Income taxes

12 Months Ended

Dec. 31, 2019

13. Income taxes

Income tax recovery varies from the amounts that would be computed by applying the expected U.S. federal income tax

rate (21%)

as shown in the following table:


	YEARS ENDED DECEMBER 31,
	2019			2018			2017
Statutory federal income tax rate		(21.0	)%		(21.0	)%		(35.0	)%
Change in tax rate		0.0			(0.1	)		(3.6	)
State income taxes		0.0			(1.4	)		(0.6	)
Foreign rate differential		(0.2	)		(4.3	)		7.9
Acquired in-process research and development		14.4			0.0			0.0
Stock compensation		2.6			2.8			2.0
Change in valuation allowance		(0.6	)		24.8			25.4
Expiration of NOLs (section 382)		5.4			—			—
Effect of the U.S. Tax Cuts and Jobs Act		—			—			4.6
Other		(0.6	)		(0.8	)		(0.7	)
Income tax recovery		—			—			—

On December 22, 2017, the U.S. passed into law the “Tax Cuts and Jobs Act”, or the Act, which significantly overhaul the U.S. tax system. Significant changes to the Internal Revenue Code included 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:	2019			2018			2017
Canada	$	(2,129	)	$	(22,477	)	$	(43,758	)
U.S.		(67,313	)		(9,108	)		(6,425	)

Total	$	(69,442	)	$	(31,585	)	$	(50,183	)

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, 2019			DECEMBER 31, 2018
Canadian net operating losses	$	39,574		$	40,252
U.S. net operating losses		5,347			5,588
Research and development deductions and credits		11,062			9,588
Other		1,831			1,797
Less: valuation allowance		(57,814	)		(57,225	)
Net deferred income tax assets	$	—		$	—

At December 31, 2019, the Company had Canadian net operating losses carried forward for tax purposes which were available to reduce taxable income of future years of approximately $146.6 million (December 31, 2018—approximately $149.1 million) expiring commencing in 2025 through 2039

At December 31, 2019, the Company had U.S. net operating losses carried forward for tax purposes which were available to reduce taxable income of future years of approximately $25.5 million (December 31, 2018—approximately $21.8 million), of which approximately $nil million (December 31, 2018—approximately $14.6 million) arose in

California. Of the $25.5 million of U.S. net operating loss carryforwards, $2.3 million will expire between the years 2028 and 2037 and the remaining $23.2 million are indefinite. The Company

completed a formal study under IRC Section 382 to determine the U.S. tax attributes available for use. The results of the study indicated significant restriction on the Company’s ability to utilize the U.S. net operating losses carried forward. The U.S. tax attributes disclosed reflected the conclusion of that study. However, future ownership changes may further affect the limitation in future years.

The Company also had unclaimed Canadian tax deductions with no expiry for scientific research and experimental development expenditures of approximately $22.5 million at December 31, 2019 (December 31, 2018—approximately $19.7 million). In addition, at December 31, 2019, the Company had approximately $5.8 million (December 31, 2018—approximately $5.2 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2020 through 2038.

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.