Xenon Pharmaceuticals Inc. Income Taxes Disclosure

The Company’s wholly-owned subsidiary, Xenon Pharmaceuticals USA Inc., generates taxable income due to an intercompany service agreement with the Company.

Deferred income tax assets and liabilities result from the temporary differences between the carrying amount of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the Company’s net deferred income tax assets are as follows:

At December 31, 2025, a valuation allowance of $346,794 (2024 – $266,856) has been recognized to offset deferred tax assets where realization of such assets is uncertain. The valuation allowance increased by $79,938 in 2025, which primarily relates to increases in Canadian non-capital loss carryforward deferred tax assets as of December 31, 2025.

The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criteria changes, the valuation allowance is adjusted accordingly. A full valuation allowance continues to be applied against deferred income tax assets in Canada as the Company has assessed that the realization of such assets does not meet the “more likely than not” criteria. Deferred income tax assets recorded on the consolidated balance sheets as of December 31, 2025 and 2024, result from the temporary differences between the amounts of assets and liabilities recognized for financial statement and income tax purposes, net of valuation allowance, related to the operations of Xenon Pharmaceuticals USA Inc.

At December 31, 2025, the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $172,351 with no expiry.

At December 31, 2025, the Company has $30,202 of investment tax credits available to offset federal taxes payable and $8,798 of investment tax credits available to offset provincial taxes payable in the future.

At December 31, 2025, the Company has gross non-capital losses, net of uncertain tax positions, carried forward for tax purposes, which are available to reduce taxable income of future years of approximately $932,225.

The investment tax credits and loss carry forwards expire over various years from 2026 to 2046.

Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of uncertainties. Interest and penalties related to uncertain tax positions, if any, will be recognized as a component of income tax expense.

If recognized in future periods, $2,451 of the unrecognized tax benefits would affect the Company’s effective tax rate. As of December 31, 2025, the Company had accrued interest and penalties related to tax contingencies of $747 (2024 – $158). For the year ended December 31, 2025, the Company recognized interest and penalties, net of federal income tax benefit, of $588 (2024 – $158).

The Company files income tax returns in Canada and the United States, the jurisdictions in which the Company believes that it is subject to tax. In jurisdictions in which the Company does not believe it is subject to tax and therefore does not file income tax returns, the Company can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years (since the inception of the Company) to examination. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company claims, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2005 to 2025 remain subject to examinations in Canada and from 2022 to 2025 remain subject to examinations in the United States.