INCOME TAXES

12 Months Ended

Sep. 30, 2020

The components of loss before income taxes, after adjusting the loss for non-controlling interests, are as follows:


	Year ended September 30,
	2020		2019
United States	$	1,518,000	$	(3,039,000)
Canada	(6,271,000)		(9,606,000)
	$	(4,753,000)	$	(12,645,000)

The components of the income tax provision (benefit) related to the above loss are as follows:


	Year ended September 30,
	2020		2019
Current benefit:
United States – Federal	$	—	$	(31,000)
United States – State	(23,000)		(52,000)
Canadian	—		(4,000)
Total current	(23,000)		(87,000)
Deferred provision (benefit):

United States – State	26,000		(24,000)
Canadian	—		(120,000)
Total deferred	26,000		(144,000)
	$	3,000	$	(231,000)

Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income.

On June 28, 2019, the Canadian province of Alberta enacted legislation that decreased the provincial general corporate tax rate from 12% to 11% effective July 1, 2019, with further 1% rate reductions on January 1 of every year until the provincial general corporate tax rate is 8% on January 1, 2022, bringing Barnwell of Canada’s and Octavian Oil’s total Canadian statutory tax rates from 30.65% and 27.00%, respectively, to 29.70% and 26.00%, respectively, effective July 1, 2019 and to 26.85% and 23.00%, respectively, effective January 1, 2022. On June 29, 2020, the Government of Alberta introduced Alberta’s Recovery Plan which will, among other things, reduce Alberta’s general corporate income tax rate to 8% (from 10%) effective July 1, 2020. This reduction, however, had not been enacted as of September 30, 2020. Canadian deferred tax assets and liabilities have been measured using the enacted tax rates in effect for the year in which the differences are expected to reverse. Alberta rate changes have no significant impact to earnings/loss as a result of a full valuation allowance being applied to Canadian deferred tax assets.

On March 27, 2020, the CARES Act was signed into law to provide economic relief to businesses that were negatively impacted by the COVID-19 pandemic. Key tax provisions of the CARES Act impacting the Company include the modification of rules related to corporate AMT credits and NOLs, as discussed further below.

The repeal of the corporate AMT by the TCJA provided a mechanism for the refund over time of any unused AMT credit carryovers. Under the TCJA, 50% of the Company's total credit ($230,000 = $460,000 x 50%) was refundable effective for tax years beginning after December 31, 2017 (i.e., our fiscal 2019) and was reclassified to current taxes receivable as of September 30, 2019. The CARES Act subsequently provided for an election to take the entire refundable credit in the Company’s 2018 tax year (fiscal year 2019 return). As such, the Company reclassified the remaining 50% from non-current to current taxes receivable as of March 31, 2020 as a result of the CARES Act legislation.

The TCJA imposed an 80% limitation on the utilization of U.S. federal NOLs generated in tax years beginning after December 31, 2017, which is the Company’s fiscal 2019, however the CARES Act suspended this limitation through the 2020 tax year (the Company’s fiscal 2021). This limitation will be reinstated effective for tax years beginning on or after January 1, 2021.

A reconciliation between the reported income tax expense (benefit) and the amount computed by multiplying the loss attributable to Barnwell before income taxes by the U.S. federal tax rate of 21% is as follows:


	Year ended September 30,
	2020		2019
Tax benefit computed by applying statutory rate	$	(998,000)	$	(2,655,000)
Impact of TCJA limitation on post-TCJA net operating loss carryforwards	(260,000)		260,000
Increase in the valuation allowance	1,978,000		3,003,000
Impact of TCJA on alternative minimum tax credit carryovers	—		(31,000)
Additional effect of the foreign tax provision on the total tax provision	(762,000)		(736,000)

U.S. state tax provision, net of federal benefit	3,000		(76,000)
Other	42,000		4,000
	$	3,000	$	(231,000)

The changes in the valuation allowance shown in the table above exclude the impact of changes in state taxes and refundable alternative minimum tax credit carryovers, the valuation allowance impacts of which are incorporated within the respective reconciliation line items elsewhere in the table.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:


