Income tax expense

12 Months Ended

Dec. 31, 2012

Income Tax Expense

Income tax expense

NXT periodically earns revenues while operating outside of Canada as a non-resident within certain foreign jurisdictions.  Payments made to NXT for services rendered to clients in such countries may be subject to withholding taxes, which are only recoverable in certain circumstances.  During 2012, NXT incurred foreign withholding taxes on a portion of its revenues that were generated in Latin and South America.  Although such foreign taxes paid can potentially be utilized in Canada as a foreign tax credit against future taxable earnings from the foreign jurisdictions, a full valuation allowance has been provided against this benefit.

Income tax expense is different from the expected amount that would be computed by applying the statutory Canadian federal and provincial income tax rates to NXT's income (loss) before income taxes as follows:

	2012			2011			2010
Net income (loss) before income taxes	$	2,489,149		$	(3,584,601	)	$	(4,452,428	)
Canadian statutory income tax rate		25.0	%		26.5	%		28.0	%
Income tax (recovery) at statutory income tax rate		622,287			(949,919	)		(1,246,680	)
Effect of non- deductible expenses and other items:
Stock-based compensation and other expenses		12,149			100,736			161,788
Non-capital losses expiring in the year		-			373,240			205,156
Foreign exchange adjustment		42,389			(42,965	)		103,007
Tax rate reduction		-			48,066			842,818
Other		(2,148	)		(2,715	)		12,226
		674,677			(473,557	)		78,315
Change in valuation allowance		(674,677	)		473,557			(78,315	)
Income taxes paid in foreign jurisdictions		426,421			-			-
Current income tax expense	$	426,421		$	-		$	-

The Company has significant unrecorded deferred income tax assets for which a full valuation allowance has been provided due to uncertainty regarding their potential utilization, as follows:

	2012			2011			2010
Net operating losses carried forward:
USA (expiration dates 2020 to 2026)	$	1,908,285		$	2,014,577		$	1,970,205
Canada (expiration dates 2014 to 2031)		3,269,542			3,805,274			3,410,240
Timing differences on property and equipment and financing costs		2,132,545			2,177,153			2,051,012
		7,310,372			7,997,004			7,431,457
Less valuation allowance		(7,310,372	)		(7,997,004	)		(7,431,457	)
		-			-			-

Certain income taxation years remain subject to review and assessment by the relevant tax authorities in Canada and the United States.  NXT has no unrecorded tax benefits and no amounts are included in these consolidated financial statements for amounts related to interest and penalties on income tax balances.