Income Taxes

The Company had no federal income tax expense and immaterial state tax expense for the years ended December 31, 2018, 2017 and 2016.

The differences between the effective income tax rate and the statutory tax rates during the years ended 2018, 2017 and 2016 are as follows (in thousands):



	Year Ended December 31,
	2018			2017			2016
Net loss before tax	$	(98,418	)	$	(70,430	)	$	(83,118	)
Statutory combined U.S. federal and state tax rate	21.00		%	34.00		%	34.00		%
Statutory federal and state taxes	(20,668		)	(23,946		)	(28,260		)
Increase (decrease) in taxes recoverable resulting from:
Effect of change in valuation allowance	25,959			(4,154		)	28,446
Non-deductible share-based compensation	884			695			1,247
Tax deductions for share-based compensation	(2,924		)	(80		)	(12		)
Tax credits	(5,130		)	(2,563		)	(2,906		)
Share issue costs - temporary difference	—			—			(78		)
Write off of Methylgene US Inc. net operating loss	—			307			—
Differential in income tax rates of foreign subsidiary	(1		)	(169		)	261
Change in tax rate	—			303			—
Tax Cuts and Jobs Act	—			28,569			—
Uncertain tax positions	1,283			646			3,921
Return to provision and other true-ups	375			394			(2,619		)
Other differences	222			(2		)	—
Income tax benefit	$	—		$	—		$	—

Deferred Tax

The following table summarizes the significant components of our deferred tax assets (in thousands):



	December 31,
	2018			2017
Deferred tax assets:
Tangible and intangible depreciable assets	$	8,123		$	17,927
Stock compensation	6,515			4,976
Provisions	1,020			611
Net operating loss carry forwards	74,721			44,598
Capital loss carryforward	178			83
Canada scientific research and experimental development expenditures	5,467			5,467
U.S. research and development tax credits	10,613			7,016
Total gross deferred tax assets	106,637			80,678
Less valuation allowance	(106,637		)	(80,678		)
Net deferred tax assets	$	—		$	—

Total valuation allowance increased by $26.0 million for the year ended December 31, 2018. The Company has established a full valuation allowance against its deferred tax assets as of December 31, 2018 due to the uncertainty surrounding the realization of such assets as evidenced by the cumulative losses from operations through December 31, 2018.

For Canadian federal income tax purposes, the Company's Canadian federal scientific research and experimental development expenditures amounted to $19.9 million at December 31, 2018, 2017 and 2016 and for provincial income tax purposes amounted to $21.6 million at December 31, 2018, 2017 and 2016. As operations in Canada ceased during 2014, no expenditures were incurred for the years ended December 31, 2018, 2017 and 2016. These expenditures are available to reduce future taxable income and have an unlimited carry forward period. Scientific research and development expenditures are subject to verification by the taxation authorities, and accordingly, these amounts may vary by a material amount. In addition, the Company has research and development tax credit carryforwards for U.S. federal and state income tax purposes as of December 31, 2018 of $10.6 million and $4.7 million, respectively. The federal credits will begin to expire in 2033 unless utilized and the state credits have an indefinite life.

At December 31, 2018, the Company's net operating loss carry forwards ("NOLs") for U.S. federal and state income taxes were $254.6 million and $77.3 million, respectively and the Company's NOLs for Canadian federal and provincial income tax purposes were $79.9 million and $79.2 million, respectively. The NOLs are available to offset future taxable income from both U.S. federal and state tax sources, as well as Canadian federal and provincial tax sources and the tax benefits of which have not been recognized in the consolidated financial statements. The NOLs expire as follows (in thousands):



	US				Canada
	Federal		State		Federal		Provincial
Expires in:
2030	$	—	$	—	$	5,907	$	5,985
2031	—		—		7,059		7,066
2032	—		—		13,308		12,433
2033	2,225		2,232		18,623		19,385
2034	7,276		22,162		32,401		31,809
2035	53,359		52,950		1,084		1,084
2036	23,379		—		777		777
2037	65,509		—		697		697
2038	—		—		7		$	7
Does not expire	102,863		—		—		$	—
	$	254,611	$	77,344	$	79,863	$	79,243

