The following is a geographical breakdown of income before the provision for income taxes:



	Year Ended June 30,
	2019		2018		2017
Domestic income (loss)	$	269,331	$	238,405	$	110,562
Foreign income	171,243		147,721		138,989
Income before income taxes	$	440,574	$	386,126	$	249,551

The provision for (recovery of) income taxes consisted of the following:



	Year Ended June 30,
	2019			2018		2017
Current income taxes (recoveries):
Domestic	$	7,862		$	5,313	$	12,238
Foreign	99,650			48,777		82,593
	107,512			54,090		94,831
Deferred income taxes (recoveries):
Domestic	52,889			61,678		(851,683		)
Foreign	(5,464		)	28,058		(19,512		)
	47,425			89,736		(871,195		)
Provision for (recovery of) income taxes	$	154,937		$	143,826	$	(776,364	)

A reconciliation of the combined Canadian federal and provincial income tax rate with our effective income tax rate is as follows:



	Year Ended June 30,
	2019			2018			2017
Expected statutory rate	26.5		%	26.5		%	26.5		%
Expected provision for income taxes	$	116,752		$	102,323		$	66,131
Effect of foreign tax rate differences	(1,344		)	2,352			8,647
Change in valuation allowance	(5,045		)	1,779			520
Amortization of deferred charges	—			4,242			6,298
Effect of permanent differences	(577		)	4,332			3,673
Effect of changes in unrecognized tax benefits	31,992			5,543			14,427
Effect of withholding taxes	2,097			7,927			3,845
Difference in tax filings from provision	(250		)	1,321			(7,836		)
Effect of U.S. tax reform	—			19,037			—
Effect of tax credits for research and development	(13,550		)	(3,875		)	(2,643		)
Effect of accrual for undistributed earnings	(13,112		)	(1,154		)	5,613
Effect of Base Erosion and Anti-Abuse Tax (BEAT)	16,030			—			—
Other Items	5,473			(1		)	1,075
Impact of internal reorganization of subsidiaries	16,471			—			(876,114		)
	$	154,937		$	143,826		$	(776,364	)

The effective tax rate decreased to a provision of 35.2% for the year ended June 30, 2019, compared to 37.2% for the year ended June 30, 2018. The increase in tax expense of $11.1 million was primarily due to the increase in net income taxed at foreign rates of $10.7 million, an increase of $26.4 million in reserves for unrecognized tax benefits, an increase of $16.1 million arising on the introduction of BEAT in Fiscal 2019, and an increase of $16.3 million relating to the tax impact of internal reorganizations of subsidiaries, partially offset by a the reversal of accruals for undistributed United States earnings of $14.8 million, the Fiscal 2018 impact of United States tax reform of $19.0 million which did not recur in Fiscal 2019, an increase in tax credits for research and development of $9.7 million, an increase of $6.8 million in the release of valuation allowance, a decrease of $5.8 million in the impact of withholding taxes in Fiscal 2019. The remainder of the difference was due to normal course movements and non-material items.

In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and administrative efficiencies through further consolidated ownership, management, and development of our intellectual property (IP) in Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single operating legal entity in each jurisdiction. A significant tax benefit of $876.1 million, associated primarily with the recognition of a net deferred tax asset arising from the entry of the IP into Canada, was recognized in the first quarter of Fiscal 2017. For more information relating to this, please refer to our Annual Report on Form 10-K for the year ended June 30, 2017.

As of June 30, 2019, we have approximately $242.3 million of domestic non-capital loss carryforwards. In addition, we have $387.6 million of foreign non-capital loss carryforwards of which $53.8 million have no expiry date. The remainder of the domestic and foreign losses expires between 2020 and 2039. In addition, investment tax credits of $58.6 million will expire between 2020 and 2039.



