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INCOME TAXES | 12 Months Ended
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Sep. 30, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of earnings (loss) before income taxes, after adjusting the earnings (loss) for non-controlling interests, are as follows:
| Year ended September 30,
| 2021 |  | 2020
United States | $ | 5,436,000 |  |  | $ | 1,518,000 |
Canada | 1,149,000 |  |  | (6,271,000) |
| $ | 6,585,000 |  |  | $ | (4,753,000) |
The components of the income tax provision related to the above earnings (loss) are as follows:
| Year ended September 30,
| 2021 |  | 2020
Current provision (benefit): |  |  |
United States – Federal |  |  |
Before operating loss carryforwards | $ | 60,000 |  |  | $ | — |
Benefit of operating loss carryforwards | (60,000) |  |  | — |
After operating loss carryforwards | — |  |  | — |
United States – State |  |  |
Before operating loss carryforwards | 174,000 |  |  | (23,000) |
Benefit of operating loss carryforwards | (7,000) |  |  | — |
After operating loss carryforwards | 167,000 |  |  | (23,000) |
Canadian | — |  |  | — |
Total current | 167,000 |  |  | (23,000) |
Deferred provision: |  |  |
United States – State | 165,000 |  |  | 26,000 |
Canadian | — |  |  | — |
Total deferred | 165,000 |  |  | 26,000 |
| $ | 332,000 |  |  | $ | 3,000 |
Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma, and therefore, receives no benefit from consolidated or unitary losses. On June 28, 2019, the Canadian province of Alberta enacted legislation that decreased the provincial general corporate tax rate from 12% to 11% effective July 1, 2019, with further 1% rate reductions on January 1 of every year until the provincial general corporate tax rate is 8% on January 1, 2022, bringing Barnwell of Canada’s and Octavian Oil’s total Canadian statutory tax rates from 30.65% and 27.00%, respectively, to 29.70% and 26.00%, respectively, effective July 1, 2019 and to 26.85% and 23.00%, respectively, effective January 1, 2022. On June 29, 2020, the Government of Alberta introduced Alberta’s Recovery Plan which will, among other things, reduce Alberta’s general corporate income tax rate to 8% (from 10%) effective July 1, 2020. This reduction was enacted in the quarter ended December 31, 2020. Canadian deferred tax assets and liabilities have been measured using the enacted tax rates in effect for the year in which the differences are expected to reverse. Alberta rate changes have no significant impact to earnings/loss as a result of a full valuation allowance being applied to Canadian deferred tax assets. On December 27, 2020, then President Donald Trump signed into law the Consolidated Appropriations Act (the “Act”), an omnibus spending bill to fund the federal government that also includes an array of COVID-related tax relief for individuals and businesses. The tax-related measures contained in the Act revise and expand provisions enacted earlier in the year by the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act. The Act also extends a number of expiring tax provisions. Additionally, the Act provides for a 100% deduction for certain business meals incurred in calendar years 2021 and 2022. The Company determined that income tax effects related to the passage of the Consolidated Appropriations Act were not material to the financial statements for the year ended September 30, 2021. A reconciliation between the reported income tax expense and the amount computed by multiplying the earnings (loss) attributable to Barnwell before income taxes by the U.S. federal tax rate of 21% is as follows:
| Year ended September 30,
| 2021 |  | 2020
Tax provision (benefit) computed by applying statutory rate | $ | 1,383,000 |  |  | $ | (998,000) |
Impact of TCJA limitation on post-TCJA net operating loss carryforwards | — |  |  | (260,000) |
(Decrease) increase in the valuation allowance | (1,482,000) |  |  | 1,978,000 |
Additional effect of the foreign tax provision on the total tax provision | 87,000 |  |  | (762,000) |
U.S. state tax provision, net of federal benefit | 332,000 |  |  | 3,000 |
Other | 12,000 |  |  | 42,000 |
| $ | 332,000 |  |  | $ | 3,000 |
The changes in the valuation allowance shown in the table above exclude the impact of changes in state taxes and foreign tax credit expiries, the valuation allowance impacts of which are incorporated within the respective reconciliation line items elsewhere in the table. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
| September 30,
| 2021 |  | 2020
Deferred income tax assets: |  |  |
Foreign tax credit carryover under U.S. tax law | $ | 1,197,000 |  |  | $ | 2,421,000 |
U.S. federal net operating loss carryover | 8,846,000 |  |  | 8,874,000 |
U.S. state unitary net operating loss carryovers | 939,000 |  |  | 877,000 |
