Lakeside Holding Ltd Income Taxes Disclosure

NOTE 15 — TAXES

 

Corporate Income Taxes

 

Before the Reorganization, the Company was elected to be taxed as an “S Corporation” under the provisions of the Internal Revenue Code and comparable state income tax law. As an S Corporation, the Company is not subject to Federal income tax and Illinois State tax. Taxable income “pass through” to the personal tax returns of the owners. However, Illinois allows subchapter S corporations to elect to pay the Pass-through Entity (“PTE”) tax at entity level for tax years ending on or after December 31, 2021 and beginning prior to January 1, 2026. The PTE tax rate is equal to 4.95% of the taxpayer’s net income for the taxable year. The S corporation making the election is liable for paying the PTE tax, and the shareholders will receive credit for the amount of PTE tax credit paid but shall be liable to pay any remaining tax based on their share of the pass-through entity’s income and credits. Illinois also taxes 1.5% replacement tax on S corporation’s net taxable income.

 

The Company terminated its status as a Subchapter S Corporation as of September 23, 2023, in connection with its Reorganization. As a C Corporation, the Company combined statutory income tax rate is 28% in each period, representing a U.S. federal income tax rate of 21.0% and 7% state income tax for Illinois. Also, as a C Corporation, the Company is subjected to Illinois State replacement tax at rate of 2.5% and no PTE tax is applicable.

 

Under the PRC Enterprise Income Tax Law (the “EIT Law”), the standard enterprise income tax rate for domestic enterprises and foreign invested enterprises is 25%.

 

In conjunction with the termination of the Subchapter S corporation status, the C Corporation deferred tax assets and liabilities were estimated for future tax consequences attributable to difference between the financial statement carrying amounts of the Company’s existing assets and liabilities and their respective tax bases. The deferred tax assets and liabilities were measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of the change in tax rates resulting from becoming a C Corporation was recognized as a $72,152 decrease to the net deferred tax assets to $89,581 and an decrease to the provision for income taxes of $186,485 during the year ended June 30, 2024.

 

As of June 30, 2025 and 2024, the Company did not have an accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. For the period ended June 30, 2025 and 2024, no amounts were incurred for income tax uncertainties or interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company’s tax years since its formation remain subject to possible income tax examination by its major taxing authorities for all periods.

 

The provision for income tax for the years ended June 30, 2025 and 2024 consists of the following:

 

		For the years ended June 30,
		2025				2024
Current income tax expense		$	233,855			$	46,996
Deferred income tax expense			68,022				(114,333	)
Total income tax expense		$	301,877			$	(67,337	)

The following table reconciles the statutory tax rate to the Company’s effective tax the years ended June 30, 2025 and 2024:

 

		For the years ended June 30,
		2025				2024
Loss before tax		$	(4,944,259	)		$	(295,614	)
Statutory state tax rate			21	%			21	%
Income tax recovery at the federal statutory rate			(1,038,294	)			(62,079	)
Illinois state tax/PET tax recovery			(354,369	)			(2,171	)
Illinois replacement tax recovery			(126,560	)			(74	)
Non-deductible expense			32,864				-
Federal income tax			-				32,358
Change in valuation allowance			1,783,509				(35,371	)
Foreign tax rate differential			4,727				-
Total income tax expense		$	301,877			$	(67,337	)

 

The Company’s deferred tax assets and liabilities consist of the following:

 

		June 30, 2025				June 30, 2024
Deferred tax assets:
Allowance for credit loss		$	24,940			$	16,490
Lease liability – operating			1,105,147				1,126,429
Lease liability – financing			34,557				16,799
Non-capital loss carried forward			1,569,089				-
Valuation allowance			(1,816,352	)			-
Total deferred tax assets		$	917,381			$	1,159,718
Deferred tax liabilities:
Right of use assets – operating			(880,513	)			(1,058,707	)
Right of use assets – financing			(28,608	)			(11,430	)
Intangible asset – license			(91,360	)			-
Total deferred tax liabilities			(1,000,481	)			(1,070,137	)
Deferred tax (liability) assets, net		$	(83,100	)		$	89,581

 

As of June 30, 2025, the accumulated tax losses of subsidiaries incorporated in the U.S. of approximately $4,673,000, are allowed to be carried forward to offset against future taxable profits. The carry forward of non-capital losses in the U.S. generally has no time limit, but the loss could be only offset up to 80% of taxable income in a given year. The carry forward of net operating loss generated by the subsidiaries incorporated in the PRC, subject to the agreement of the PRC tax authorities, of approximately $637,000 as of June 30, 2025 can be carried forward for 5 years.