Tilray Brands, Inc. Income Taxes Disclosure

13.	Income taxes and deferred income taxes

 

Loss before income taxes includes the following components:

 

		For the year ended May 31,
		2025				2024				2023
United States		$	(1,648,187	)		$	(126,735	)		$	(506,984	)
Canada			(277,811	)			(106,822	)			(912,717	)
Other countries			(376,375	)			(15,463	)			(30,480	)
		$	(2,302,373	)		$	(249,020	)		$	(1,450,181	)

 

The (recoveries) expense for income taxes consists of:

 

		For the year ended May 31,
		2025				2024				2023
Current:
United States		$	1,974			$	497			$	226
Canada			177				10,819				26,290
Other countries			2,343				940				(62	)
		$	4,494			$	12,256			$	26,454
Deferred:
United States		$	(10,015	)		$	(723	)		$	(4,055	)
Canada			(7,435	)			(33,422	)			(24,364	)
Other countries			(108,061	)			(4,727	)			(5,216	)
		$	(125,511	)		$	(38,872	)		$	(33,635	)
Income tax benefits, net		$	(121,017	)		$	(26,616	)		$	(7,181	)

 

A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:

 

 

		For the year ended May 31,
		2025				2024				2023
Loss before net income taxes:		$	(2,302,373	)		$	(249,020	)		$	(1,450,181	)
Income tax recovery at statutory rate			(483,708	)			(51,325	)			(304,538	)
Tax impact of foreign operations			(41,680	)			(5,661	)			(25,857	)
Foreign exchange and other			(14,371	)			(15,586	)			7,062
Non-deductible expenses			6,292				6,147				3,982
Non-deductible (taxable) losses			32				(682	)			—
Changes in enacted rates			(3,908	)			2,394				(816	)
Nondeductible Impairment			285,582				—				23,150
Change in fair value of warrant liability			(454	)			302				(2,612	)
Return to provision and other prior year items			(33,098	)			16,933				6,486
State Provision, net of federal benefit			(14,794	)			612				(114	)
Change in valuation allowance			179,090				20,250				285,698
Impact on convertible debenture and other differences			—				—				378
Income tax recovery, net		$	(121,017	)		$	(26,616	)		$	(7,181	)

 

The following table summarizes the components of deferred tax:

 

		May 31,
		2025				2024
Deferred assets
Operating loss carryforwards - United States		$	66,048			$	104,377
Operating loss carryforwards - Canada			408,718				366,720
Operating loss carryforwards - Other Countries			13,388				18,518
Capital loss carryforwards			35,603				34,355
Intangible assets			350,527				229,953
Property and equipment			27,567				34,578
Investments and convertible notes receivable			43,317				45,685
Investment tax credits and related pool balance			2,249				23,132
Other			63,850				46,151
Total Deferred tax assets			1,011,267				903,469
Less valuation allowance			(968,929	)			(789,839	)
Net deferred tax assets			42,338				113,630
Deferred tax liabilities
Property and equipment			(20,419	)			(18,814	)
Intangible assets			(1,418	)			(218,020	)
Convertible Debentures Payable			(129	)			(2,229	)
Other Deferred Items			(24,120	)			(5,437	)
Total deferred tax liabilities			(46,086	)			(244,500	)
Net deferred tax liability		$	(3,748	)		$	(130,870	)

 

The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017 and reduced the U.S. statutory federal corporate tax rate from 35% to 21% and introduced several new international tax provisions, including the tax on Global Intangible Low-Taxed Income (‘‘GILTI’’). The Company has made a policy decision to record GILTI tax as a current-period expense when incurred.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, which extended and modified certain provisions of the TCJA, including bonus depreciation and interest expense limitations. As the enactment occurred after the Company’s fiscal year-end, the impact of the OBBBA is not reflected in these Financial Statements. The Company is evaluating the potential impact of the new legislation on future periods but does not expect a material impact to the Financial Statements.

 

Deferred income taxes have not been recorded on the basis differences for investments in consolidated subsidiaries as these basis differences are indefinitely reinvested or will reverse in a non-taxable manner. Quantification of the deferred income tax liability, if any, associated with indefinitely reinvested basis differences is not practicable. Deferred income taxes have been recorded on the basis differences for investments in nonconsolidated entities.

 

As of  May 31, 2025, the Company had generated net operating loss carry-forwards in the United States of approximately $314,512, which can be carried forward indefinitely and are generally limited in use annually to 80% of the current year taxable income, starting 2021. The Company has generated net operating loss carry-forwards in Canada of approximately $1,544,987, which can be carried forward for 20 years and begin to expire in 2028. Management believes that it is more-likely-than-not that the benefit from certain United States and foreign net operating loss carry-forwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance on the deferred tax assets relating to these carry-forwards. The net change in the total valuation allowance was an increase of $179,090 and $164,471 for the fiscal years ended May 31, 2025 and 2024, respectively. The net change in the total valuation allowance was primarily a result of current year losses.

 

The Company recognizes the financial statement impact of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the Financial Statements is the largest impact that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

The total amount of gross unrecognized tax benefits (“GUTB”) was $nil, $nil, and $nil as of May 31, 2025, 2024 and 2023 respectively. There is a reasonable possibility that the Company’s unrecognized tax benefits will change within twelve months due to audit settlements or the expiration of statute of limitations, but the Company does not expect the change to be material to Financial Statements.

 

The Company recognizes interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are recorded as a component of income tax expenses. In the fiscal years ended May 31, 2025, 2024 and 2023, the Company recorded approximately $nil, $nil and $nil, respectively, of interest and penalty expenses related to uncertain tax positions. As of May 31, 2025, and 2024, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $nil and $nil, respectively.

 

The Company and its subsidiaries are subject to United States federal income tax as well as the income tax of multiple state and foreign jurisdictions. Major jurisdictions where there are wholly owned subsidiaries of Tilray Brands, Inc. which require income tax filings include Canada, Portugal, Germany, and Australia. The earliest periods open for review by local taxing authorities are fiscal years 2021 for Canada, 2021 for Portugal, 2020 for Germany, 2021 for Australia, and 2022 for United States.