Income taxes
Income tax (recovery) expense varies from the amounts that would be computed by applying the combined Canadian federal and provincial income tax rate of 26% (2015 - 26%; 2014 – 26%) to the loss before income taxes as shown in the following tables:
|
| | | | | | | | | | | |
| Year ended December 31, |
| 2017 |
| | 2016 |
| | 2015 |
|
Computed taxes (recoveries) at Canadian federal and provincial tax rates | $ | (28,270 | ) | | $ | (127,183 | ) | | $ | (20,100 | ) |
Difference due to change in tax rate on opening deferred taxes | (6,633 | ) | | — |
| | — |
|
Permanent and other differences | 1,476 |
| | (3,598 | ) | | 769 |
|
Change in valuation allowance - other | 6,945 |
| | 17,043 |
| | 3,675 |
|
Difference due to income taxed at foreign rates | (966 | ) | | (47,962 | ) | | (7,874 | ) |
Stock-based compensation | 3,128 |
| | 9,727 |
| | 7,345 |
|
Impairment of goodwill | — |
| | 46,971 |
| | — |
|
Deferred income tax recovery | $ | (24,320 | ) | | $ | (105,002 | ) | | $ | (16,185 | ) |
Effective November 2, 2017, the British Columbia provincial corporate tax rate increased from 11% to 12%, starting January 1, 2018. The overall increase in tax rates in 2018 will result in an increase in the Company's statutory tax rate from 26% in 2017 to 27% in 2018 and onward.
On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017. Certain income tax effects of the 2017 Tax Act, principally due to the write-down of our net deferred tax assets, are reflected in our financial results in accordance with Staff Accounting Bulletin No. 118 (SAB 118), which provides SEC staff guidance regarding the application of Accounting Standards Codification (ASC) Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act became law. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances. We have remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our deferred tax assets was a reduction of $13.4 million to deferred tax liabilities and a reduction of $3.5 million to our deferred tax assets, which have a full valuation allowance provided against them.
On November 23, 2011, the Company was registered as a corporation under the Business Activity Act in the province of British Columbia. Under this program, provincial corporation tax charged on foreign income earned from the Company’s patents will be eligible for a 75% tax refund up to a maximum of C$8,000,000. This program was eliminated on October 23, 2017.
As at December 31, 2017, the Company has investment tax credits available to reduce Canadian federal income taxes of $9,546,000 (December 31, 2016 - $10,245,000) and provincial income taxes of $4,866,000 (December 31, 2016 - $5,337,000), expiring between 2027 and 2037. In addition, the Company has research and development credits of $3,639,000 (December 31, 2016 - $1,454,000) available for indefinite carry-forward, which can be used to reduce future taxable income in the U.S.
At December 31, 2017, the Company has scientific research and experimental development expenditures of $61,493,000 (December 31, 2016 - $65,332,000) available for indefinite carry-forward and $124,451,000 (December 31, 2016 - $71,460,000) of net operating losses due to expire between 2027 and 2037 and which can be used to offset future taxable income in Canada.
As at December 31, 2017, the Company has $13,723,000 (December 31, 2016 - $14,621,000) of net operating losses due to expire between 2030 and 2037, which can be used to offset future taxable income in the U.S. Future use of a portion of the U.S. loss carry-forwards is subject to limitations under the Internal Revenue Code Section 382.
As a result of ownership changes occurring on October 1, 2014 and March 4, 2015, the Company's ability to use these losses may be limited. Losses incurred to date may be further limited if a subsequent change in control occurs.
Significant components of the Company’s deferred tax assets and liabilities are shown below:
|
| | | | | | | |
| As at December 31, |
| 2017 |
| | 2016 |
|
Deferred tax assets (liabilities): | | | |
Non-capital loss carryforwards | $ | 36,652 |
| | $ | 24,275 |
|
Research and development deductions | 16,603 |
| | 16,986 |
|
Book amortization in excess of tax | (650 | ) | | 451 |
|
Share issue costs | 456 |
| | 486 |
|
Revenue recognized for tax purposes in excess of revenue recognized for accounting purposes | 1,162 |
| | 410 |
|
Tax value in excess of accounting value in lease inducements | 173 |
| | 58 |
|
Federal investment tax credits | 9,079 |
| | 8,630 |
|
Provincial investment tax credits | 4,819 |
| | 5,270 |
|
In-process research and development | (16,943 | ) | | (41,263 | ) |
Upfront license fees | 311 |
| | 536 |
|
Other | 2,017 |
| | 1,435 |
|
Total deferred tax assets (liabilities) | 53,679 |
| | 17,274 |
|
Valuation allowance | (70,622 | ) | | (58,537 | ) |
Net deferred tax assets (liabilities) | $ | (16,943 | ) | | $ | (41,263 | ) |