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, 2020

Reconciliation of Income Tax Attributable to Operations

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

(In thousands)	2020			2019			2018
Income tax recovery at statutory rates (at a rate of 21% for all years presented)	$	(3,094	)	$	(3,490	)	$	(2,664	)
Expenses not deducted for tax purposes		118			116			70
Effect of tax rate changes on deferred tax assets and liabilities		34			(13	)		(1,416	)
Rate differential on foreign earnings		(103	)		(296	)		(165	)
Reduction in benefit of operating losses		—			—			—
Reduction in the benefit of other tax attributes		—			—			—
Investment tax credits		(23	)		(84	)		—
Change in valuation allowance		3,662			(3,246	)		4,182
Book to tax return adjustments		(518	)		(75	)		20
Unrecognized tax benefits		—			7,192			—
Reversal of previously accrued taxes due to IRS reassessment		—			(221	)		—
Other		(76	)		(104	)		(27	)
Income tax expense/(recovery)	$	—		$	(221	)	$	—

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
2020		2		—		—			—
2021		2		—		—			—
2022		1		—		—			—
2023		—		—		—			—
2024		—		—		—			—
2025		244		—		—			—
2026		71		—		7,660			—
2027		—		—		6,082			—
2028		111		—		7,256			—
2029		237		9		1,712			—
2030		346		5		6,770			—
2031		486		17		12,354			—
2032		363		43		17,278			42
2033		193		2		23,240			54
2034		215		3		17,077			46
2035		122		654		3,112			27
2036		80		611		5,361			58
2037		22		8,763		(5,295	)		654
2038		202		7,207		(3,179	)		955
2039		220		7,982		4,443			869
2040		112		9,501		1,725			531
	$	3,029	$	34,797	$	105,596		$	3,236

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):

	2020			2019
Deferred tax assets
Tax basis in excess of book value of assets	$	892		$	891
Non-capital loss carryforwards		35,596			33,166
Research and development deductions and credits		7,010			6,256
Stock options		466			315
§59(e) Capitalized R&D expenses		3,757			3,501
Accrued expenses		164			79
Other		183			181
Total deferred tax assets		48,068			44,389
Valuation allowance		(47,539	)		(43,875	)
Net deferred assets		529			514
Deferred tax liabilities
Right of use assets		(135	)		(79	)
Other		(394	)		(435	)
Total deferred tax liabilities		(529	)		(514	)

Net deferred tax assets		—			—

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, 2020 is as follows (in thousands):

	Year ended
	December 31,
	2020		2019		2018
Balance at January 1	$	724	$	717	$	715
Additions based on tax positions related to the current year		—		7		6
Deductions based on tax positions related to prior years		—		—		(4	)
Additions based on tax positions related to the prior years		5		—		—
Additions based on tax positions related to prior period adjustments		38		—		—
Balance at December 31	$	767	$	724	$	717

Summary of Years Open to Examination Under Different Jurisdiction

We are subject to taxes in Canada, the U.K. 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		2012 to 2020
United Kingdom		2013 to 2020
US		2017 to 2020