8. Income taxes

As a result of the prospective adoption of ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), certain tables are presented in a different format not comparable to prior year disclosures, and certain data contained within the tables may be presented differently than in prior years.

Canada and foreign components of loss before income taxes were as:

	2025		2024
Canada	(16,817,273	)	(6,187,172	)
Foreign	(18,627,087	)	(4,968,344	)
Loss before income taxes	(35,444,361	)	(11,155,516	)

Effective Tax Rate

The items accounting for the differences between income taxes computed at the Canadian federal statutory rate and our effective rate, reflecting the prospective adoption of ASU 2023-09, were as follows:

	%	2025
Canadian federal statutory income tax rate	15%	(5,316,650	)
Domestic Federal
Non-taxable and non-deductible items	(1.6%)	568,150
Statutory income tax differential
Valuation Allowance Federal	(5.5%)	1,954,660

Domestic provincial income taxes, net of federal effect	0.0%	-
Foreign Tax Effects
United States
Non-deductible and other expenses	0.0%	-
Statutory income tax rate differential	3.5%	(1,228,030	)
Valuation Allowance United States	(7.0%)	2,492,310
United Kingdom
Statutory income tax differential	2.9%	(1,019,710	)
Valuation Allowance United Kingdom	(7.2%)	2,549,270
Income tax (benefit)	0.0%	-

Domestic provincial income taxes are attributable to Ontario at a rate of 11.5%. The net effect of domestic provincial income taxes is $0 due to the full valuation allowance applicable to tax losses in this jurisdiction.

The items accounting for the differences between income taxes computed at the U.S. federal statutory rate of 21% and our effective rate, prior to the prospective adoption of ASU 2023-09, were as follows:

	2024
Income tax recovery at the statutory rate	(2,956,212	)
Permanent differences	189,075
Impact of tax rate changes	42,865
Change in valuation allowance	2,724,272
	-

The Company's income tax (benefit) expense is allocated as follows:

	2025	2024
Current tax (benefit) expense	-	-
Deferred tax (benefit) expense	-	-
	-	-

The tax effect of temporary differences between US GAAP accounting and income tax accounting creating deferred income tax assets and liabilities were as follow:

	Year ended December 31,
	2025		2024
Non-capital losses carry forward - Canada	5,326,310		1,973,535
Net operating losses carryforward - US	6,194,650		2,678,919
Net operating losses carryforward - UK	369,910		-
Intangible assets	10,860		10,855
Accrued expenses	766,430		994,653
Research and development tax credits	210,610		242,190
Other	9,240		14,230
Financing charges and interest	1,212,190		668,701
Convertible Debentures	106,830		-
Deferred income tax assets	14,207,007		6,583,083
Less: valuation allowance	(14,207,007	)	(6,583,083	)
Deferred income tax assets, net of valuation allowance	-		-

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are paid or recovered.

Medicus Pharma Ltd intends to be treated as a United States corporation for United States federal income tax purposes under section 7874 of the U.S. Tax Code and is expected to be subject to United States federal income tax. However, for Canadian tax purposes, Medicus Pharma Ltd is expected, regardless of any application of section 7874 of the U.S. Tax Code, to be treated as a Canadian resident company (as defined in the Income Tax Act (Canada) (the "ITA") for Canadian income tax purposes. As a result, Medicus Pharma Ltd will be subject to taxation both in Canada and the United States.

The Company has a valuation allowance on all of its deferred tax assets at December 31, 2025 and 2024, which based on the judgement of management are not more-likely than-not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that all or some portion of the deferred assets will not be realized. This ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those deductible temporary differences become deductible. Based on the history of losses and projections for future taxable income, management believes that it is not more-likely than-not that the Company will realize the benefits of these deductible temporary differences.

The Company has $210,606 of US Research and Development Tax Credits which are available to reduce future US taxes payable and begin to expire in 2036.

In addition, the Company has gross Canadian operating tax loss carryforwards of $20,099,000. To the extent that the operating tax loss carryforwards are not used, they begin to expire in 2028. The Company also has gross US Federal net operating loss carryforward ("NOLs") of $20,949,000 of which approximately $1,253,000 begin to expire in 2035, while approximately $19,696,000 has an indefinite life.

In addition, the Company has approximately $20,949,000 of gross US State NOLs, which begin to expire in 2035.

The US NOL carryforwards may be, or become subject to, an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of the Company immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. If and when the Company utilizes the NOL carryforwards in a future period, it will perform an analysis to determine the effect, if any, of these loss limitation rules on the NOL carryforward balances.

The Company files income tax returns with Canada and its provinces and territories and is generally subject to routine examinations by the Canada Revenue Agency ("CRA"). Income tax returns filed with various provincial jurisdictions are generally open to examination for periods of four to five years subsequent to the filing of the respective returns.

The Company also files income tax returns for our U.S. operations and subsidiary with the U.S. federal and state tax jurisdictions. Generally, we are subject to routine examination by taxing authorities in the U.S. jurisdictions, which all years since inception are open to examination due to net operating losses.

There are presently no examinations of our Canadian, U.S. federal and U.S. state jurisdictions.