AVAX ONE TECHNOLOGY LTD. Income Taxes Disclosure

16. INCOME TAXES

 

For the years ended December 31, 2025 and 2024, loss before income tax provision consisted of the following:

 

SUMMARY OF INCOME TAX PROVISION

		December 31, 2025				December 31, 2024
Domestic operations – Canada		$	(25,482,135	)		$	(15,395,415	)
Foreign operations - United States			(7,713,071	)			(879,400	)
Loss before income taxes		$	(33,195,206	)		$	(16,274,815	)

 

The following table reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense for the year ended December 31, 2025.

 

SCHEDULE OF COMPONENTS OF INCOME TAX

		December 31, 2025
Loss before taxes		$	(33,195,206	)
Statutory tax rate			27.00	%
Income taxes at the statutory rate		$	(8,962,706	)			27	%
Foreign tax effects
United States:
Statutory tax rate difference between US and Canada			462,784				-1	%
Foreign currency translation			(38,054	)			0	%
Other adjustments			134,940				0	%
Change in valuation allowance			1,522,860				-5	%
Non-taxable or non-deductible items:
Debt conversion and extinguishment losses			2,712,062				-8	%
Non-deductible accretion interest			843,158				-3	%
Share issuance costs			(454,114	)			1	%
Stock-based compensation			410,442				-1	%
Foreign currency translation			(716,327	)			2	%
Change in fair value of warrants			(803,766	)			2	%
Other permanent differences			7,292				0	%
Changes in valuation allowance			4,556,376				-13	%
Other adjustments			325,053				-1	%
Income tax expense (recovery)		$	-				0	%

 

The following table reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense for the year ended December 31, 2024.

 

		December 31, 2024
Loss before taxes		$	(16,274,815	)
Statutory tax rate			27.00	%
Income taxes at the statutory rate		$	(4,394,200	)			27	%
Change in fair value of derivative liabilities			(377,536	)			2	%
Non-deductible accretion interest			671,064				-4	%
Debt conversion and extinguishment losses			1,195,929				-7	%
Stock-based compensation			109,803				-1	%
Share issue costs			(126,529	)			1	%
Foreign currency translation			1,159,454				-7	%
Other			(80,453	)			0	%
Total		$	(1,842,468	)			11	%
Change in valuation allowance			1,842,468				-11	%
Total income tax expense (benefit)		$	-				0	%

 

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not that we will not realize those tax assets through future operations. Significant components of the Company’s deferred taxes are as follows:

 

SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 

		December 31, 2025				December 31, 2024
Deferred tax assets:
Unused net operating losses carry forward - Canada		$	14,365,607			$	10,904,961
Unused net operating losses carry forward - US Federal and State			930,193				1,036,463
Share issue costs - Canada			155,787				261,984
Unrealized loss on market revaluation - US			1,630,987				-
Intangible capital assets - Canada			2,695,255				1,388,075
Intangible capital assets - US			258				-
Intangible capital assets			258				-
SR&ED pool - Canada			61,301				-
Total deferred tax assets		$	19,839,388			$	13,591,483
Deferred tax liabilities:
Tangible capital assets - Canada		$	(217,943	)		$	(51,391	)
Other - US			(2,113	)			-
Total deferred tax liabilities		$	(220,056	)		$	(51,391	)
Deferred tax asset		$	19,619,332			$	13,540,092
Valuation allowance			(19,619,332	)			(13,540,092	)
Net deferred tax assets (liabilities)		$	-			$	-

 

The Company has unclaimed Canadian SR&ED expenditures of approximately $311,180 (in Canadian dollars) as of December 31, 2025 and 2024 which can be carried forward indefinitely to reduce future years’ taxable income. The balance is included as a reduction of research and development expense.

 

As of December 31, 2025 and 2024, the Company had unused US Federal net operating losses of $3,723,575 and $3,838,758, which can be carried forward indefinitely to reduce future years’ taxable income, and unused US State net operating losses of $705,914 and nil, which can be carried forward to the year 2041 to reduce future years’ taxable income.

 

The Company has Canadian non-capital losses for the years ended December 31, 2025 and 2024 of $72,924,079 and $57,969,965, respectively (in Canadian dollars). The non-capital losses as of December 31, 2025 can be used to offset future taxable income in Canada, and are due to expire in the following years (in Canadian dollars):

 

SCHEDULE OF NON-CAPITAL LOSSES USED TO OFFSET FUTURE TAXABLE INCOME IN CANADA 

2038		$	2,663,570
2039			6,033,861
2040			3,110,273
2041			8,457,838
2042			14,712,845
Thereafter			37,945,692
Non-capital losses		$	72,924,079

 

Non-capital losses in Canada can be carried forward after a change of ownership, if the particular business which gave rise to the loss is carried on by the company for profit or with a reasonable expectation of profit. Certain accumulated net operating losses in United States are subject to an annual limitation from equity shifts, which constitute a change of ownership as defined under Internal Revenue Code Section 382. As a result of the Offering, a change of ownership as defined under IRC Section 382 occurred which will limit the Company’s ability to utilize the net operating losses to $67,915 per year.

 

The Company files income tax returns in Canada and the United States and is subject to examination in these jurisdictions for all years since the Company’s inception in 2017. As at December 31, 2025, no tax authority audits are currently underway. The Company currently has no uncertain tax position and is therefore not reflecting any adjustments.