	June 30,
	2019			2018
Deferred tax assets
Non-capital loss carryforwards	$	161,119		$	129,436
Capital loss carryforwards	155			417
Undeducted scientific research and development expenses	137,253			123,114
Depreciation and amortization	683,777			829,369
Restructuring costs and other reserves	17,845			17,202
Deferred revenue	53,254			62,726
Other	59,584			57,461
Total deferred tax asset	$	1,112,987		$	1,219,725
Valuation Allowance	$	(77,328	)	$	(80,924	)
Deferred tax liabilities
Scientific research and development tax credits	$	(14,482	)	$	(13,342	)
Other	(72,599		)	(82,668		)
Deferred tax liabilities	$	(87,081	)	$	(96,010	)
Net deferred tax asset	$	948,578		$	1,042,791
Comprised of:
Long-term assets	1,004,450			1,122,729
Long-term liabilities	(55,872		)	(79,938		)
	$	948,578		$	1,042,791

We believe that sufficient uncertainty exists regarding the realization of certain deferred tax assets that a valuation allowance is required. We continue to evaluate our taxable position quarterly and consider factors by taxing jurisdiction, including but not limited to factors such as estimated taxable income, any historical experience of losses for tax purposes and the future growth of OpenText.

The aggregate changes in the balance of our gross unrecognized tax benefits (including interest and penalties) were as follows:



Unrecognized tax benefits as of July 1, 2017	$	174,530
Increases on account of current year positions	6,483
Increases on account of prior year positions	17,794
Decreases due to settlements with tax authorities	—
Decreases due to lapses of statutes of limitations	(20,995		)
Unrecognized tax benefits as of June 30, 2018	$	177,812
Increases on account of current year positions	25,642
Increases on account of prior year positions	15,024
Decreases due to settlements with tax authorities	—
Decreases due to lapses of statutes of limitations	(9,236		)
Unrecognized tax benefits as of June 30, 2019	$	209,242

Included in the above tabular reconciliation are unrecognized tax benefits of $11.2 million relating to deferred tax assets in jurisdictions in which these deferred tax assets are offset with valuation allowances. The net unrecognized tax benefit excluding these deferred tax assets is approximately $198.1 million as of June 30, 2019 (June 30, 2018—$167.2 million).

We believe that it is reasonably possible that the gross unrecognized tax benefits, as of June 30, 2019, could decrease tax expense in the next 12 months by $17.5 million, relating primarily to the expiration of competent authority relief and tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions.

Our four most significant tax jurisdictions are Canada, the United States, Luxembourg and Germany. Our tax filings remain subject to audits by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The earliest fiscal years open for examination are 2012 for Germany, 2010 for the United States, 2012 for Luxembourg, and 2012 for Canada.

We are subject to tax audits in all major taxing jurisdictions in which we operate and currently have tax audits open in Canada, the United States, France, Germany, India, the United Kingdom and Belgium. On a quarterly basis we assess the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes. Statements regarding the United States and Canada audits are included in note 13 "Guarantees and Contingencies".

The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain tax audits, please refer to note 13 "Guarantees and Contingencies".

As at June 30, 2019, we have recognized a provision of $17.4 million (June 30, 2018—$28.5 million) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution. During the year ended June 30, 2019, we reversed previous accruals related to the undistributed earnings of our United States subsidiaries in the amount of $14.8 million. These earnings are now considered to be permanently reinvested in the United States, as there is no expectation of future distributions of earnings in the foreseeable future. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future.

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changed the existing US tax laws, including a reduction in the federal corporate tax rate from 35% to 21%, and the transition of US international taxation from a worldwide tax system to a partially territorial tax system. As a result of the enactment of the legislation, the Company incurred a one-time tax expense of $19.0 million in the year ended June 30, 2018, primarily related to the transition tax on accumulated foreign earnings and the re-measurement of certain deferred tax assets and liabilities. During the year ended June 30, 2019, there was a reduction of $0.9 million to this amount, mainly attributable to evaluating the portion of our existing Alternative Minimum Tax (AMT) credit carryforwards expected to be refundable as a result of the repeal of corporate AMT. The portion of the tax expense attributable to the transition tax is payable over a period of up to eight years.

In accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118), the Company completed its analysis of the impact of the Tax Cuts and Jobs Act by December 22, 2018. The Company's final determination of the total one-time tax expense as a result of the enactment of the Tax Cuts and Jobs Act is $18.1 million.