ANAVEX LIFE SCIENCES CORP. Income Taxes Disclosure

Note 7 Income Taxes

 

The Company’s U.S. and foreign losses before income taxes are set forth below (in thousands):

 

Schedule of loss before income taxes
		2025				2024				2023
United States		$	(44,500	)		$	(39,195	)		$	(41,198	)
Foreign			(1,877	)			(3,807	)			(6,300	)
Total		$	(46,377	)		$	(43,002	)		$	(47,498	)

 

During the years ended September 30, 2025, 2024 and 2023, there were no current or deferred income tax provisions (benefits) for any U.S. federal, state & local, and foreign jurisdictions. The components of net deferred income tax assets as of September 30, 2025 and 2024 are as follows (in thousands):

 

Schedule of components of net deferred income tax assets
		2025				2024
Net operating loss carryforwards		$	54,752			$	48,134
Research and development tax credit carryforwards			5,288				4,203
Share-based compensation			23,185				21,091
Research and development capitalization			20,737				15,104
Unpaid charges			3,843				3,197
Intangible asset costs			946				758
Foreign exchange and other			(259	)			(254	)
Valuation allowance of deferred tax assets			(108,492	)			(92,233	)
Net deferred tax assets		$	—			$	—

 

A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements for the years ended September 30, 2025, 2024 and 2023 is as follows (in thousands):

 

Schedule of reconciliation of income tax expense
		2025				2024				2023
Income tax benefit at statutory federal rate		$	(9,739	)		$	(9,030	)		$	(9,975	)
Foreign income taxed at other rates			—				(61	)			—
Permanent differences relating to share-based compensation			(1,219	)			(10	)			(601	)
Permanent differences relating to GILTI inclusion			—				—				165
Other permanent differences			130				(276	)			273
Research and development credits, net			(941	)			(860	)			(37	)
State and local taxes			(4,672	)			(3,821	)			(4,122	)
Adjustment to true up to prior years’ tax provision			182				(1,128	)			206
Change in valuation allowances			16,259				15,186				14,098
Income tax expense		$	—			$	—			$	7

 

As of September 30, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $148.8 million (2024: $128.5 million) of which $37.7 million will begin to expire in 2026 and $111.2 million can be carried forward indefinitely, state and local net operating loss carryforwards of approximately $ 19.1 million (2024: $16.9 million) which will begin to expire in 2036, and Research and Development tax credits of approximately $5.3 million (2024: $4.3 million) which will begin to expire in 2029. The calculation of the Research and Development tax credits, by their nature, involve estimates and subjectivity. If examined by the U.S. federal and state tax authorities, it is possible that some portion of these credit carryforwards would be disputed by the tax authorities.

 

The Company had approximately $17.1 million (approximately AU$25.9 million) (2024: $16.6 million (approximately AU$23.9 million)) of net operating loss carryforwards in Australia, which have an indefinite life, available to offset future taxable income in those jurisdictions.

 

The Company evaluates its valuation allowance requirements based on available evidence. When circumstances change, and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income. Because management of the Company does not currently believe that it is more likely than not that the Company will receive the benefit of these assets, a full valuation allowance has been established at September 30, 2025 and 2024. During the year ended September 30, 2025, the valuation allowance increased by $16.3 million (2024: $15.2 million; 2023: $14.1 million).

 

The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the treatment of IRC 174 expenses related to research and development for tax years beginning after December 31, 2021. Under the TCJA, the Company must capitalize the expenditures related to research and development activities and amortize them over 5 years for U.S. activities and over 15 years for non-U.S. activities using a mid-year convention. Therefore, the capitalization of research and development costs in accordance with IRC 174 has resulted in a net deferred tax assets at September 30, 2025 of $20.7 million (2024: $15.1 million). On July 4, 2025, the United States President signed into law the One Big Beautiful Bill Act (“OBBBA”), a budget reconciliation package that changes many key provisions of the U.S. federal income tax code, including extensions of various expiring provisions from the TCJA. The new legislation, which will be effective for the Company beginning in fiscal 2026, will now allow for more tax-payer favorable treatment of domestic research and development expenditures for US income tax purposes.

 

Uncertain Tax Positions

 

The Company files income tax returns in the U.S. federal jurisdiction and various state and local and foreign jurisdictions. The Company’s tax returns are subject to tax examinations by U.S. federal and state tax authorities, or examinations by foreign tax authorities until the respective statutes of limitation expire. The Company is subject to tax examinations by tax authorities for all taxation years commencing on or after 2005.

 

Under the provisions of the Internal Revenue Code, the net operating loss (“NOL”) carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Under Section 382 of the Internal Revenue Code, NOL and tax credit carryforwards may become subject to an annual limitation in the event of an over 50% cumulative change in the ownership interest of significant stockholders over a three-year period, as well as similar state tax provisions.

 

The Company conducts a Section 382 study annually and has reduced its federal NOLs by $12.1 million and its Research and Development tax credit carryforwards by $0.8 million, which are the amount of tax assets that will expire unutilized pursuant to Section 382. Subsequent ownership changes in future years could trigger additional limitations of the Company’s NOLs. During the year ended September 30, 2025, the Company determined that there were no changes in ownership pursuant to Section 382.

 

As of September 30, 2025, the Company did not provide any foreign withholding taxes related to its foreign subsidiaries’ undistributed earnings, as such earnings have been retained and are intended to be indefinitely reinvested to fund ongoing operations of the foreign subsidiaries. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings, because such tax, if any, is dependent upon circumstances existing if and when remittance occur.

 

As of September 30, 2025 and 2024, the Company had determined that no liabilities for uncertain tax positions, interest or penalties were required to be recorded.