Achieve Life Sciences, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Tax (Tables)

Income Tax (Tables)

12 Months Ended

Dec. 31, 2017

Reconciliation of Income Tax Attributable to Operations

Income tax expense consisted of the following (in thousands):

(In thousands)	2017			2016			2015
Income taxes at statutory rates (at a rate of 34% for all years presented)	$	(4,636	)	$	(504	)	$	(407	)
Expenses not deducted for tax purposes		(174	)		—			—
Effect of tax rate changes on deferred tax assets and liabilities		3,158			—			—
Rate differential on foreign earnings		314			—			—
Reduction in benefit of operating losses		—			—			—
Reduction in the benefit of other tax attributes		—			—			—
Investment tax credits		—			—			—
Change in valuation allowance		(1,683	)		—			—
Book to tax return adjustments		—			—			—
Other		(14	)		—			—
Income tax expense	$	(3,035	)	$	(504	)	$	(407	)

Summary of Investment Tax Credits and Non-Capital Losses and Net Operating Losses

The investment tax credits and non-capital losses and net operating losses for income tax purposes expire as follows (in thousands):

			US		Canadian			UK
	Investment		Net Operating		Non-capital			Net Operating
	Tax Credits		Losses		Losses			Losses
2022		—		—		—			—
2023		—		—		—			—
2024		—		—		—			—
2025		—		—		—			—
2026		244		—		7,335			—
2027		71		—		4,949			—
2028		148		—		8,020			—
2029		317		9		(9	)		35
2030		346		5		6,288			21
2031		486		17		12,121			37
2032		363		43		17,278			43
2033		193		2		23,240			56
2034		215		3		17,077			48
2035		122		654		3,112			28
2036		79		611		16,664			3
2037		19		8,530		4,348			578
	$	2,603	$	9,874	$	120,423		$	849

Significant Components of Company's Deferred Tax Assets and Deferred Tax Liabilities

Significant components of our deferred tax assets as of December 31 are shown below (in thousands):

	2017			2016
Deferred tax assets
Tax basis in excess of book value of assets	$	850		$	—
Non-capital loss carryforwards		33,524			496
Research and development deductions and credits		5,506			—
Stock options		51			—
§59(e) Capitalized R&D expenses		3,252			—
Accrued expenses		—			363
Other		246			—
Total deferred tax assets		43,429			859
Valuation allowance		(42,914	)		(46	)
Net deferred assets		515			813
Deferred tax liabilities
Intangible assets		(513	)		(937	)
Other		(2	)		—
Total deferred tax liabilities		(515	)		(937	)

Net deferred tax assets		—			(124	)

Reconciliation of Unrecognized Tax Benefits of Uncertain Tax Positions

A reconciliation of the unrecognized tax benefits of uncertain tax positions for the year ended December 31, 2017 is as follows (in thousands):

	Year ended
	December 31,
	2017		2016		2015
Balance at January 1	$	715	$	699	$	683
Additions based on tax positions related to the current year		—		16		16
Additions based on tax positions related to prior years		—		—		—
Balance at December 31	$	715	$	715	$	699

Summary of Years Open to Examination Under Different Jurisdiction

We are subject to taxes in Canada, the UK and the U.S. until the applicable statute of limitations expires. Tax audits by their very nature are often complex and can require several years to complete.

Tax		Years open to
Jurisdiction		examination
Canada		2009 to 2017
United Kingdom		2010 to 2017
US		2009 to 2017