(7) INCOME TAXES

The domestic and foreign components of income (loss) before income taxes are as follows:

	(in thousands of dollars)
	2016			2015
Domestic	$	376		$	863
Foreign		(6,243	)		1,082
	$	(5,867	)	$	1,945

The components of the provision (benefit) for income taxes and deferred taxes for the years ended September 30, 2016 and 2015 are as follows:

(in thousands of dollars)

	2016
	Current		Deferred
Federal	$	23	$	124
State		41		24
Foreign		96		(309	)
	$	160	$	(161	)

	2015
	Current			Deferred
Federal	$	38		$	349
State		85			3
Foreign		(16	)		(53	)
	$	107		$	299

The provision (benefit) for income taxes in each period differs from that which would be computed by applying the statutory U.S. Federal income tax rate to the income before income taxes. The following is a summary of the major items affecting the provision:

	(in thousands of dollars)
	2016			2015
Statutory Federal income tax rate		34	%		34	%
Computed tax provision at statutory rate	$	(1,995	)	$	659
Increases (decreases) resulting from:
Foreign tax rate differentials		693			(163	)
State taxes net of federal tax benefit		42			57
Foreign research incentives		(313	)		(544	)
Losses surrendered for cash research incentive		442			378
U.K. rate change		436			5
Other non-deductible expenses		48			-
Non-deductible interest		106			-
Transaction costs		480			-
Other		60			14
Income tax (benefit) provision in the consolidated statements of operations	$	(1	)	$	406

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The significant items comprising the domestic and foreign deferred tax accounts at September 30, 2016 and 2015 are disclosed in the following tables. The disclosed amounts are shown in the consolidated balance sheets at September 30, 2016 as a long term deferred tax asset of $4,289,000 and a long term deferred tax liability of $1,517,000 (September 30, 2015 as a long term deferred tax asset of $4,476,000 and a long term deferred tax liability of $0).

	2016
	Domestic long-term			Foreign long-term			Total
Assets:
Pension accruals	$	427		$	1,798		$	2,225
Inventory basis differences		62			-			62
Warranty reserves		53			34			87
Foreign tax credit carry forwards		134			-			134
Accrued compensation expense		-			66			66
Net operating losses		2			2,159			2,161
Other (net)		142			51			193
		820			4,108			4,928
Liabilities:
Property basis asset (liability)		-			(284	)		(284	)
Intangible asset basis difference		-			(1,550	)		(1,550	)
Net asset		820			2,274			3,094
Valuation allowance		(89	)		(233	)		(322	)
Net deferred tax asset	$	731		$	2,041		$	2,772

	2015
	Domestic long-term			Foreign long-term			Total
Assets:
Pension accruals	$	389		$	2,028		$	2,417
Inventory basis differences		72			-			72
Warranty reserves		67			-			67
Foreign tax credit carry forwards		203			-			203
Accrued compensation expense		-			54			54
Net operating losses		2			1,919			1,921
Other (net)		214			1			215
		947			4,002			4,949
Liabilities:
Property basis asset (liability)		1			(233	)		(232	)
Net asset		948			3,769			4,717
Valuation allowance		(158	)		(83	)		(241	)
Net deferred tax asset	$	790		$	3,686		$	4,476

The domestic valuation allowance at September 30, 2016 relates primarily to the realizability of foreign tax credit carry forwards in the U.S; the foreign valuation allowance relates to net operating losses in the Company’s Asian subsidiaries. In assessing the continuing need for a valuation allowance the Company has assessed the available means of recovering its deferred tax assets, including the ability to carryback net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies, and available sources of future taxable income, including a revised estimate of future sources of pre-tax income. The Company has historically had profitable operations. The Company’s current projections reflect future profitable operations. Since the majority of the Company’s net operating loss deferred tax assets relate to operations in countries where net operating losses have unlimited carry forwards, the Company has concluded that no valuation allowance is required on these deferred tax assets.

The Company has generated domestic state net operating losses of $39,185 which will expire in 2028. The Company has generated foreign net operating losses of approximately $10,831,000 which have an indefinite carry forward period.

During the year, the Company elected to receive a refundable tax credit of $595,000 (2015: $463,000) related to certain research and development incentives in the U.K. These amounts have been recorded in operating income, as they are refunded without regard to actual tax liability.

At September 30, 2016, the Company has not provided United States income taxes or foreign withholding taxes on unremitted foreign earnings of approximately $8.3 million, as those amounts are considered indefinitely invested in light of the Company’s substantial non-U.S. operations. Due to the complexities of the U.S. tax law, including the effect of U.S. foreign tax credits, it is not practicable to estimate the amount of tax that might be payable on these earnings in the event they no longer are indefinitely reinvested.

Uncertain tax positions

The Company follows FASB authoritative guidance regarding the recognition and measurement of all tax positions taken or to be taken by the Company and its subsidiaries. The Company reviews all potential uncertain tax positions. As a consequence of that review, it was concluded that no provision was required and consequently the Company has not recorded a liability for uncertain tax positions. The Company’s tax returns are open to audit from 2013 and forward.