The future utilization of the U.S. federal and state NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or may occur in the future. The Tax Reform Act of 1986 (the "1986 Act") limits a company's ability to utilize certain tax credit carryforwards and net operating loss carryforwards in the event of a cumulative change in ownership in excess of 50% as defined in the Act. During 2017, the Company completed a study to assess whether an ownership change, as identified by Section 382 of the 1986 Act, had occurred from the Company’s formation through December 31, 2017. The results of the study have been extended until December 31, 2018. Based upon the study, the Company determined an ownership change had occurred during 2017, causing the annual utilization of the NOL and credit carryforwards to be limited. The Company does not believe any of the NOL and credit carryforwards generated through December 31, 2018 would expire solely as a result of annual limitations on the utilization of those attributes. The Canadian Federal and Provincial Tax Acts maintain similar rules in the case of acquisition of control, which may limit the utilization of tax attributes.

The Company files income tax returns in the U.S. (federal and state) and Canada (federal and provincial). The Company’s U.S. operations have not been audited for any open taxation years. The Company has experienced losses for U.S. tax purposes and therefore, the taxation authorities may review any loss year, if and when the losses are utilized.

For Canadian tax purposes, the Company remains subject to federal and provincial audit for the December 31, 2014 and subsequent taxable years. Where tax years remain open, the Company considers it reasonably possible that issues may be raised or tax positions agreed to with the taxation authorities, which may result in increases or decreases of the balance of non-refundable investment tax credits ("ITCs") and NOLs. However, an estimate of such increases and decreases cannot be currently made.

A reconciliation of the beginning and ending amounts of unrecognized tax positions are as follows (in thousands):



	Federal								Provincial/State
	December 31,								December 31,
	2018		2017			2016			2018		2017			2016
Unrecognized tax positions, beginning of year	$	1,693	$	1,095		$	509		$	7,556	$	7,333		$	2,274
Gross increase — current period tax positions	924		588			598			454		227			195
Gross decrease — prior period tax positions	—		—			(9		)	—		(3		)	—
Gross increase — prior period tax positions	—		11			—			—		—			4,866
Expiration of statute of limitations	—		(1		)	(3		)	—		(1		)	(2		)
Unrecognized tax positions, end of year	$	2,617	$	1,693		$	1,095		$	8,010	$	7,556		$	7,333

If recognized, none of the unrecognized tax positions would impact the Company's income tax benefit or effective tax rate as long as the Company's deferred tax assets remain subject to a full valuation allowance. The Company does not expect any significant increases or decreases to the Company's unrecognized tax positions within the next 12 months. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had no accrual for interest or penalties on tax matters as of December 31, 2018 and 2017 and the Company had no ongoing tax audits as of December 31, 2018.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "TCJA"). The TCJA made significant changes to U.S. tax laws, including, but not limited to, the following: (a) reducing the federal corporate tax rate from 35% to 21%; (b) eliminating the federal corporate alternative minimum tax ("AMT") and changing how existing AMT credits can be realized; and (c) eliminating several business deductions and credits, including deductions for certain executive compensation in excess of $1 million. As a result of the rate reduction, the Company reduced the deferred tax asset balance as of December 31, 2017 by $28.6 million. Due to the Company's full valuation allowance position, there was no net impact on the Company's income tax provision for the year ended December 31, 2017 as the reduction in the deferred tax asset balance was fully offset by a corresponding decrease in the valuation allowance.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the income tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting related to the accounting relating to the TCJA under Accounting Standards Codification Topic 740, "Income Taxes" ("ASC 740"). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company's accounting for TCJA-related income tax effects is incomplete, but the company is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect before the enactment of the TCJA. The Company has completed its evaluation of the potential impacts of the TCJA on its December 31, 2018 financial statements and there is no impact on the income tax provision due to the full valuation allowance as of December 31, 2018.