Canadian net operating loss carryovers | 1,411,000 |  |  | 1,351,000 |
Tax basis of investment in land in excess of book basis under U.S. tax law | 305,000 |  |  | 306,000 |
Property and equipment accumulated book depreciation and depletion in excess of tax under Canadian tax law | 1,091,000 |  |  | 1,421,000 |
Property and equipment accumulated book depreciation and depletion in excess of tax under U.S. tax law | 699,000 |  |  | 931,000 |
Liabilities accrued for books but not for tax under U.S. tax law | 1,225,000 |  |  | 1,894,000 |
Liabilities accrued for books but not for tax under Canadian tax law | 1,813,000 |  |  | 1,591,000 |
Other | 170,000 |  |  | 345,000 |
Total gross deferred income tax assets | 17,696,000 |  |  | 20,011,000 |
Less valuation allowance | (16,398,000) |  |  | (19,357,000) |
Net deferred income tax assets | 1,298,000 |  |  | 654,000 |
Deferred income tax liabilities: |  |  |
Book basis of investment in land development partnerships in excess of tax basis under U.S. tax law | (1,156,000) |  |  | (654,000) |
Book basis of investment in land development partnerships in excess of tax basis under U.S. state non-unitary tax law | (352,000) |  |  | (194,000) |
U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. tax law | (142,000) |  |  | — |
U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. state tax law | (7,000) |  |  | — |
Total deferred income tax liabilities | (1,657,000) |  |  | (848,000) |
Net deferred income tax liability | $ | (359,000) |  |  | $ | (194,000) |
Reported as: |  |  |
Deferred income tax assets | — |  |  | — |
Deferred income tax liabilities | (359,000) |  |  | (194,000) |
Net deferred income tax liability | $ | (359,000) |  |  | $ | (194,000) |
The total valuation allowance decreased $2,959,000 for the year ended September 30, 2021. The decrease was primarily due to a $1,225,000 decrease in the U.S. federal tax law valuation allowance related to U.S. federal net operating loss carryforwards, a $1,224,000 decrease in the U.S. federal tax law valuation allowance related to foreign tax credit carryovers, and a $257,000 decrease in the valuation allowance for deferred tax assets under Canadian law related to property and equipment accumulated book depletion in excess of tax and Canadian jurisdiction net operating loss carryforwards that may not be realizable. Of the total net decrease in the valuation allowance for fiscal 2021, $2,830,000 was recognized as an income tax benefit and $129,000 was credited to accumulated other comprehensive loss. Net deferred tax assets at September 30, 2021 of $1,298,000 consists of the portion of U.S. federal consolidated deferred tax assets that are estimated to be partially realized through corresponding reversals of U.S. federal consolidated deferred tax liabilities related to the Kukio Resort Land Development Partnerships' excess of book income over taxable income and the Oklahoma oil venture's book basis of property and equipment in excess of tax basis. At September 30, 2021, Barnwell had U.S. federal foreign tax credit carryovers, U.S. federal net operating loss carryovers, U.S. state net operating loss carryovers and Canadian net operating loss carryovers totaling $1,197,000, $42,125,000, $14,674,000 and $5,716,000, respectively. All four items were fully offset by valuation allowances at September 30, 2021, except for a portion of Hawaii NOLs which is expected to shelter a portion of the reversal of the Company’s Hawaii non-unitary taxable temporary difference related to its investment in Hawaii land development partnerships. The U.S. federal net operating loss carryovers generated through September 30, 2018 expire in fiscal years 2032-2038, the U.S. state unitary net operating loss carryovers generated through September 30, 2017 expire in fiscal years 2033-2037, the Canadian net operating loss carryovers expire in fiscal years 2037-2041, and the foreign tax credit carryovers expire in fiscal years 2022-2025. The U.S. federal net operating loss carryovers generated in the years ended September 30, 2021, 2020 and 2019 and the U.S. state net operating loss carryovers generated in the years ended September 30, 2021, 2020, 2019 and 2018 have no expiry, however utilization of the U.S. state net operating loss carryovers generated in fiscal 2018 and future years are limited to 80% of taxable income. FASB ASC Topic 740, Income Taxes, prescribes a threshold for recognizing the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. The Company has no uncertain tax positions as of September 30, 2021 or 2020. Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities at September 30, 2021:
Jurisdiction | Fiscal Years Open
U.S. federal | 2018 – 2020
Various U.S. states | 2018 – 2020
Canada federal | 2014 – 2020
Various Canadian provinces | 2014 – 2020

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