Alpha Cognition Inc. Income Taxes Disclosure

NOTE 13 – INCOME TAXES

 

During 2025, the Company adopted ASU 2023-09 – Income Taxes (Topic 740): Improvements to income tax disclosures prospectively, and the associated disclosure changes have been reflected below.

 

Information on a domestic and foreign basis prior to and after adoption of ASU 2023-09:

 

		2025				2024
Income (loss) before income tax
Canada			(11,324,919	)			(14,166,830	)
US			(9,344,957	)			(621,897	)
Total loss before income tax			(20,669,875	)			(14,788,727	)

 

The Company’s consolidated effective income tax rate differs from the Canadian, or domestic, statutory federal tax rate. The effective tax rate is affected by recurring items in provincial, U.S. federal, state and other foreign jurisdictions, such as tax rates and the proportion of income earned in those jurisdictions. The effective tax rate is also affected by other items such as the impact of transactions that are taxable or deductible at lower inclusion rates, changes in net unrecognized tax benefits, changes in income tax laws, and other items.

 

Income tax expense and effective tax rate reconciliation after adoption of ASU 2023-09:

 

		Year Ended December 31, 2025
		Amount				Rate
Loss before income tax		$	(20,669,875	)
Income tax benefit at Canadian statutory federal tax rate (1)			(3,100,481	)			15.0	%
Income tax expense (benefit) resulting from:
Canadian federal reconciling items:
Non-deductible stock-based payments			725,275				(3.5	)%
Change in valuation allowance			973,463				(4.7	)%
Canadian provincial income taxes, net of federal effect (2), (3)			(1,358,990	)			6.6	%
Canadian provincial non-deductible stock-based payments			580,220				(2.8	)%
Canadian provincial change in valuation allowance			778,770				(3.8	)%
Foreign tax affects – U.S. federal reconciling items:
U.S. federal tax rate differential			(560,697	)			2.7	%
Research and development tax credits			(64,000	)			0.3	%
Change in valuation allowance			2,016,856				(9.8	)%
Other			9,584				0.0	%
Income tax expense / effective tax rate		$	-				0.0	%

 

(1)	The Canadian federal statutory income tax rate of 15% is utilized in the reconciliation above as the company is incorporated in Canada and is comprised of basic Canadian federal tax rate of 38%, less federal abatement (10%) and general rate reduction (13%).
(2)	The provincial jurisdiction that comprises the tax effect is the province of British Columbia.
(3)	Includes the income tax affect amount for the related subnational jurisdiction such as tax rate differentials, nontaxable or nondeductible items, tax law changes, and other reconciling items.

Income tax expense and effective tax rate reconciliation before adoption of ASU 2023-09:

 

		Year Ended December 31, 2024
Federal statutory income tax			15.0	%
Provincial and foreign subsidiary tax adjustment			11.7	%
Permanent Differences			(9.2	)%
Research and development credits			(6.7	)%
Change in Valuation Allowance			(28.7	)%
Other			17.9	%
			0.0	%

 

The significant components of the Company’s deferred tax assets and liabilities are as follows at December 31:

 

		2025				2024
Deferred tax assets:
Non-operating losses carry forwards		$	17,846,000			$	13,491,000
Tax credits carry forwards			333,000				396,000
Intangible assets			195,000				189,000
Research and development expenses capitalized			3,000				650,000
Stock issuance costs			1,517,000				1,476,000
Total deferred tax assets		$	19,894,000			$	16,202,000
Valuation allowance			(19,891,000	)			(16,201,000	)
Net deferred tax assets			3,000				1,000
Deferred tax liability
Property and equipment			(3,000	)			(1,000	)
Total deferred tax liability			(3,000	)			(1,000	)
Net deferred income tax		$	-			$	-

 

There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance. On an annual basis, the Company assesses the need to establish a valuation allowance for its deferred income tax assets, and if it is deemed more likely than not that its deferred income tax assets will not be realized, a valuation allowance is recorded. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income, of the necessary character, during the periods in which those temporary differences become deductible. Management considers the available carryback and carryforward periods, and projected future taxable income in making this assessment. Given the uncertainty of the amount and timing of future taxable income, if any, a valuation allowance has been recorded against the Company’s deferred tax assets because, in the judgement of management, these are not more likely than not to be realized.

At December 31, 2025, the Company had, for Canadian tax purposes, non-capital losses aggregating approximately $57 million. These losses are available to reduce taxable income earned by ACI and ACI Canada in future years and expire between 2035 and 2045. As of December 31, 2025, the Company had federal net operating loss carryforwards, or NOLs, available of $11 million before consideration of limitations under Section 382 of the Internal Revenue Code of 1986, or Section 382 of the Code, as further described below. The NOL will carryforward indefinitely and be available to offset up to 80% of future taxable income each year.

 

Utilization of the Company’s NOL and research and development credit carryforwards may be subject to substantial annual limitations in the event a cumulative ownership change has occurred, or that occur in the future, as required by Section 382 of the Code. An ownership change, as defined by the Code, occurs when certain stockholders or public groups acquire more than 50% of a company’s outstanding common stock through a single transaction or series of transactions spanning a three-year period. Such an ownership change may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has not completed such an ownership change analysis pursuant to Section 382 of the Code. If ownership changes have occurred or occur in the future, the amount of remaining tax attribute carryforwards available to offset taxable income and income tax expense in future years may be restricted or eliminated. If eliminated, the related asset would be removed from deferred tax assets with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

 

The Company accounts for uncertainty in income taxes in accordance with ASC 740, Income Taxes. Under this guidance, the Company recognizes 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 the relevant taxing authorities.

 

The Company has evaluated its tax positions and concluded that there are no uncertain tax positions that require recognition or disclosure in the accompanying financial statements. Accordingly, no liability for unrecognized tax benefits has been recorded.

 

The Company’s policy is to recognize interest and penalties related to uncertain tax positions, if any, in income tax expense. As of December 31, 2025, the Company has not recorded any amounts for interest or penalties.

 

The Company is subject to income taxes in the United States, federal and various state jurisdictions. We are also subject to taxation in Canada . The Company is subject to income tax examinations by taxing authorities for all fiscal years..

 

The Company does not anticipate that the total amount of unrecognized tax benefits will materially change within the next 12 months.