ZeroStack Corp. Income Taxes Disclosure
21. INCOME TAXES
The Company is domiciled in Canada.
A disaggregation of loss before income taxes for the year ended December 31, 2025 is as follows:
| Continuing Operations | Discontinued Operations | Total | |||||||
| Domestic (Canada) | $ | (45,335 | ) | $ | - | $ | (45,335 | ) | |
| Foreign | (70,016 | ) | (4,425 | ) | (74,441 | ) | |||
| Total loss before income taxes | $ | (115,351 | ) | $ | (4,425 | ) | $ | (119,776 | ) |
The components of the income tax provision include the following:
| For the year ended December 31, 2025 |
For the year ended December 31, 2024 |
|||||
| Current | ||||||
| Canada | $ | - | $ | - | ||
| U.S. federal | - | - | ||||
| U.S. state | 3 | - | ||||
| Foreign | - | - | ||||
| Total current tax expense | $ | 3 | $ | - | ||
| Deferred | ||||||
| Canada | $ | - | $ | - | ||
| U.S. federal | - | - | ||||
| U.S. state | - | - | ||||
| Foreign | 56 | 22 | ||||
| Total deferred tax expense | $ | 56 | $ | 22 | ||
| Total income tax benefit | $ | 59 | $ | 22 |
The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 25% for the year ended December 31, 2025 to the effective rate is as follows. As the Company is domiciled in Canada, the reconciliation is to the Company's home country income tax rate rather than the applicable statutory rates in the United States. The statutory tax rate as of December 31, 2025 in other countries relevant to the Company's subsidiaries include the following: United States 21% and Germany 27.73%.
| Amount | Rate | |||||
| Canadian federal statutory tax rate | $ | (28,838 | ) | 25.0% | ||
| Provincial, net of federal (national) income tax effect | (688 | ) | 0.6% | |||
| Foreign tax effect | ||||||
| United States | ||||||
| Statutory rate difference between the United States and Canada | 3,124 | -2.7% | ||||
| State and local income tax | (2,765 | ) | 2.4% | |||
| Changes in valuation allowance | 27,484 | -23.8% | ||||
| Non-taxable or non-deductible items | ||||||
| Non-taxable realized gain (loss) | 10,663 | -9.2% | ||||
| Non-taxable unrealized gain (loss) | (11,550 | ) | 10.0% | |||
| Other | 413 | -0.4% | ||||
| Change in valuation allowance | 2,455 | -2.1% | ||||
| Other | (239 | ) | 0.2% | |||
| $ | 59 | -0.1% |
The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% for the year ended December 31, 2024 to the effective rate is as follows.
| Rate | |||
| Statutory Canadian rate | 26.5% | ||
| Earnings in jurisdictions taxed at different rates | 0.4% | ||
| Impairments | -1.2% | ||
| Stock based compensation | -7.9% | ||
| Valuation allowance | 7.7% | ||
| Other permanent items | -2.1% | ||
| Prior year adjustments, change in tax rates | -23.6% | ||
| -0.2% |
The Company's effective tax rate differs from the statutory rate primarily due to changes in valuation allowance, non-taxable gains and losses, and jurisdictional rate differentials.
The Components of the Company's deferred income tax assets and liabilities at December 31, 2025 and 2024 are as follows:
| 2025 | 2024 | |||||
| Deferred tax assets | ||||||
| Non-capital loss carryforwards | $ | 15,154 | $ | 12,686 | ||
| Financing costs | 655 | 643 | ||||
| Long term debt - convertible note | (5,295 | ) | - | |||
| Loan receivable | 320 | - | ||||
| Capital loss | 26,132 | 2,973 | ||||
| Digital assets | 25,692 | - | ||||
| Lease liabilities | 15 | (25 | ) | |||
| Intangible assets | - | 20 | ||||
| Other | 416 | 81 | ||||
| Accrued sales tax | - | (16 | ) | |||
| Gross deferred tax assets | 63,089 | 16,362 | ||||
| Valuation allowance | (63,089 | ) | (16,362 | ) | ||
| Total net deferred tax assets | - | - | ||||
| Deferred tax liabilities | ||||||
| Intangible assets | - | - | ||||
| Right of use assets | 9 | - | ||||
| Other accruals | - | - | ||||
| Total deferred tax liabilities | 9 | - | ||||
| Net deferred tax liabilities | $ | (9 | ) | $ | - |
Deferred taxes are a result of temporary differences that arise due to the differences between the income tax values and the carrying values of assets and liabilities. The Company's deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on the tax loss carryforwards from operations in various jurisdictions. Current evidence does not suggest the Company will realize sufficient taxable income of the appropriate character within the carryforward period to allow the Company to realize the deferred tax benefits. If the Company were to identify and implement tax planning strategies to recover these deferred tax assets or generate sufficient income of the appropriate character in these jurisdictions in the future, it could lead to the reversal of these valuation allowances and income tax expense.
The Company asserts that the earnings of its foreign subsidiaries (outside Canada) will be indefinitely reinvested in those subsidiaries and earnings will not be repatriated. The Company may need to accrue and pay taxes if those earnings were repatriated to Canada.
Unused loss carryforwards in Canada totaling $56.9 million expire beginning 2037. Unused loss carryforwards in the United States totaling $0.3 million have an indefinite carryforward period. Deferred tax assets have not been recognized for legal entities where it is not probable that future taxable profit will be available against which the Company can use the benefits. Tax attributes are subject to review, and potential adjustment, by tax authorities. The tax years that remain subject to examination by significant tax jurisdictions of the Company as of December 31, 2025 are as follows: Canada 2020 to 2023 and United States 2020 to 2023.
The amount of current income tax expense for the year ended December 31, 2025 was less than $0.1 million and deferred income tax benefit was $0.1 million within the consolidated statements of loss and comprehensive loss. The amount of current income tax expense recorded for the year ended December 31, 2024 was $nil and deferred income tax expense was less than $0.1 million.
Income taxes paid, net of refunds, during the year ended December 31, 2025 were immaterial.
The Company had no unrecognized income tax benefits because of uncertain income tax positions for the years ended December 31, 2025 and 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 24, 2025 | |
| 2023 | Mar 28, 2024 | |
| 2022 | Mar 31, 2023 | |
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.