Note 14 - Income Taxes

12 Months Ended

Nov. 30, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 14 – INCOME TAXES

The British Columbia provincial corporate tax rate increased from 11% to 12% commencing January 1, 2018, resulting in an increase in the Company’s statutory tax rate to 26.92% in 2018, and to 27% in 2019 onward.

The U.S. tax reform enacted on December 22, 2017 (the “Act”), allows a Section 250 deduction amounting to 37.5% of the U.S. entity’s foreign derived intangible income (FDII) for the fiscal year ended November 30, 2020. The Company’s U.S. entities will be filing on a consolidated basis for the fiscal year ending November 30, 2020. Since the U.S. consolidated group is in a taxable loss position there is no FDII deduction allowed and no corresponding tax savings.

The Act also includes other provisions including the limitations on the use of future losses, repeal of the Alternative Minimum Tax regime, and the introduction of a base erosion and anti-abuse tax. These provisions are not expected to have immediate effect on the Company. Given the significant complexity of the Act, further implications of the Act may be identified in future periods.

The Company’s Income tax (recovery) expense consisted of:

	Years ended November 30,
	2020			2019		2018
Current:
Canada	$	—		$	—	$	—
Foreign		(30	)		607		446
		(30	)		607		446
Deferred:
Canada		—			—		—
Foreign		(751	)		671		80
		(751	)		671		80
Income tax (recovery) expense	$	(781	)	$	1,278	$	526

The Company’s Loss before income tax and other items consisted of:

	Years ended November 30,
	2020			2019			2018
Canada	$	(16,447	)	$	(12,584	)	$	(15,018	)
Foreign		(17,898	)		(13,899	)		(15,922	)
	$	(34,345	)	$	(26,483	)	$	(30,940	)

The Company’s Income tax expense differed from the amounts computed by applying the Canadian statutory corporate income tax rates for the following reasons:

	Years ended November 30,
	2020			2019			2018
Loss before income taxes and other items	$	(34,345	)	$	(26,483	)	$	(30,940	)
Combined federal and provincial statutory tax rate		27	%		27	%		26.92	%
Income tax recovery based on statutory income tax rates		(9,273	)		(7,150	)		(8,329	)
Reconciling items:
Non-deductible expenditures		1,911			2,136			2,150
Foreign accrual property income (FAPI)		652			180			580
Effect of consolidated return for U.S. subsidiaries		(751	)		—			—
Effect of different statutory tax rates on earnings or losses of subsidiaries		(2	)		(658	)		(574	)
Effect of statutory tax rate change		—			—			73,135
Change in valuation allowance on deferred tax assets		6,638			6,773			(66,466	)
Other		44			(3	)		30
Income tax (recovery) expense	$	(781	)	$	1,278		$	526
Effective tax rate		2.3	%		(4.8	)%		(1.7	)%

Components of the Company’s deferred income tax assets (liabilities) are as follows:

	As of November 30,
	2020			2019
Deferred tax income assets:
Net operating loss carry forwards	$	183,422		$	175,383
Capital loss carry forwards		49,307			47,953
Mineral properties		654			638
Intangible assets		484			473
Property and equipment		203			194
Investment in affiliates		35,933			33,508
Unpaid interest expense		2,105			2,105
Unrealized loss on investments		316			368
Other		685			569
		273,109			261,191
Valuation allowances		(271,016	)		(260,920	)
		2,093			271
Deferred income tax liabilities:
Investment tax credit		—			(8	)
Notes receivable		(1,975	)		(759	)
Capitalized assets and other		(118	)		(255	)
		(2,093	)		(1,022	)
Net deferred income tax assets (liabilities)	$	—		$	(751	)

These amounts reflect the classification and presentation that is reported for each tax jurisdiction in which the Company operates. Net deferred income tax assets and liabilities consist of:

	As of November 30,
	2020		2019
Non-current deferred income tax assets	$	—	$	—
Non-current deferred income tax liabilities		—		(751	)
	$	—	$	(751	)

Net operating losses available to offset future taxable income are as follows:

Year of Expiry	U.S.		Canada
2024	$	1,032	$	—
2025		1,246		—
2026		13,382		19,166
2027		18,493		1,861
2028		85		—
2029		11,223		12,062
2030		10,916		16,051
2031		16,580		15,975
2032		309,772		19,496
2033		14,529		14,712
2034		15,607		10,585
2035		16,383		9,666
2036		14,764		9,512
2037		14,111		6,329
2038		—		6,433
2039		—		5,843
2040		—		7,365
Indefinite		39,448		—
	$	497,571	$	155,056

Under the U.S. tax reform, net operating losses arising in tax years ending after December 31, 2017 can be carried over to each taxable year following the tax year of loss (indefinitely). The Company has capital loss carry-forwards of approximately $364,799 ( November 30, 2019: $354,356) for Canadian tax purposes. These tax losses are carried forward indefinitely.

Future use of U.S. loss carry-forwards is subject to certain limitations under provisions of the Internal Revenue Code including limitations subject to Section 382, which relates to a 50% change in control over a three-year period and are further dependent upon the Company attaining profitable operations. Ownership changes occurred on January 22, 2009 and on December 31, 2012 and the U.S. tax losses related to NOVAGOLD Resources Alaska Inc. and its investment in Donlin Gold LLC for the prior three-year periods prior to the change in control may be subject to limitation under Section 382. Accordingly, the Company’s ability to use these losses may be limited or they may expire un-utilized. Losses incurred to date may be further limited if a subsequent change in control occurs.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax asset. Significant pieces of objective negative evidence evaluated included the cumulative loss incurred as of November 30, 2020. Such objective evidence limits the ability to consider other subjective evidence such as management’s projections for future growth. On the basis of this evaluation, as of November 30, 2020, a valuation allowance of $271,016 ( November 30, 2019: $260,920), inclusive of valuation allowance for investment tax credits has been recorded in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable; however, could be adjusted if estimates of future taxable income during the carry forward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as management’s projections for growth.

Uncertain tax position

There were no uncertain tax positions as of November 30, 2020, 2019 and 2018. The Company recognizes any interest and penalties related to uncertain tax positions, if any, as income tax expense. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. As of November 30, 2020, 2019 and 2018, there were no accrued interest and penalties related to uncertain tax positions. The Company is subject to income taxes in Canada and the United States. With few exceptions, the tax years that remain subject to examination as of November 30, 2020 are 2016 to 2020 in Canada and 2017 to 2020 in the United States.