Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

15.Income taxes:

Income tax recovery varies from the amounts that would be computed by applying the expected Canadian federal and provincial statutory income tax rate of 27% (2021 and 2020 – 27%) to loss before income taxes as shown in the following table:

	Year Ended December 31,
	2022			2021			2020
Computed recoveries at Canadian federal and    provincial tax rates	$	(33,819	)	$	(21,300	)	$	(7,856	)
Change in valuation allowance		30,732			21,354			7,821
Tax credits earned		(3,086	)		(2,279	)		(1,689	)
Tax attributes expired/utilized		1,564			692			764
Non-deductible expenditures		4,463			2,033			1,135
Other		264			(506	)		(432	)
Income tax expense (recovery)	$	118		$	(6	)	$	(257	)

Income tax expense (recovery) for the years ended December 31, 2022, 2021 and 2020 arose from the operations of Xenon Pharmaceuticals USA Inc., the Company’s wholly-owned subsidiary in the United States.

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 Company’s net deferred income tax assets are as follows:

	December 31,
	2022			2021			2020
Scientific research and experimental development pool	$	34,891		$	32,505		$	29,580
Tax credits		28,835			27,365			25,440
Non-capital losses		80,547			53,453			35,803
Depreciable assets		8,912			7,667			6,635
Deferred financing fees		8,928			7,252			1,689
Deferred revenue		-			-		983
Stock based compensation		1,492			585		334
Other		1,569			732		170
Less - valuation allowance		(164,665	)		(129,094	)		(100,111	)
Net deferred income tax assets	$	509		$	465		$	523

The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criteria changes, the valuation allowance is adjusted accordingly. A full valuation allowance continues to be applied against deferred income tax assets in Canada as the Company has assessed that the realization of such assets does not meet the “more likely than not” criteria. Deferred income tax assets recorded on the consolidated balance sheets as of December 31, 2022 and 2021, result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes, net of valuation allowance, related to the operations of Xenon Pharmaceuticals USA Inc.

At December 31, 2022, the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $129,226 (2021 – $120,388) with no expiry.

At December 31, 2022, the Company has $27,323 (2021 – $26,298) of investment tax credits available to offset federal taxes payable and $8,418 (2021 – $8,168) of provincial tax credits available to offset provincial taxes payable in the future.

At December 31, 2022, the Company has non-capital losses, net of uncertain tax positions, carried forward for tax purposes, which are available to reduce taxable income of future years of approximately $295,828 (2021 – $197,976).

The investment tax credits and loss carry forwards expire over various years to 2042.

At December 31, 2022, the total amount of the Company’s unrecognized tax benefits of uncertain tax positions were $10,850 (2021 – $10,850). If recognized in future periods, the unrecognized tax benefits would not affect the Company’s effective tax rate. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the income tax provision. Interest and penalties have not been accrued at December 31, 2022 and 2021 as none would be owing on the unrecognized tax benefits due to the availability of non-capital losses to shelter any potential taxable income arising thereon. The Company does not currently expect any significant increases or decreases to these unrecognized tax benefits within 12 months of the reporting date.

The Company files income tax returns in Canada and the United States, the jurisdictions in which the Company believes that it is subject to tax. In jurisdictions in which the Company does not believe it is subject to tax and therefore does not file income tax returns, the Company can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years (since the inception of the Company) to examination. 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 claims, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2002 to 2021 remain subject to examinations in Canada and the United States.