Income Taxes

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

Income Taxes

13.Income taxes:

Loss before income taxes for the years ended December 31, 2024, 2023 and 2022 was as follows:

	Year Ended December 31,
	2024			2023			2022
Canada	$	(243,410	)	$	(174,491	)	$	(121,335	)
United States		4,991			(8,194	)		(3,920	)
Loss before income taxes	$	(238,419	)	$	(182,685	)	$	(125,255	)

The income tax recovery (expense) is allocated as follows:

	Year Ended December 31,
	2024			2023		2022
Current:
Canada	$	—		$	—	$	—
United States		(4,775	)		—		(162	)
		(4,775	)		—		(162	)
Deferred:
Canada		—			—		—
United States		8,864			292		44
		8,864			292		44
Income tax recovery (expense)	$	4,089		$	292	$	(118	)

The Company’s wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc., generates taxable income due to an intercompany service agreement with the Company. All current tax expense and deferred income tax recovery recognized for the years ended December 31, 2024, 2023 and 2022 were attributable to the United States. For the year ended December 31, 2024, the deferred income tax recovery recorded by Xenon Pharmaceuticals USA Inc. is related to the re-assessment of the realizability of its deferred tax assets.

A reconciliation of the expected Canadian statutory income tax rate to the effective income tax rate is as follows:

	Year Ended December 31,
	2024			2023			2022
Tax at statutory income tax rate		27.00	%		27.00	%		27.00	%
Change in valuation allowance		(22.0	%)		(24.0	%)		(24.5	%)
Research and development and other credits		1.3	%		1.6	%		2.5	%
Tax attributes expired/utilized		(1.1	%)		(0.8	%)		(1.2	%)
Stock-based compensation		(3.4	%)		(3.2	%)		(2.6	%)
Other non-deductible expenses		(0.4	%)		(0.3	%)		(0.2	%)
Other		0.3	%		(0.1	%)		(1.1	%)
Effective income tax rate		1.7	%		0.2	%		(0.1	%)

Deferred income tax assets and liabilities result from the temporary differences between the carrying 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,
	2024			2023
Deferred income tax assets:
Research and development tax credits	$	42,830		$	38,590
Investment tax credits		29,818			30,695
Non-capital losses		173,352			119,765
Depreciable assets		13,269			10,311
Deferred financing fees		6,967			10,831
Stock-based compensation		8,380			3,832
Operating lease liability		2,299			2,779
Other		1,704			852
Total deferred income tax assets		278,619			217,655
Deferred income tax liability:
Operating lease right-of-use asset		(2,097	)		(2,411	)
Less - valuation allowance		(266,856	)		(214,442	)
Net deferred income tax assets	$	9,666		$	802

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, 2024 and 2023, 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, 2024, the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $158,629 (2023 – $142,925) with no expiry.

At December 31, 2024, the Company has $29,284 (2023 – $29,074) of investment tax credits available to offset federal taxes payable and $8,518 (2023 – $8,099) of provincial tax credits available to offset provincial taxes payable in the future.

At December 31, 2024, 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 $642,043 (2023 – $422,822).

The investment tax credits and loss carry forwards expire over various years to 2045.

At December 31, 2024, the total amount of the Company’s unrecognized tax benefits of uncertain tax positions were $10,850 (2023 – $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 on the unrecognized tax benefits have not been accrued at December 31, 2024 and 2023 as none would be owing 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 2004 to 2023 remain subject to examinations in Canada and the United States.