	September 30,
	2020		2019
Deferred income tax assets:
Foreign tax credit carryover under U.S. tax law	$	2,421,000	$	2,421,000

U.S. federal net operating loss carryover	8,874,000		8,366,000
U.S. state unitary net operating loss carryovers	877,000		873,000
Canadian net operating loss carryovers	1,351,000		850,000
Tax basis of investment in land in excess of book basis under U.S. tax law	306,000		296,000
Property and equipment accumulated book depreciation and depletion in excess of tax under Canadian tax law	1,421,000		308,000
Property and equipment accumulated book depreciation and depletion in excess of tax under U.S. tax law	931,000		945,000
Liabilities accrued for books but not for tax under U.S. tax law	1,894,000		2,250,000
Liabilities accrued for books but not for tax under Canadian tax law	1,591,000		1,641,000
Other	345,000		294,000
Total gross deferred income tax assets	20,011,000		18,244,000
Less valuation allowance	(19,357,000)		(17,687,000)
Net deferred income tax assets	654,000		557,000
Deferred income tax liabilities:

Book basis of investment in land development partnerships in excess of tax basis under U.S. tax law	(654,000)		(557,000)
Book basis of investment in land development partnerships in excess of tax basis under U.S. state non-unitary tax law	(194,000)		(168,000)

Total deferred income tax liabilities	(848,000)		(725,000)
Net deferred income tax liability	$	(194,000)	$	(168,000)
Reported as:
Deferred income tax assets	—		—
Deferred income tax liabilities	(194,000)		(168,000)
Net deferred income tax liability	$	(194,000)	$	(168,000)

The total valuation allowance increased $1,670,000 for the year ended September 30, 2020. The increase was primarily due to a $1,540,000 increase in the valuation allowance for deferred tax assets under Canadian law related to property and equipment accumulated book depletion in excess of tax and Canadian jurisdiction net operating loss carryforwards that may not be realizable and a $438,000 increase in the U.S. federal tax law valuation allowance related to U.S. federal net operating loss carryforwards. Of the total net increase in the valuation allowance for fiscal 2020, $1,978,000 was recognized as an income tax expense and $308,000 was credited to accumulated other comprehensive loss.

Net deferred tax assets at September 30, 2020 of $654,000 consists of the portion of U.S. federal consolidated deferred tax assets that are estimated to be partially realized through corresponding reversals of U.S. federal consolidated deferred tax liabilities related to the Kukio Resort Land Development Partnership excess of book income over taxable income.

At September 30, 2020, Barnwell had U.S. federal foreign tax credit carryovers, U.S. federal net operating loss carryovers, U.S. state net operating loss carryovers and Canadian net operating loss

carryovers totaling $2,421,000, $42,257,000, $13,810,000 and $5,506,000, respectively. All four items were fully offset by valuation allowances at September 30, 2020, except for a portion of Hawaii NOLs which is expected to shelter a portion of the reversal of the Company’s Hawaii non-unitary taxable temporary difference related to its investment in Hawaii land development partnerships. The U.S. federal net operating loss carryovers generated through September 30, 2018 expire in fiscal years 2032-2038, the U.S. state unitary net operating loss carryovers generated through September 30, 2017 expire in fiscal years 2033-2037, the Canadian net operating loss carryovers expire in fiscal years 2037-2040, and the foreign tax credit carryovers expire in fiscal years 2021-2025. The U.S. federal net operating loss carryovers generated in the years ended September 30, 2020 and 2019 and the U.S. state net operating loss carryovers generated in the years ended September 30, 2020, 2019 and 2018 have no expiry, however utilization of the U.S. state net operating loss carryovers generated in fiscal 2018 and future years are limited to 80% of taxable income.

FASB ASC Topic 740, Income Taxes, prescribes a threshold for recognizing the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. The Company has no uncertain tax positions as of September 30, 2020 or 2019.

Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities at September 30, 2020:


Jurisdiction			Fiscal Years Open
U.S. federal			2017 – 2019
Various U.S. states			2017 – 2019
Canada federal			2013 – 2019
Various Canadian provinces			2013 – 2019