The Company follows Accounting Standards Codification 740, Accounting for Income Taxes. During 2009, there was a change in control of the Company.
Under section 382 of the Internal Revenue Code such a change in control negates much of the tax loss carry forward and deferred income tax. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry forwards. For federal income tax purposes, the Company uses the accrual basis of accounting, the same that is used for financial reporting purposes.
The Company’s deferred tax assets for the U.S. parent company and its US subsidiary consisted of the following as of October 31, 2017, and 2016:
| 2017 | 2016 | |||||||
| Income/(Loss) Before Income Taxes | $ | (268,164 | ) | $ | (307,521 | ) | ||
| Income Tax Recovery/Expense | (56,314 | ) | (107,632 | ) | ||||
| Use of PY NOL | ||||||||
| Valuation Allowance | 56,314 | 107,632 | ||||||
| $ | - | $ | - | |||||
| Net Operating Losses | $ | 1,725,365 | $ | 1,457,201 | ||||
| Tax Rate | 21 | % | 35 | % | ||||
| Deferred Tax Assets | 362,327 | 510,020 | ||||||
| Valuation Allowance | (362,327 | ) | (510,020 | ) | ||||
| Net Deferred Tax Assets | $ | - | $ | - | ||||
The Parent Company had a net loss of $268,164, and $307,521 for the years ended October 31, 2017 and 2016, respectively. As of October 31, 2017, the Company had a net operating loss carry forward of $1,725,365 which can be used to offset future taxable income. The carry forwards will begin to expire in 2036, or twenty years after the loss is first incurred, if not used prior to that date.
A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended October 31, 2017 and 2016 is as follows:
| 2017 | 2016 | |||||||
| U.S. federal statutory rate | 21 | % | 35 | % | ||||
| Net operating loss | (21 | )% | (35 | )% | ||||
| Effective tax rate | -- | % | -- | % | ||||
The parent Company due to its loses has not filed US Corporate tax returns and is subject to examination back to October 31, 2012.
The Company’s deferred tax assets for the Canadian subsidiary companies consisted of the following as of October 31, 2017, and 2016:
| 2017 | 2016 | |||||||
| Income/(Loss) Before Income Taxes | $ | 137,551 | $ | (3,870 | ) | |||
| Income Tax Recovery/Expense | (27,510 | ) | (774 | ) | ||||
| Valuation Allowance | 27,510 | 774 | ||||||
| - | - | |||||||
| Net Operating Losses | $ | 662,372 | $ | 799,798 | ||||
| Tax Rate | 20 | % | 20 | % | ||||
| Deferred Tax Assets | 132,474 | 159,960 | ||||||
| Valuation Allowance | (132,474 | ) | (159,960 | ) | ||||
| Net Deferred Tax Assets | - | - | ||||||
The Canadian Company had a net income of $137,551 and net loss of $3,870 for the years ended October 31, 2017 and 2016, respectively. As of October 31, 2017, the Company had a net operating loss carry forward of $662,372 which can be used to offset future taxable income. The carry forwards will begin to expire in 2034, or twenty years after the loss is first incurred, if not used prior to that date.
A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended October 31, 2017 and 2016 is as follows:
| 2017 | 2016 | |||||||
| Canadian federal statutory rate | 20 | % | 20 | % | ||||
| Net operating loss | (20 | )% | (20 | )% | ||||
| Effective tax rate | -- | % | -- | % | ||||
The Canadian Company has filed corporate tax returns through October 31, 2017 and is subject to examination back to 2013.
During the years ended October 31, 2017 and 2016 Cogent received tax refunds of $33,317 and $33,770, respectively. The refunds are received under a scientific research and development program.
The Company’s deferred tax assets for the Japanese subsidiary company consisted of the following as of October 31, 2017:
| 2017 | 2016 | |||||||
| Income/(Loss) Before Income Taxes | $ | 3,428 | $ | (69,968 | ) | |||
| Income Tax Recovery/Expense | 1,303 | (26,595 | ) | |||||
| Valuation Allowance | (1,303 | ) | 26,595 | |||||
| - | -- | |||||||
| Net Operating Losses | $ | 93,726 | 97,154 | |||||
| Tax Rate | 38.01 | % | 38.01 | % | ||||
| Deferred Tax Assets | 35,625 | 36,928 | ||||||
| Valuation Allowance | (35,625 | ) | (36,928 | ) | ||||
| Net Deferred Tax Assets | - | |||||||
The Japanese Company had net income of $ 3,428 and a net loss of $69,968 for the years ended October 31, 2017 and 2016. As of October 31, 2017 the Company had a net operating loss carry forward of $93,726, which can be used to offset future taxable income. As the Company was acquired on November 1, 2014, the loss carry forward may be subject to a change in control calculation.
A reconciliation of income taxes at the federal statutory rate to amounts provided for the years ended October 31, 2017 is as follows:
| 2017 | 2016 | |||||||
| Japanese federal statutory rate | 38.01 | % | 38.01 | % | ||||
| Net operating loss | (38.01 | )% | (38.01 | )% | ||||
| Effective tax rate | -- | % | --% | |||||
Skkynet Japan has filed corporate tax returns through July 31, 2017 and is subject to examination back to 2008 under law.