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Note 13 - Income Taxes and Deferred Income Taxes | 12 Months Ended
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May 31, 2024
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
13. | Income taxes and deferred income taxes
Loss before income taxes includes the following components:
|  | For the year ended May 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
United States |  | $ | (126,735 | ) |  | $ | (506,984 | ) |  | $ | (233,697 | )
Canada |  |  | (106,822 | ) |  |  | (912,717 | ) |  |  | (81,772 | )
Other countries |  |  | (15,463 | ) |  |  | (30,480 | ) |  |  | (125,205 | )
|  | $ | (249,020 | ) |  | $ | (1,450,181 | ) |  | $ | (440,674 | )
The (recoveries) expense for income taxes consists of:
|  | For the year ended May 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 497 |  |  | $ | 226 |  |  | $ | 262 |
Canada |  |  | 10,819 |  |  |  | 26,290 |  |  |  | 23,268 |
Other countries |  |  | 940 |  |  |  | (62 | ) |  |  | 479 |
|  | $ | 12,256 |  |  | $ | 26,454 |  |  | $ | 24,009 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | (723 | ) |  | $ | (4,055 | ) |  | $ | 520 |
Canada |  |  | (33,422 | ) |  |  | (24,364 | ) |  |  | (17,154 | )
Other countries |  |  | (4,727 | ) |  |  | (5,216 | ) |  |  | (13,917 | )
|  | $ | (38,872 | ) |  | $ | (33,635 | ) |  | $ | (30,551 | )
Income tax benefits, net |  | $ | (26,616 | ) |  | $ | (7,181 | ) |  | $ | (6,542 | )
A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:
|  | For the year ended May 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Loss before net income taxes: |  | $ | (249,020 | ) |  | $ | (1,450,181 | ) |  | $ | (440,674 | )
Income tax benefits at statutory rate |  |  | (51,325 | ) |  |  | (304,538 | ) |  |  | (92,542 | )
Tax impact of foreign operations |  |  | (5,661 | ) |  |  | (25,857 | ) |  |  | 81,316 |
Foreign exchange and other |  |  | 1,959 |  |  |  | 13,434 |  |  |  | 14,941 |
Non-deductible expenses |  |  | 6,147 |  |  |  | 3,982 |  |  |  | 6,404 |
Non-deductible (taxable) losses |  |  | (682 | ) |  |  | 23,150 |  |  |  | 748 |
Changes in enacted rates |  |  | 2,394 |  |  |  | (816 | ) |  |  | — |
Change in fair value of warrant liability |  |  | 302 |  |  |  | (2,612 | ) |  |  | (13,359 | )
Stock based and other compensation |  |  | — |  |  |  | — |  |  |  | 994 |
Change in valuation allowance |  |  | 20,250 |  |  |  | 285,698 |  |  |  | 17,255 |
Impact on convertible debenture and other differences |  |  | — |  |  |  | 378 |  |  |  | (22,299 | )
Income tax benefits, net |  | $ | (26,616 | ) |  | $ | (7,181 | ) |  | $ | (6,542 | )
The following table summarizes the components of deferred tax:
|  | May 31, |
|  | 2024 |  |  | 2023 |
Deferred assets |  |  |  |  |  |  |  |
Operating loss carryforwards - United States |  | $ | 104,377 |  |  | $ | 85,259 |
Operating loss carryforwards - Canada |  |  | 366,720 |  |  |  | 145,111 |
Operating loss carryforwards - Other Countries |  |  | 18,518 |  |  |  | 18,787 |
Capital loss carryforwards |  |  | 34,355 |  |  |  | 34,355 |
Intangible assets |  |  | 229,953 |  |  |  | 244,227 |
Property and equipment |  |  | 34,578 |  |  |  | 46,400 |
Currently nondeductible interest |  |  | — |  |  |  | 2,812 |
Investments and convertible notes receivable |  |  | 45,685 |  |  |  | 66,718 |
Investment tax credits and related pool balance |  |  | 23,132 |  |  |  | 22,054 |
Other |  |  | 46,151 |  |  |  | 50,074 |
Total Deferred tax assets |  |  | 903,469 |  |  |  | 715,797 |
Less valuation allowance |  |  | (789,839 | ) |  |  | (625,368 | )
Net deferred tax assets |  |  | 113,630 |  |  |  | 90,429 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Property and equipment |  |  | (18,814 | ) |  |  | (18,129 | )
Intangible assets |  |  | (218,020 | ) |  |  | (225,460 | )
Convertible Senior Notes Due 2023 |  |  | (2,229 | ) |  |  | (14,204 | )
Other Deferred Items |  |  | (5,437 | ) |  |  | — |
Total deferred tax liabilities |  |  | (244,500 | ) |  |  | (257,793 | )
Net deferred tax liability |  | $ | (130,870 | ) |  | $ | (167,364 | )
The Tax Cuts and Jobs Act (2017 Tax Act) was enacted on December 22, 2017 and reduced the U.S. statutory federal corporate tax rate from 35% to 21%. The Tax Act also contains additional provisions that are effective for the company in 2018, including a new tax on Global Intangible Low-Taxed Income (“GILTI”). Under GAAP, there is an accounting policy choice to either (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method"); or (ii) factor in such amounts into the measurement of our deferred taxes (the "deferred method"). The Company has made a policy decision to record GILTI tax as a current-period expense when incurred. Deferred income taxes have not been recorded on the basis differences for investments in consolidated subsidiaries as these basis differences are indefinitely reinvested or will reverse in a non-taxable manner. Quantification of the deferred income tax liability, if any, associated with indefinitely reinvested basis differences is not practicable. Deferred income taxes have been recorded on the basis differences for investments in nonconsolidated entities. At May 31, 2024, the Company had United States net operating loss carry-forwards of approximately $497,033 that can be carried forward indefinitely and generally limited in annual use to 80% of the current year taxable income starting 2021. The Company has Canadian net operating loss carry-forwards of approximately $662,839 that can be carried forward 20 years and begin to expire in 2028. Management believes that it is more-likely-than-not that the benefit from certain United States and foreign net operating loss carry-forwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance on the deferred tax assets relating to these carry-forwards. The net change in the total valuation allowance was an increase of $164,471 and $271,297 for the years ended May 31, 2024 and 2023, respectively. The net change in the total valuation allowance was primarily a result of finalization of the purchase accounting related to the reverse acquisition transaction with Aphria Inc. during the prior year and certain current year losses. The Company recognizes the financial statement impact of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest impact that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The total amount of gross unrecognized tax benefits (“GUTB”) was $nil, $nil, and $nil as of May 31, 2024, 2023 and 2022 respectively. There is a reasonable possibility that the Company’s unrecognized tax benefits will change within twelve months due to audit settlements or the expiration of statute of limitations, but the Company does not expect the change to be material to the financial statements. The Company recognizes interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are recorded as a component of income tax expenses. In the years ended May 31, 2024, 2023 and 2022, the Company recorded approximately $nil, $nil and $nil, respectively, of interest and penalty expenses related to uncertain tax positions. As of May 31, 2024, and 2023, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $nil and $nil, respectively. The Company and its subsidiaries are subject to United States federal income tax as well as the income tax of multiple state and foreign jurisdictions. Major jurisdictions where there are wholly owned subsidiaries of Tilray Brands, Inc. which require income tax filings include the Canada, Portugal, Germany, and Australia. The earliest periods open for review by local taxing authorities are fiscal years 2018 for Canada, 2019 for Portugal, 2018 for Germany, 2019 for Australia, and 2020 for United States.

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