SMTC Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Note 9 - Income Taxes

Note 9 - Income Taxes

12 Months Ended

Dec. 29, 2019

9 .	Income taxes

The Company recorded the following income tax expense for the years ended

December 29, 2019:

	Year ended December 29, 2019			Year ended December 30, 2018			Year ended December 31, 2017
Current:
Federal/State	$	(39	)	$	102		$	18
Foreign		987			650			621

		948			752			639
Deferred:
Federal		—			—			—
Foreign		(160	)		(75	)		(79	)

		(160	)		(75	)		(79	)

Income tax expense	$	788		$	677		$	560

The overall income tax expense as recorded in the consolidated statements of operations varied from the tax expense calculated using U.S. federal and state income tax rates as follows for the years ended

December 29, 2019:

	Year ended December 29, 2019			Year ended December 30, 2018			Year ended December 31, 2017
Federal income tax expense (recovery)	$	(1,093	)	$	48		$	(2,550	)
State income tax expense (recovery), net of federal tax benefit		199			24			26
Change in income tax rates due to tax reform		—			—			7,944
Loss (income) of foreign subsidiaries taxed at different rates		14			586			333
Change in valuation allowance		3,249			(61	)		(6,146	)
Foreign tax credit		113			869			302
Reassessment of losses by tax authority		—			—			—
Deemed income inclusion of foreign subsidiary		203			170			79
Expiry of operating loss carry forwards		19			226			441
Permanent and other differences		(1,916	)		(1,185	)		131

Income tax expense	$	788		$	677		$	560

For income tax purposes, income (loss) before income taxes consisted of the following for the years ended

December 29, 2019:

	Year ended December 29, 2019			Year ended December 30, 2018			Year ended December 31, 2017
Domestic (U.S.)	$	(1,969	)	$	1,569		$	(6,089	)
Foreign (Non U.S.)		(3,238	)		(1,340	)		(1,196	)

	$	(5,207	)	$	229		$	(7,285	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred income tax liabilities and assets are comprised of the following at:

	December 29 , 201 9			December 30, 2018
Deferred income tax assets - net:
Net operating loss carryforwards	$	19,646		$	20,451
Interest deduction carry forwards		2,907			1,568
Capital loss carryforwards		3,563			3,563
Tax credit carryforwards		4,310			4,911
Property, plant and equipment and other assets		(3,981	)		(5,089	)
Reserves, allowances and accruals		4,314			2,056
Other		1,255			1,145

		32,014			28,605
Valuation allowance		(31,474	)		(28,225	)

Net deferred income tax assets	$	540		$	380

December 29, 2019,

the Company had total net operating loss (“NOL”) carry forwards of

$106,977

of which

$78,727,

$23,398

and

$4,852

pertains to loss carry forwards from U.S., Canadian and Asian jurisdictions respectively. Net operating loss carryforwards of

$8,545

will expire between

2022

and

2024,

$36,275

will expire between

2025

and

2030,

$42,853

will expire between

2031

and

2036,

$15,811

will expire between

2037

and

3039,

and the remainder of

$3,493

is available for indefinite carryforward.

Prior to its acquisition by the Company, MCA had NOL carry forwards of

$15,300.

Pursuant to Section

382

of the Internal Revenue Code, MCA’s "ownership change" on

November 8, 2018,

within the meaning of this Section, resulted in limits on the Company's ability to utilize these losses. Management has determined NOL utilization to be limited to

$3,909

annually, and believes that sufficient losses are otherwise available such that there is little, if any, adverse tax consequence of this limitation.

December 29, 2019

and

December 30, 2018,

the Company had

gross unrecognized tax benefits associated with uncertain tax positions.

December 22, 2017,

the Tax Cuts and Jobs Act ("TCJA") was enacted, which includes a broad range of tax reform proposals, with many provisions significantly differing from current U.S. tax law. Management has considered the impact of these provisions, including a decrease in the federal corporate income tax rate, from

35%

21%

for years beginning after

December 31, 2017,

substantially reducing the value of the Company's deferred tax assets. The Company has recorded a corresponding reduction to its deferred tax asset of

$7,944

as at

December 31, 2017.

The reduction in the Company's deferred tax assets is fully offset by a corresponding reduction to the valuation allowance.