New Horizon Aircraft Ltd. Income Taxes Disclosure
NOTE 16. INCOME TAXES
The Company accounts for income taxes according to the provisions of ASC 740, which prescribes an asset and liability approach for computing deferred income taxes. Reconciliations of incomes taxes computed at the statutory combined Canadian federal and provincial statutory income tax rate of 26.5% to the effective tax rate for the years ended May 31, 2025, and 2024, are as follows:
| Year Ended | ||||||||
| May 31, 2025 | May 31, 2024 | |||||||
| Income (Loss) before income taxes | $ | 5,200 | $ | (8,160 | ) | |||
| Expected income tax (recovery) expense | 1,377 | (2,203 | ) | |||||
| Change in fair value of Financial Instruments and other non-deductible expenses | (4,660 | ) | 1,094 | |||||
| Change in valuation allowance | 3,223 | 1,109 | ||||||
| Income tax (recovery) | $ | $ | ||||||
The Company intends to be treated as a United States corporation for United States federal income tax purposes under section 7874 of the U.S. Tax Code and is expected to be subject to United States federal income tax. However, for Canadian tax purposes, the Company 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 Canadian Income Tax Act for Canadian income tax purposes). Accordingly, Horizon will be subject to taxation in both Canada and the United States.
The following table summarized the components of deferred tax:
| May 31, 2025 | May 31, 2024 | |||||||
| Deferred Tax Assets | ||||||||
| Finance Lease Liabilities | $ | 8 | $ | 20 | ||||
| Operating tax losses carried forward | 4,885 | 1,742 | ||||||
| Property and equipment | 231 | 19 | ||||||
| Other tax pools | 16 | 96 | ||||||
| Valuation allowance | (5,140 | ) | (1,857 | ) | ||||
| Net Deferred Tax Assets | 8 | 20 | ||||||
| Deferred Tax Liabilities | ||||||||
| Right of Use assets | (8 | ) | (20 | ) | ||||
| Total Deferred Tax Liabilities | (8 | ) | (20 | ) | ||||
| Net Deferred Tax Asset (Liability) | $ | $ | ||||||
A valuation allowance has been recognized to offset the entire effect of the Company’s net deferred tax asset as the realization of this deferred tax benefit is uncertain. The valuation allowance increased by $3,223 for the year-ended May 31, 2025 (May 31, 2024 - $1,109). This is primarily due to the increase of federal, provincial, and state net operating losses.
The Company has analyzed filing positions in all of the federal, provincial, and state jurisdictions where it is required to file income tax returns. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 22, 2025 | Showing above |
| 2024 | Aug 15, 2024 | |
| 2023 | Mar 28, 2024 | |
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.