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Note 10 - Income Tax
 12 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

10. Income Tax

 

The reconciliation of the combined Canadian federal and provincial statutory income tax rate to the approximate effective tax rate is as follows:

 

   

Years Ended

  
   

September 30,
2024

    

September 30,
2023

  
                 

Net loss before recovery of income taxes

   $ (6,169,000 )   $ (8,374,000 )

Canadian federal and provincial statutory income tax rate

     26.5 %     26.5 %
                 

Expected income tax recovery

   $ (1,635,000 )   $ (2,219,000 )

Effect of foreign currency and foreign tax rate differences

     (58,200 )     (207,200 )

Permanent differences

     147,000       339,000  

Share issuance cost booked through equity or capitalization

     36,000       (89,000 )

Non-capital losses limitation - U.S.

     0       899,000  

Other

     (38,000 )     (94,000 )

Change in valuation allowance

     1,549,000       1,372,000  
                 

Income tax (recovery) expense

   $ 800     $ 800  

 

 

Components of the net deferred tax asset or liability

 

Deferred taxes are provided as a result of temporary differences that arise due to the difference between the income tax values and the carrying amount of assets and liabilities. Approximate deferred tax assets and liabilities are as follows:

 

   

September 30,
2024

    

September 30,
2023

  
                 

Non-capital losses carried forward - Canada

   $ 15,547,000     $ 13,943,000  

Non-capital losses carried forward - U.S.

     742,000       731,000  

Research and development tax credits

     1,504,000       1,371,000  

Share issuance and financing costs

     381,000       585,000  

Right-of-use lease liabilities

     5,000       25,000  

Other temporary differences

     21,000       44,000  
                 

Subtotal

   $ 18,200,000     $ 16,699,000  

Less: valuation allowance

     (18,074,000 )     (16,466,000 )
                 

Total net deferred tax assets

   $ 126,000     $ 233,000  
                 

Property and equipment

   $ (2,000 )   $ (3,000 )

Right-of-use assets

     (5,000 )     (24,000 )

Grant Income receivable

     (71,000 )     (153,000 )

Deferred share issuance costs

     (48,000 )     (53,000 )
                 

Total deferred tax liabilities

   $ (126,000 )   $ (233,000 )
                 

Net deferred taxes

   $ -     $ -  

 

Realization of the deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. It is more likely than not that a tax benefit will not be realized. Accordingly, net deferred tax assets have been fully offset by a valuation allowance.

 

Non-capital losses, capital losses, and research and development credits generated by Edesa Biotech USA, Inc. prior to changes in share ownership that occurred as a result of the reverse acquisition are substantially limited. It is unlikely that tax losses totaling $32.7 million and credits totaling $0.6 million will be utilized to offset potential future taxable income before expiration and they are excluded from deferred tax assets above.

 

The approximate Canadian non-capital losses carried forward at September 30, 2024 expire as follows:

 

2025

   C$ 16,000  

2026

     41,000  

2027

     84,000  

2028

     171,000  

2029

     507,000  

2030

     633,000  

2031

     504,000  

2032

     496,000  

2033

     79,000  

2034

     1,432,000  

2035

     1,628,000  

2036

     1,637,000  

2037

     1,564,000  

2038

     2,580,000  

2039

     1,279,000  

2040

     5,904,000  

2041

     9,366,000  

2042

     16,191,000  

2043

     7,890,000  

2044

     6,260,000  
         

Total

   C$ 58,262,000  

 

Share issuance and financing costs will be fully amortized in 2027.

 

The U.S. non-capital losses carried forward at September 30, 2024 totaled approximately $3.42 million, which do not expire for federal taxes. The U.S. state research and development tax credits carried forward at September 30, 2024 totaled approximately $0.6 million, which do not expire for state taxes. The approximate U.S. state non-capital losses carried forward at September 30, 2024 expire as follows:

 

2039

   $ 70,000  

2040

     150,000  

2041

     68,000  

2042

     6,000  

2044

     41,000  
         

Total

   $ 335,000