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Income Taxes

12 Months Ended

Feb. 28, 2019

Income Tax Disclosure [Abstract]

Note 13. Income Taxes

The components of the Company’s loss before taxes are summarized below:

		Years ended February 28,
		2019				2018				2017
U.S. operations		$	(8,948,305	)		$	(8,509,651	)		$	(2,155,934	)
Foreign operations			(8,588,106	)			(5,527,727	)			(1,958,067	)
Loss before taxes		$	(17,536,411	)		$	(14,037,378	)		$	(4,114,001	)

A reconciliation from the statutory U.S. income tax rate and the Company’s effective income tax rate, as computed on loss before taxes, is as follows:

		Years ended February 28,
		2019				2018				2017
Statutory Federal rate (21.0% in 2019; 32.7% in 2018; 35.0% in 2017)
Federal income tax at statutory rate		$	(3,682,646	)		$	(4,585,497	)		$	(1,439,900	)
Effect of foreign jurisdiction			(308,046	)			320,769				40,018
Non-deductible expenses			888,749				2,169,384				(48,326	)
Tax credits related to research and development expenditures			(387,326	)			(146,757	)			—
Impact of Tax Cuts and Jobs Act Enactment			—				876,812				—
Unrecognized tax benefit of net operating losses and other available deductions			3,489,269				1,365,289				1,448,208
Effective income tax expense		$	—			$	—			$	—
Current		$	—			$	—			$	—
Deferred		$	—			$	—			$	—

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“U.S. tax reform”) that lowers the statutory tax rate on U.S. earnings to 21%, taxes historic foreign earnings at a reduced rate of tax, establishes a territorial tax system and enacts new taxes associated with global operations.

The impact of enactment of U.S. tax reform was recorded on a provisional basis as the legislation provides for additional guidance to be issued by the U.S. Treasury Department on several provisions including the computation of the transition tax. The Company’s Controlled Foreign Corporations (“CFCs”), being Loop Canada Inc. and 9449710 Canada Inc., were deficit E&T corporations, and as such no income was recognized by Loop Industries during the year ended February 28, 2019 (2018 – nil; 2017 – nil). No further inclusions were made during the year ended February 28, 2019 based on guidance issued during the year. Additional guidance may be issued after February 28, 2019 and any resulting effects will be recorded at that time.

Additionally, as part of tax reform, the U.S. has enacted a minimum tax on foreign earnings (“global intangible low-taxed income”). The Company has not made an accrual for the deferred tax aspects of this provision as Loop Industries’ CFCs have suffered net tested losses.

The enactment of U.S. tax reform reduced the corporate tax rate to 21%, effective January 1, 2018, for all corporations. US GAAP requires the effect of a change in tax laws or rates to be recognized as of the date of enactment, therefore the Company revalued its deferred tax assets and liabilities as at December 22, 2017. As a result of the revaluation, the Company recorded a tax expense of $876,812 during the year ended February 28, 2018, to reflect the revaluation of deferred taxes. However, as in prior years, a valuation allowance was provided against the deferred tax asset.

The Company has accumulated the following losses for income tax purposes which may be carried forward to reduce U.S. Federal and Canadian Federal and provincial taxable income in future years, and will expire as follows:

				U.S.				Canada
				Federal				Federal				Québec
	2035			$	56,699			$	—			$	—
	2036				521,398				—				—
	2037				4,419,150				278,623				278,623
	2038				1,560,483				3,096,139				3,096,139
	2039				—				4,268,317				4,281,955
	Indefinite				8,038,528				—				—
				$	14,596,258			$	7,643,079			$	7,656,717

In addition, the Company has approximately CDN$4,679,187 of research and development expenditures for Canadian Federal tax purposes and CDN$4,670,034 for Québec tax purposes that are available to reduce taxable income in future years and have an unlimited carry forward period, the benefit of which has not been reflected in these financial statements. Research and development expenditures are subject to audit by the taxation authorities and accordingly, these amounts may vary.

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

		As at February 28,
		2019				2018
Deferred tax assets
Canada net operating loss carry forward		$	2,026,984			$	1,127,381
U.S. net operating loss carry forward			3,165,937				1,377,008
Accrual and reserves			118,309				—
Property, plant and equipment			—				136,200
Research and development expenditures and credits			1,058,010				472,608
Unrealized foreign exchange			—				9,462
Other			38,418				—
Deferred tax assets			6,407,658				3,122,659
Deferred tax liabilities
Property, plant and equipment			(41,636	)			(2,367	)
Intangibles			(34,785	)			(1,489	)
Accrual and reserves			—				(49,236	)
Investment tax credits			—				—
Unrealized foreign exchange			—				(8,697	)
Deferred tax liabilities			(76,421	)			(61,789	)

Deferred tax assets, net			6,331,239				3,060,870
Valuation allowance			(6,331,239	)			(3,060,870	)
Deferred tax assets, net		$	—			$	—

Assessment of the amount of value assigned to the Company's deferred tax assets under the applicable accounting rules is judgmental. The Company is required to consider all available positive and negative evidence in evaluating the likelihood that the Company will be able to realize the benefit of its deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent operations. Since this evaluation requires consideration of events that may occur some years into the future, there is an element of judgment involved. The realization of the Company's deferred tax assets, including those related to income tax loss carryforwards, is dependent on generating sufficient taxable income in future periods. Management does not believe that it is more likely than not that future taxable income will be sufficient to allow it to recover substantially all of the value assigned to its deferred tax assets. Accordingly, the Company has provided for a valuation allowance of the Company's deferred tax asset. For the years ended February 28, 2019, 2018 and 2017, the valuation allowance increased by $3,270,369, $1,446,422 and $1,247,252, respectively.

The tax years subject to examination by major tax jurisdiction include the years 2016 and forward by the U.S. Internal Revenue Service and most state jurisdictions, and the years 2016 and forward for the Canadian jurisdiction.