax Assets (Liabilities) | | | | | | | |
| Net operating and capital losses | | $ | 16,942 | | $ | 15,799 | |
| Un-deducted interest | | | 2,109 | | | 779 | |
| Capitalized interest deducted | | | (1,409) | | | (1,475) | |
| Unrealized FX gain | | | (657) | | | - | |
| Discount on Clay loan | | | (840) | | | | |
| Other | | | 157 | | | 45 | |
| Financing costs | | | 435 | | | 747 | |
| Investment in GQM LLC | | | (11,692) | | | (14,676) | |
| Valuation allowance | | | (13,241) | | | (14,140) | |
| Deferred tax liabilities | | $ | (8,196) | | $ | (12,921) | |
The annual tax benefit is different from the amount provided by applying the statutory federal income tax rate to the Company’s pre-tax loss. The reason for the differences are:
| | | December 31,
2017 | | December 31,
2016 | |
| Income tax benefit at Canadian statutory rate | | $ | (2,834) | | $ | (3,108) | |
| Foreign income taxes at other than Canadian statutory rate | | | (1,921) | | | (1,398) | |
| Re-measurement due to the Tax Cuts and Jobs Act | | | (3,739) | | | - | |
| Change in fair value of derivative liability | | | (1,557) | | | (483) | |
| Non-deductible accretion and other | | | (113) | | | 558 | |
| Expiration of tax loss carryforwards | | | 2,105 | | | 290 | |
| Non-controlling interest | | | 2,197 | | | 922 | |
| Permanent differences, other | | | 58 | | | 290 | |
| Prior year true-up, net | | | 1,977 | | | 1,334 | |
| Increase (decrease) in valuation allowance | | | (898) | | | 1,885 | |
| Tax benefit | | $ | (4,725) | | $ | - | |
The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017, which significantly changed U.S. income tax law, including a reduction of the Federal corporate income tax rate from 35% to 21%. The $4,725 income tax recovery recognized in 2017 includes a net benefit of $3,739 related to the re-measurement of the deferred income tax liability which resulted from the 2014 JV transaction. Further guidance on the implementation and application of the TCJA will be forthcoming in regulations and other pronouncements to be issued by the U.S. Department of Treasury and/or guidance from the state of California. Such regulations, other pronouncements, or guidance may require changes to the estimated net benefit recorded, and any such change will be accounted for in the period in which the regulations, other pronouncements, or guidance are enacted or released by the relevant taxing authorities.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TJCA enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.
The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income or loss. As management of the Company does not currently believe that the Company will receive the benefit of this asset, a valuation allowance equal to certain net deferred tax assets has been established at both December 31, 2017 and 2016.
As at December 31, 2017, the Company had net operating loss carry-forwards available to reduce taxable income in future years as follows:
| Country | | Amount | | Expiration dates | |
| Unites States – Federal | | $ | 41,738 | | | 2018 - 2037 | |
| Canada (C$) | | $ | 19,829 | | | 2026 - 2037 | |
These consolidated financial statements do not reflect the potential effect on future income taxes of the application of these losses.
The Company has evaluated its tax positions for the years ended December 31, 2017 and 2016 and determined that it has no uncertain tax positions requiring financial statement recognition.
Under current federal and state income tax laws and regulations, GQM LLC, a multi-member limited liability company (“LLC”) is treated as a partnership for income tax reporting purposes and is generally not subject to income taxes. Additionally, at the LLC level no provision has been made for federal, state, or local income taxes on the results of operations generated by partnership activities; as such taxes are the responsibility of its Members.