NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS C) SCIENTIFIC RESEARCH AND EXPERIMENTAL DEVELOPMENT (SR & ED) D) UNRECOGNIZED DEFERRED TAX ASSET E) INCOME TAX RECONCILIATION CEAPRO Annual Report 2012 49 The Company’s consolidated income tax position comprises tax benefits and provisions arising from the respective tax positions of its taxable entities. The Company’s income tax provision differs from that calculated by applying statutory rates for the following reasons: For consolidated financial statement purposes, no deferred income tax asset has been recorded at December 31, 2012 and 2011 as it is not likely to be realized. The Company has reflected the income tax effect of deductible temporary differences on the basis of the expected tax consequences that would follow from the manner in which the recovery or settlement of the carrying amount of assets and liabilities are expected. As a result of past asset transfers within the consolidated group, should the Company settle certain assets in a different manner the Company would have additional tax effected deductible temporary differences relating to the tax cost base of certain tax assets in the amount of $656,159 which is not reflected above. The Company has accumulated an SR & ED expenditure pool of approximately $1,366,500, which can be carried forward indefinitely to be applied against future taxable income. The Company has accumulated SR & ED investment tax credits of approximately $213,000. These credits may be applied against future federal income taxes payable and expire in 2029. A deferred income tax asset reflects the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s unrecognized deferred income tax asset are as follows: 2012 2011 INCOME TAX EFFECT OF DEDUCTIBLE TEMPORARY DIFFERENCES: $ $ Deductible temporary differences 1,001,993 1,182,626 Tax losses 4,263,362 3,955,371 Unrecognized deferred tax assets 5,265,355 5,137,997 2012 2011 $ $ Income taxes based on federal and provincial statutory income tax rate of 25% (2011 – 26.5%) (134,589) 153,057 Tax effect of expenses that are not deductible 10,089 24,350 Tax effect of government grant revenue not taxable – (17,397) Change in income tax rates – (9,057) Change in investment tax credits – (134,320) Other (2,858) 22,895 Current year items where deferred tax asset not recognized 127,358 (39,528) – –