Income taxes

12 Months Ended

Dec. 30, 2017

19. Income Taxes

The recovery of income taxes differs from the amount that would have resulted from applying the combined Canadian federal and provincial statutory income tax rate to loss from continuing operations before income taxes due to the following:

		December 30, 2017	December 31, 2016	January 2, 2016
		$	$	$
Loss from continuing operations before income taxes		(170,397)	(74,361)	(6,522)
Canadian statutory rate		26.5%	26.5%	26.5%
Income tax recovery at statutory rate		(45,155)	(19,706)	(1,728)
Impact of changes in enacted tax rates⁽¹⁾		(8,437)	90	(208)
Foreign tax rate differential		(9,324)	(11,329)	(3,097)
Change in unrecognized tax benefits		(452)	(1,268)	(855)
Goodwill impairment loss		30,475	6,841	-
Impact of stock-based compensation and other non-
	deductible expenses	1,590	1,238	1,470
Change in valuation allowance		72	(267)	4,015
Impact of non-deductible acquisition expenses		-	-	910
Impairment loss on investment		-	-	(4,029)
Other		(4,598)	604	132
Recovery of income taxes		(35,829)	(23,797)	(3,390)

(1) For the year ended December 30, 2017, the impact of changes in enacted tax rates reflected the remeasurement of deferred tax balances to reflect new U.S. corporate tax rates enacted in December 2017.

The components of loss from continuing operations before income taxes are shown below:

		December 30, 2017	December 31, 2016	January 2, 2016
		$	$	$
Canada		(3,286)	9,811	6,038
U.S.		(178,033)	(93,941)	(20,028)
Other		10,922	9,769	7,468
		(170,397)	(74,361)	(6,522)

The components of the provision for (recovery of) income taxes are shown below:

		December 30, 2017	December 31, 2016	January 2, 2016
		$	$	$
Current income tax provision (recovery):
	Canada	(658)	3,560	-
	U.S.	(10,346)	(1,293)	(1,982)
	Other	3,074	3,664	2,300
		(7,930)	5,931	318

Deferred income tax provision (recovery):
	Canada	642	(12)	2,484
	U.S.	(28,606)	(29,463)	(5,971)
	Other	65	(253)	(221)
		(27,899)	(29,728)	(3,708)
Recovery of income taxes		(35,829)	(23,797)	(3,390)

Deferred income taxes of the Company are comprised of the following:

		December 30, 2017	December 31, 2016
		$	$
Differences in property, plant and equipment
	and intangible assets	(51,093)	(87,833)
Capital and non-capital losses		22,144	31,494
Tax benefit of scientific research expenditures		1,871	1,199
Tax benefit of costs incurred during share issuances		-	944
Inventory basis differences		5,193	5,761
Interest expense limitation (163j)		10,311	3,356
Other accrued reserves		5,249	10,653
		(6,325)	(34,426)
Less: valuation allowance		9,162	9,090
Net deferred income tax liability		(15,487)	(43,516)

The components of the deferred income tax asset (liability) are shown below:

	December 30, 2017	December 31, 2016
	$	$
Canada	362	1,045
U.S.	(14,892)	(43,668)
Other	(957)	(893)
	(15,487)	(43,516)

The components of the deferred income tax valuation allowance are as follows:

	December 30, 2017	December 31, 2016
	$	$
Balance, beginning of year	9,090	9,347
Increase in valuation allowance	72	(267)
Foreign exchange	-	10
Balance, end of year	9,162	9,090

As at December 30, 2017, the Company had approximately $0.4 million (December 31, 2016 – $0.4 million) in U.S. federal scientific research investment tax credits and $0.9 million (December 31, 2016 – $0.8 million) in U.S. State research and development tax credits, which will expire in varying amounts up to 2029.

As at December 30, 2017, the Company had U.S. federal non-capital loss carry-forwards of approximately $46.0 million (December 31, 2016 – $51.3 million). In addition, the Company had state loss carry-forwards of approximately $62.6 million as at December 30, 2017 (December 31, 2016 – $64.2 million). These amounts are available to reduce future federal and state income taxes.

As at December 30, 2017, the Company had Canadian capital losses of approximately $27.7 million (December 31, 2016 – $29.7 million) for which a full valuation allowance exists. These amounts are available to reduce future capital gains and do not expire.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determinations, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Based on this evaluation, as at December 30, 2017, a valuation allowance of $9.2 million (December 31, 2016 – $9.1 million) had been recorded against certain assets to reduce the net benefit recorded in the consolidated financial statements.

Undistributed earnings of the Company’s non-Canadian affiliates and associated companies are considered to be indefinitely reinvested; accordingly, no provision for deferred taxes has been provided thereon.

The Company believes it has adequately examined its tax positions taken or expected to be taken in a tax return; however, amounts asserted by taxing authorities could differ from the Company’s positions. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is presented below:

	December 30, 2017	December 31, 2016
	$	$
Balance, beginning of year	452	1,720
Reductions in tax positions of prior years	(452)	(1,268)
Balance, end of year	-	452

The Company’s opening unrecognized tax benefits position largely included a possible reduction to prior year losses for U.S. exposures relating to the deductibility of certain interest amount accrued. The amount has become fully statute barred in the U.S. and the liability reduced to zero.

Consistent with its historical financial reporting, the Company has classified interest and penalties related to income tax liabilities, when applicable, as part of interest expense in its consolidated statements of operations, and with the related liability on the consolidated balance sheets.

The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include Canada (including Ontario), the U.S. (including multiple states), and the Netherlands. The Company’s 2010 through 2016 tax years (and any tax year for which available non-capital loss carry-forwards were generated up to the amount of non-capital loss carry-forward) remain subject to examination by the Internal Revenue Service for U.S. federal tax purposes, and the 2010 through 2016 tax years remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other ongoing audits in various other jurisdictions that are not considered material to the Company’s consolidated financial statements.