|12 Months Ended|
Dec. 31, 2021
|Income Tax Disclosure [Abstract]|
11. INCOME TAX
[a] We are a Delaware incorporated company subject to blended US Federal and state statutory rates for December 31, 2021, 2020 and 2019 of 21%. For the purposes of estimating the tax rate in effect at the time that deferred tax assets and liabilities are expected to reverse, management uses the furthest out available future tax rate in the applicable jurisdictions.
U.S. and foreign components of income (loss) before income taxes were as follows (in thousands):
Income tax expense/(recovery) consisted of the following (in thousands):
[b] The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets and liabilities are as follows (in thousands):
A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred tax assets, or DTAs, will not be realized. Management assesses the need for a valuation allowance against the deferred tax assets when considering both positive and negative evidence related to whether it is more likely than not that the deferred tax assets will be realized. In evaluating the ability to recover the deferred tax assets within the jurisdiction from which they arise, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future growth, tax-planning strategies, and results of recent operations.
Due to the uncertainty surrounding the realization of deductible tax attributes in future tax returns, the Company has recorded a valuation allowance for deferred tax assets of $55.5 million to reduce the DTAs to zero as of December 31, 2021. The valuation allowance increased by approximately $7.5 million during the year ended December 31, 2021. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
The Company has total net operating loss carryforwards for federal tax purposes of approximately $47.4 million ($34.8 million—2020) as of December 31, 2021, most of which begin to expire in 2021. Approximately $37.3 million of the federal net operating losses will carryforward indefinitely. Federal net operating losses generated after January 1, 2018 were originally available to offset 80% of taxable income for any given future tax year and will be carried forward indefinitely. However, with the passage of the 2020 CARES Act, the 80% limitation is temporarily removed for tax years 2018 to 2020. The company has research and development tax credit carryforwards of approximately $0.4 million ($0.3 million—2020) as of December 31, 2021, which expire in 2041. The operating loss carryforwards and research and development tax credits may be limited due to a change in control in the Company's ownership as defined by the Internal Revenue Code Section 382. Any future changes in the Company's ownership may limit the use of such carryforward benefits.
The Company’s effective income tax rate for the periods presented differ from the statutory rate of 21% primarily due to current year net losses and the full valuation allowance on the U.S. deferred tax assets. The company files income tax returns in the U.S., Canada, and U.K. At December 31, 2021, the company has Canadian non-capital loss carryforwards of $109.5 million ($105.6 million—2020) and research tax credits of $2.7 million ($2.8 million—2020), both of which will expire in 2041. In addition, the Company has unclaimed tax deductions of approximately $16 million related to scientific research and experimental development expenditures available to carry forward indefinitely to reduce Canadian taxable income of future years. The UK net operating loss carryforwards of $3.5 million (2020—$3.2 million) will carryforward indefinitely.
[c] A reconciliation of the unrecognized tax benefits of uncertain tax positions for the year ended December 31, 2021 is as follows (in thousands):
As of December 31, 2021, unrecognized benefits of approximately $0.8 million, if recognized, would affect our effective tax rate, and would reduce our deferred tax assets.
Our accounting policy is to treat interest and penalties relating to unrecognized tax benefits as a component of income taxes. As of December 31, 2021 and December 31, 2020 we had no accrued interest and penalties related to income taxes.
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.
No definition available.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef