Digi Power X Inc. Income Taxes Disclosure
| 22. | Income taxes |
For financial reporting purposes, income before taxes includes the following components:
| Year ended December 31, 2025 | 2025 | 2024 | ||||||
| United States | $ | (11,364,445 | ) | $ | (13,500,171 | ) | ||
| Foreign (Canada) | (16,991,778 | ) | 1,108,873 | |||||
| Total | $ | (28,356,223 | ) | $ | (12,391,298 | ) | ||
Income tax expense included in the accompanying Consolidated Statements of Comprehensive Income for the years presented below:
| Year ended December 31, 2025 | 2025 | 2024 | ||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| Foreign | ||||||||
| State and local | $ | |||||||
| Total | $ | $ | ||||||
| Deferred: | ||||||||
| Federal | $ | $ | ||||||
| Foreign | ||||||||
| State and local | ||||||||
| Total | $ | $ | ||||||
| Total | $ | $ | ||||||
The Corporation adopted ASC 2023-09 during the year ended December 31, 2025 retrospectively. The reconciliation of the federal statutory rate on the income before income taxes to the effective income tax rate after the adoption of ASU 2023-09 on a retrospective basis is as follows:
| Year Ended December 31, 2025 | Year Ended December 31, 2024 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| Canadian federal statutory income tax rate | $ | (4,301,694 | ) | 15.00 | % | $ | (1,858,695 | ) | 15.00 | % | ||||||
| Domestic Federal | ||||||||||||||||
| Non-taxable and non-deductible items - Canada | ||||||||||||||||
| Statutory income tax differential | 1,933,606 | (6.70 | )% | (740,467 | ) | 6.00 | % | |||||||||
| Valuation allowance - Federal | (1,933,606 | ) | 6.70 | % | 740,467 | (6.00 | )% | |||||||||
| Foreign tax effects United States | ||||||||||||||||
| Non-deductible and other expenses | 4,374 | 0.00 | % | 202,587 | (1.60 | )% | ||||||||||
| Meals and entertainment | 8,181 | 0.00 | % | 4,670 | 0.00 | % | ||||||||||
| Warrants | 653,103 | (2.30 | )% | 151,941 | 1.20 | % | ||||||||||
| Valuation allowance - United States | 5,407,278 | (18.90 | )% | 2,893,001 | (23.30 | )% | ||||||||||
| Statutory income tax differential | (1,720,677 | ) | 6.00 | % | (743,478 | ) | 6.00 | % | ||||||||
| Other | (50,565 | ) | 0.20 | % | (21,489 | ) | 0.20 | % | ||||||||
| Foreign state and local income taxes, net of federal effect | 0.00 | % | (628,537 | ) | 5.10 | % | ||||||||||
| Total | $ | 0.00 | % | $ | 0.00 | % | ||||||||||
Significant components of the Corporation’s deferred tax assets and liabilities as of December 31 were as follows:
| As at December 31, |
As at December 31, |
|||||||
| 2025 | 2024 | |||||||
| Deferred tax assets: | ||||||||
| Share issuance costs - Canada | $ | 1,017,496 | $ | 320,469 | ||||
| Net operating loss carryforwards - Canada | 3,433,079 | 940,009 | ||||||
| Net operating loss carryforwards - United States | 12,334,695 | 8,261,043 | ||||||
| Stock based compensation | 1,708,123 | 593,434 | ||||||
| Digital currency loan - unrealized gain / (loss) | 339,317 | 293,738 | ||||||
| Revaluation of digital currency | 1,093,218 | |||||||
| Depreciation | 1,801,448 | 1,976,017 | ||||||
| Amortization | 257,169 | 299,735 | ||||||
| Lease liabilities | 33,733 | |||||||
| Capital loss carryover | 2,238,369 | 2,764,887 | ||||||
| Other | 72,509 | 72,509 | ||||||
| Total deferred tax assets | 24,295,423 | 15,555,574 | ||||||
| Less: Valuation allowance for deferred tax assets | (22,348,671 | ) | (12,420,466 | ) | ||||
| Net deferred tax assets | $ | 1,946,752 | $ | 3,135,108 | ||||
| Deferred tax liabilities: | ||||||||
| Amortization | $ | (246,440 | ) | $ | (280,820 | ) | ||
| Right-of-use assets | (521,071 | ) | (542,691 | ) | ||||
| Revaluation of digital currency | (239,085 | ) | ||||||
| Other | (1,179,241 | ) | (2,072,512 | ) | ||||
| Total deferred tax assets | $ | (1,946,752 | ) | $ | (3,135,108 | ) | ||
| Net deferred tax assets (liabilities) | $ | $ | ||||||
The Corporation is treated as a United States corporation for United States federal income tax purposes under section 7874 of the U.S. Tax Code and is subject to United States federal income tax. However, for Canadian tax purposes, the Corporation is expected, regardless of any application of section 7874 of the U.S. Tax Code, to be treated as a Canadian resident company (as defined in the Income Tax Act (Canada) (the “ITA”) for Canadian income tax purposes. As a result, the Corporation will be subject to taxation both in Canada and the United States.
The Corporation has a valuation allowance on all of its deferred tax assets at December 31, 2025 and 2024, which based on the judgement of management is not more-likely than-not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that all or some portion of the deferred assets will not be realized. This ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those deductible temporary differences become deductible. Based on the Corporation’s history of losses and projections for future taxable income, management believes that it is not more-likely than-not that the Corporation will realize the benefits of these deductible temporary differences.
The Corporation has gross Canadian operating tax loss carryforwards of $15,664,342. To the extent that the operating tax loss carryforwards are not used, they begin to expire in 2041. As of December 31, 2025, the Corporation has $45,820,361 of federal net operating loss carryforwards available, and has state net operating losses of approximately $48,043,510 which began to expire in 2041.
The Corporation has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. The total amount of unrecognized tax benefits, that is the aggregate tax effect of differences between tax return positions and the benefits recognized in the Corporation’s financial statements, as of December 31, 2025 and 2024 of $ and $, respectively.
The Corporation recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2025 and 2024, the Corporation did not recognize any net interest expense.
The Corporation files income tax returns with Canada and its provinces and territories and is generally subject to routine examinations by the Canada Revenue Agency (“CRA”). Income tax returns filed with various provincial jurisdictions are generally open to examination for periods of four to five years subsequent to the filing of the respective returns. The Corporation also files income tax returns in the United States and various state tax jurisdictions. These tax returns are generally open to examination by the relevant tax authorities for three to four years from the date they are filed. The tax filings relating to the Corporation’s U.S. federal and state taxes are currently open to examination for tax years 2022 through 2024.
There are no other audits or examinations in process at this time.
A summary of income taxes paid, net of refunds received, is as follows:
| Year ended December 31, 2025 | 2025 | 2024 | ||||||
| Canadian | $ | $ | ||||||
| US Federal, state and local | ||||||||
| Alabama | ||||||||
| New York | ||||||||
| Federal | ||||||||
| Foreign | ||||||||
| Total | $ | $ | ||||||
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.