Income Taxes

12 Months Ended

Jan. 02, 2021

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:

	January 2, 2021		December 28, 2019		December 29, 2018
	$		$		$
Loss from continuing operations	(50,042	)	(16,181	)	(141,036	)
Canadian statutory rate	26.5	%	26.5	%	26.5	%
Income tax recovery at statutory rate	(13,261	)	(4,288	)	(37,375	)
Stock-based compensation	3,169		1,975		2,019
Disallowed executive compensation	2,801		—		—
CARES Act	2,472		—		—
Change in valuation allowance	560		(113	)	(4,082	)
Change in enacted tax rates	250		(549	)	1,976
Foreign tax rate differential	(105	)	126		2,576
Goodwill impairment loss	—		—		22,239
Other	1,374		(252	)	(919	)
Recovery of income taxes	(2,740	)	(3,101	)	(13,566	)

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

	January 2, 2021		December 28, 2019		December 29, 2018
	$		$		$
Canada	(14,700	)	(11,295	)	(13,408	)
U.S.	(34,521	)	(5,548	)	(126,042	)
Other	(821	)	662		(1,586	)
Loss from continuing operations before income taxes	(50,042	)	(16,181	)	(141,036	)

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

	January 2, 2021		December 28, 2019		December 29, 2018
	$		$		$
Current income tax provision (recovery):
Canada	(154	)	(1,023	)	(1,334	)
U.S.	(14,148	)	(3,424	)	(5,303	)
Other	589		532		321
	(13,713	)	(3,915	)	(6,316	)

Deferred income tax provision (recovery):
Canada	(291	)	33		547
U.S.	10,442		731		(7,880	)
Other	822		50		83
	10,973		814		(7,250	)
Recovery of income taxes	(2,740	)	(3,101	)	(13,566	)

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

	January 2, 2021		December 28, 2019
	$		$
Differences in property, plant and equipment and intangible assets	(55,105	)	(54,541	)
Capital and non-capital losses	14,388		26,540
Interest expense limitation (163j)	11,069		19,118
Tax benefit of scientific research expenditures	2,699		1,506
Inventory basis differences	1,303		2,248
Other accrued reserves	4,522		2,308
	(21,124	)	(2,821	)
Less: valuation allowance	4,284		6,219
Deferred income tax liability	(25,408	)	(9,040	)

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

	January 2, 2021		December 28, 2019
	$		$
Canada	(26	)	(223	)
U.S.	(25,150	)	(8,446	)
Other	(232	)	(371	)
Deferred income tax liability	(25,408	)	(9,040	)

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

	January 2, 2021		December 28, 2019
	$		$
Balance, beginning of year	6,219		5,445
Increase (decrease) in valuation allowance	(1,935	)	774
Balance, end of year	4,284		6,219

As at January 2, 2021, the Company had approximately $1.5 million (December 28, 2019 - $0.6 million) in U.S. federal scientific research investment tax credits and $0.9 million (December 28, 2019 - $0.9 million) in U.S. state research and development tax credits, which will expire in varying amounts up to 2029.

As at January 2, 2021, the Company had U.S. federal non-capital loss carry-forwards of approximately $37.1 million (December 28, 2019 - $78.0 million). In addition, the Company had state loss carry-forwards of approximately $8.7 million as at January 2, 2021 (December 28, 2019 - $14.4 million). These amounts are available to reduce future federal and state income taxes.

As at January 2, 2021, the Company had Canadian capital losses of approximately $27.9 million (December 28, 2019 - $28.9 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 January 2, 2021, a valuation allowance of $4.3 million (December 28, 2019 - $6.2 million) had been recorded against certain assets to reduce the net benefit recorded in the consolidated financial statements.

As the undistributed earnings of the Company's non-Canadian affiliates and associated companies are considered to be indefinitely reinvested, 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.

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 are the U.S. (including multiple states) and Canada (Ontario). The Company's 2017 through 2019 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 tax years 2013 through 2019 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.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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