Edesa Biotech, Inc. Income Taxes Disclosure

9. Income Tax

 

The reconciliation of the combined Canadian federal and provincial statutory income tax rate to the approximate effective tax rate is as follows:

 

		September 30, 2025				September 30, 2024
Net loss before recovery of income taxes		$	(7,185,000	)		$	(6,169,000	)
Canadian federal and provincial statutory income tax rate			26.5	%			26.5	%
Expected income tax recovery		$	(1,910,000	)		$	(1,635,000	)
Effect of foreign currency and foreign tax rate differences			216,800				(58,200	)
Permanent differences			200,000				147,000
Share issuance cost booked through equity or capitalization			(202,000	)			36,000
Non-capital losses limitation - U.S.			0				0
Other			(19,000	)			(38,000	)
Change in valuation allowance			1,715,000				1,549,000
Income tax (recovery) expense		$	800			$	800

 

Components of the net deferred tax asset or liability

 

Deferred taxes are provided as a result of temporary differences that arise due to the difference between the income tax values and the carrying amount of assets and liabilities. Approximate deferred tax assets and liabilities are as follows:

 

		September 30, 2025				September 30, 2024
Non-capital losses carried forward - Canada		$	17,270,000			$	15,547,000
Non-capital losses carried forward - U.S.			749,000				742,000
Research and development tax credits			1,510,000				1,504,000
Share issuance and financing costs			314,000				381,000
Right-of-use lease liabilities			-				5,000
Other temporary differences			21,000				21,000
Subtotal		$	19,864,000			$	18,200,000
Less: valuation allowance			(19,733,000	)			(18,074,000	)
Total net deferred tax assets		$	131,000			$	126,000
Property and equipment		$	(3,000	)		$	(2,000	)
Right-of-use assets			-				(5,000	)
Grant Income receivable			(129,000	)			(71,000	)
Deferred share issuance costs			1,000				(48,000	)
Total deferred tax liabilities		$	(131,000	)		$	(126,000	)
Net deferred taxes		$	-			$	-

 

Realization of the deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. It is more likely than not that a tax benefit will not be realized. Accordingly, net deferred tax assets have been fully offset by a valuation allowance.

 

Non-capital losses, capital losses, and research and development credits generated by Edesa Biotech USA, Inc. prior to changes in share ownership that occurred as a result of the reverse acquisition are substantially limited. It is unlikely that tax losses totaling $29.3 million and credits totaling $0.6 million will be utilized to offset potential future taxable income before expiration and they are excluded from deferred tax assets above.

 

The approximate Canadian non-capital losses carried forward at September 30, 2025 expire as follows:

 

2026			41,000
2027			84,000
2028			172,000
2029			509,000
2030			636,000
2031			506,000
2032			498,000
2033			79,000
2034			1,420,000
2035			1,611,000
2036			1,612,000
2037			1,566,000
2038			2,573,000
2039			1,260,000
2040			5,792,000
2041			9,172,000
2042			15,827,000
2043			7,621,000
2044			6,188,000
2044			7,526,000
Total		$	64,693,000

 

Share issuance and financing costs will be fully amortized in 2030.

 

The U.S. non-capital losses carried forward at September 30, 2025 totaled approximately $3.45 million, which do not expire for federal taxes. The U.S. state research and development tax credits carried forward at September 30, 2025 totaled approximately $0.6 million, which do not expire for state taxes. The approximate U.S. state non-capital losses carried forward at September 30, 2025 expire as follows:

 

 

2039		$	70,000
2040			150,000
2041			68,000
2042			6,000
2044			41,000
2044			25,000
Total		$	360,000