Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.10.0.1
Income Taxes
12 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
9.
Income Taxes
 
The breakdown of loss before income tax by jurisdiction is as follows:
 
 
 
Years Ended
 
 
 
September 30,
 
 
September 30,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
U.S.
 
$
(4,306,650
)
 
$
(4,540,094
)
Canadian
 
 
(623,835
)
 
 
(464,990
)
Other foreign
 
 
(107,664
)
 
 
(24,764
)
 
 
 
 
 
 
 
 
 
Total Loss Before Income Tax
 
$
(5,038,149
)
 
$
(5,029,848
)
 
Deferred income tax assets and liabilities of the Company are as follows:
 
 
 
September 30,

2018
 
 
September 30,

2017
 
 
 
 
 
 
 
 
Deferred income tax assets:
 
 
 
 
 
 
 
 
Non-capital loss carry-forwards
 
$
10,646,900
 
 
$
12,164,100
 
Research and development tax credits
 
 
1,117,100
 
 
 
947,300
 
Deferred expenses
 
 
36,400
 
 
 
34,300
 
Property, plant and equipment
 
 
-
 
 
 
2,200
 
Share issuance costs
 
 
981,800
 
 
 
142,600
 
Deferred income tax liabilities:
 
 
 
 
 
 
 
 
U.S. federal benefit (liability) of state deferred taxes
 
 
(666,700
)
 
 
(923,700
)
Property, plant and equipment
 
 
(1,800
 
 
-
 
Valuation allowance
 
 
(12,113,700
)
 
 
(12,366,800
)
 
 
 
 
 
 
 
 
 
Net deferred income tax asset (liability)
 
$
-
 
 
$
-
 
 
Realization of the deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.
 
As of September 30, 2018, the Company had federal net operating loss (NOL) carryforwards of approximately $29.6 million expiring 2030 through 2038, California NOL carryforwards of approximately $29.2 million expiring 2030 through 2038, and Canadian federal and provincial NOL carryforwards of approximately CDN$8.7 million expiring 2028 through 2038. Portions of these NOL carryforwards may be used to offset future taxable income, if any.
 
As of September 30, 2018, the Company also has federal and California research and development tax credit carryforwards of approximately $0.53 million and $0.58 million, respectively, available to offset future taxes. The federal credits begin expiring in 2028 and continue expiring through 2038. The state tax credits do not expire.
 
Under the provisions of Section 382 of the Internal Revenue Code, substantial changes in the Company's ownership limit the amount of net operating loss carryforwards and tax credit carryforwards that can be utilized annually in the future to offset taxable income. A valuation allowance has been established to reserve the potential benefits of these carryforwards in the Company's consolidated financial statements to reflect the uncertainty of future taxable income required to utilize available tax loss carryforwards and other deferred tax assets.
 
The income tax expense shown in the consolidated statements of operations differs from the amounts obtained by applying statutory rates to the loss before provision for income taxes due to the following:
 
 
 
Years Ende
d
 
 
 
September 30,

2018
 
 
September 30,

2017
 
 
 
 
 
 
 
 
Combined Canadian federal and provincial tax rates
 
 
27.0
%
 
 
26.0
%
 
 
 
 
 
 
 
 
 
Expected income tax (recovery)/expense
 
$
(1,360,300
)
 
$
(1,307,800
)
 
 
 
 
 
 
 
 
 
Nondeductible share-based payments
 
 
41,700
 
 
 
30,000
 
Deductible share issuance costs
 
 
(287,300
)
 
 
(66,300
)
Effect of income tax rate differences in the U.S. and Mexico
 
 
(33,500
)
 
 
(624,400
)
Impact of tax rate changes
 
 
2,906,100
 
 
 
-
 
Foreign currency differences
 
 
9,500
 
 
 
(42,200
)
Other
 
 
(143,100
)
 
 
(108,200
)
Change in valuation allowance on deferred tax assets
 
 
(1,132,300
)
 
 
2,119,700
 
 
 
 
 
 
 
 
 
 
Income tax expense
 
$
800
 
 
$
800
 
 
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted into law in the U.S. The Tax Act contains a broad range of tax reform measures, including a reduction in the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. The Company remeasured certain tax assets and liabilities at September 30, 2018 based on expected lower future U.S. federal tax rates expected to apply when temporary differences reverse in the future. SEC Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118), allows provisional amounts to be recorded for the tax effects of the Tax Act when the necessary information is not available, prepared, or analyzed in reasonable detail to finalize its accounting for the changes in the tax law during a measurement period not to extend beyond one year of the enactment date. The Company has provisionally recorded a $2.95 million reduction of deferred tax assets with a corresponding reduction in the valuation allowance for our U.S. subsidiary.  Certain aspects of the Tax Act are still being analyzed which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. Potential adjustments are not expected to have a material impact since any adjustments would be fully offset by a valuation allowance. The Company expects to finalize its analysis within the measurement period in accordance with SAB 118 after completing reviews of additional guidance issued by the Internal Revenue Service.
 
On November 2, 2017, Bill 2-2017, Budget Measures Implementation Act (the Budget Act) came into force in British Columbia, increasing the provincial corporate tax rate from 11% to 12% effective January 1, 2018. The Company remeasured certain tax assets and liabilities at September 30, 2018 based on the provincial tax rates expected to apply when temporary differences reverse in the future. The Company has recorded a $0.04 million increase in deferred tax assets with a corresponding increase in the valuation allowance.
 
The components of income tax provision (benefits) are as follows:
 
 
 
Years Ended
 
 
 
September 30,

2018
 
 
September 30,

2017
 
 
 
 
 
 
 
 
Current tax provision
 
 
 
 
 
 
 
 
U.S. federal
 
$
-
 
 
$
-
 
Canadian
 
 
-
 
 
 
-
 
Other foreign
 
 
-
 
 
 
-
 
State
 
 
800
 
 
 
800
 
 
 
 
 
 
 
 
 
 
Deferred tax provision
 
 
 
 
 
 
 
 
U.S. federal
 
 
2,059,300
 
 
 
(1,447,100
)
Canadian
 
 
(446,700
)
 
 
(199,100
)
Other foreign
 
 
(22,600
)
 
 
(5,200
)
State
 
 
(457,700
)
 
 
(468,300
)
 
 
 
 
 
 
 
 
 
Change in valuation allowance on deferred tax assets
 
 
(1,132,300
)
 
 
2,119,700
 
 
 
 
 
 
 
 
 
 
Total
 
$
800
 
 
$
800