10. Income taxes

Income tax recovery varies from the amounts that would be computed by applying the expected Canadian income tax rate (26%) and U.S. income tax rates (40.75%). The combined Canadian and U.S. income tax rates of 27.89% (2016 – 27.28%; 2015 –27.4%) was applied to loss before income taxes as shown in the following table:


	YEARS ENDED DECEMBER 31,
	2017			2016			2015
Computed taxes at combined Canadian and U.S. tax rates		(27.9	)%		(27.3	)%		(27.4	)%
Change in tax rate		(3.6	)		—			0.1
Non-deductible expenses		2.2			1.8			2.0
Research and development credits		(0.9	)		(3.5	)		—
Change in valuation allowance		25.4			28.4			25.3
Effect of the U.S. Tax Cuts and Jobs Act		4.6			—			—
Other		0.2			0.6			—

Income tax recovery		—			—			—

On December 22, 2017, the U.S. passed into law H.R.1 (originally known as the “Tax Cuts and Jobs Act”), or the Act, which significantly overhaul the U.S. tax system. Significant changes to the Internal Revenue Code include a reduction in the U.S. federal corporate tax rate from 35% to 21%. The Company’s accounting for the provisions of the Act, based on the Company’s understanding of the Act and the latest guidance available, resulted in a $2.3 million reduction in its net deferred income tax assets as of December 31, 2017 to reflect the new statutory tax rate. This reduction to the net deferred income tax assets was fully offset by a corresponding reduction in the valuation allowance.


(in thousands)	YEARS ENDED DECEMBER 31,
Net loss before taxes:		2017			2016			2015

Canada	$	(43,758	)	$	(31,737	)	$	(18,382	)
U.S.		(6,425	)		(5,265	)		(3,478	)

Total	$	(50,183	)	$	(37,002	)	$	(21,860	)

Deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the deferred income tax assets are as follows:


(in thousands)	DECEMBER 31, 2017			DECEMBER 31, 2016
Canadian net operating losses	$	35,605		$	24,049
U.S. net operating losses		3,749			3,889
Research and development deductions and credits		8,234			7,331
Other		1,810			1,389
Less: valuation allowance		(49,398	)		(36,658	)

Net deferred income tax assets	$	—		$	—

At December 31, 2017, the Company had Canadian net operating losses carried forward for tax purposes which were available to reduce taxable income of future years of approximately $131.9 million (December 31, 2016—approximately $92.5 million) expiring commencing in 2025 through 2037, and U.S. net operating losses carried forward for tax purposes which were available to reduce taxable income of future years of approximately $23.2 million (December 31, 2016—approximately $11.1 million).

The Company also had unclaimed Canadian tax deductions with no expiry for scientific research and experimental development expenditures of approximately $16.8 million at December 31, 2017 (December 31, 2016–approximately $15.6 million). In addition, at December 31, 2017, the Company had approximately $4.5 million (December 31, 2016—approximately $4.0 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2019 through 2036.

Under ASC 740, the benefit of an uncertain tax position that is more likely than not of being sustained upon audit by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of the benefit of an uncertain tax position may be recognized if the position has less than a 50% likelihood of being sustained. The Company currently does not have any unrecognized tax benefits of uncertain tax positions. The Company does not expect any significant increases to its unrecognized tax benefits within twelve months of the reporting date.

The Company currently files income tax returns in the United States and Canada, the jurisdictions in which the Company believes that it is subject to tax. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction.