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Taxes | 3 Months Ended
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Sep. 30, 2024
Taxes [Abstract] |
TAXES | NOTE 10 — TAXES Corporate Income Taxes Before the Reorganization, the Company was elected to be taxed as an “S Corporation” under the provisions of the Internal Revenue Code and comparable state income tax law. As an S Corporation, the Company is not subject to Federal income tax and Illinois State tax. Taxable income “pass through” to the personal tax returns of the owners. However, Illinois allows subchapter S corporations to elect to pay the Pass-through Entity (“PTE”) tax at entity level for tax years ending on or after December 31, 2021 and beginning prior to January 1, 2026. The PTE tax rate is equal to 4.95% of the taxpayer’s net income for the taxable year. The S corporation making the election is liable for paying the PTE tax, and the shareholders will receive credit for the amount of PTE tax credit paid but shall be liable to pay any remaining tax based on their share of the pass-through entity’s income and credits. Illinois also taxes 1.5% replacement tax on S corporation’s net taxable income. The Company terminated its status as a Subchapter S Corporation as of September 23, 2023, in connection with its Reorganization. As a C Corporation, the Company combined statutory income tax rate is 28% in each period, representing a U.S. federal income tax rate of 21.0% and 7% state income tax for Illinois. Also, as a C Corporation, the Company is subjected to Illinois State replacement tax at rate of 2.5% and no PTE tax is applicable. The Company’s PRC subsidiary, is governed by the income tax laws of the PRC and is subjected to 25% of the preferential tax rate. In conjunction with the termination of the Subchapter S corporation status, the C Corporation deferred tax assets and liabilities were estimated for future tax consequences attributable to difference between the financial statement carrying amounts of the Company’s existing assets and liabilities and their respective tax bases. The deferred tax assets and liabilities were measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of the change in tax rates resulting from becoming a C Corporation was recognized as a $17,894 increase to the net deferred tax assets to $22,693 and an increase to the provision for income taxes of $17,894 during the three months ended September 30, 2023. As of September 30, 2024 and June 30, 2024, the Company did not have an accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. For the period ended September 30, 2024 and 2023, no amounts were incurred for income tax uncertainties or interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company’s tax years since its formation remain subject to possible income tax examination by its major taxing authorities for all periods. The provision for income tax for the three months ended September 30, 2024 and 2023 consists of the following:
|  | For the three months ended September 30, |
|  | 2024 |  |  | 2023 |
Current income tax expense |  | $ | - |  |  | $ | - |
Deferred income tax expense (recovery) |  |  | 89,581 |  |  |  | (19,953 | )
Deferred state tax adjustment – change of tax rates |  |  | - |  |  |  | 17,894 |
Total income tax expense (recovery) |  | $ | 89,581 |  |  | $ | (2,059 | )
The following table reconciles the statutory tax rate to the Company’s effective tax the three months ended September 30, 2024 and 2023:
|  | For the three months ended September 30, |
|  | 2024 |  |  | 2023 |
Loss before tax |  | $ | (1,245,826 | ) |  | $ | (309,344 | )
Statutory state tax rate |  |  | 21 | % |  |  | 21 | %
Income tax recovery at the federal statutory rate |  | $ | (261,623 | ) |  | $ | (64,962 | )
Illinois state tax/PET tax recovery |  |  | (79,470 | ) |  |  | (21,654 | )
Illinois replacement tax recovery |  |  | (28,382 | ) |  |  | (7,734 | )
Tax effect on change in tax rate |  |  | - |  |  |  | 92,291 |
Change in valuation allowance |  |  | 463,478 |  |  |  | - |
Tax effect on other tax jurisdiction |  |  | (4,422 | ) |  |  | - |
Total income tax expense (recovery) |  |  | 89,581 |  |  |  | (2,059 | )
The Company’s deferred tax assets and liabilities consist of the following:
|  | September 30, 2024 |  | June 30, 2024
Deferred tax assets: |  |  |  |
Allowance for credit loss |  | $ | 20,405 |  |  | $ | 16,490 |
Lease liability – operating |  |  | 1,352,707 |  |  |  | 1,126,429 |
Lease liability – financing |  |  | 14,471 |  |  |  | 16,799 |
Non-capital loss carried forward |  |  | 362,204 |  |  |  | - |
Valuation allowance |  |  | (463,478 | ) |  |  | - |
Total deferred tax assets |  |  | 1,286,309 |  |  |  | 1,159,718 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Right of use assets – operating |  |  | (1,277,195 | ) |  |  | (1,058,707 | )
Right of use assets – financing |  |  | (9,114 | ) |  |  | (11,430 | )
Total deferred tax liabilities |  |  | (1,286,309 | ) |  |  | (1,070,137 | )
Deferred tax assets, net |  | $ | - |  |  | $ | 89,581 |

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