INCOME TAXES

12 Months Ended

Sep. 30, 2011

INCOME TAXES

15.  INCOME TAXES

As of September 30, 2011, the Company has approximately $4,032,878 (2010 – $3,875,711) of operating losses expiring through 2031 that may be used to offset future taxable income but are subject to various limitations imposed by rules and regulations of the Internal Revenue Service. The net operating losses are limited each year to offset future taxable income, if any, due to the change of ownership in the Company's outstanding shares of common stock. In addition, at September 30, 2011, the Company had an unused Canadian net operating loss carry-forward of approximately $10,449,641 (2010 – $8,844,649), expiring through 2031. These operating loss carry-forwards may result in future income tax benefits of approximately $4,180,662. However, because realization is uncertain at this time, a valuation reserve in the same amount has been established. 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 components of the net deferred tax asset, the statutory tax rate, the effective rate and the elected amount of the valuation allowance are as follows:

	Year Ended September 30, 2011			Year Ended September 30, 2010
Statutory and effective tax rate
Domestic
Statutory U.S. federal rate		35.00	%		35.00	%
Foreign		26.50	%		29.00	%

	Year Ended September 30, 2011			Year Ended September 30, 2010
Income taxes recovered at the statutory and effective tax rate
Domestic
Statutory U.S. federal rate	$	149,187		$	59,360
Foreign		292,549			336,966
Timing differences:
Non-deductible expenses		(120,107	)		(62,102	)
Financing fees		–			497
Other deductible charges		2,188			2,474
Benefit of tax losses not recognized in the year		(323,817	)		(337,195	)
Income tax recovery (expense) recognized in the year	$	–		$	–

The approximate tax effects of each type of temporary difference that gives rise to deferred tax assets are as follows:

	Year Ended September 30, 2011			Year Ended September 30,  2010
Deferred income tax assets (liabilities)
Net operating loss carry-forwards	$	4,180,662		$	3,921,448
Oil and gas properties		108,009			160,227
Finance fee deductible in future years		–			64
Equipment		144,603			104,249
Valuation allowance		(4,433,274	)		(4,185,988	)
Net deferred income tax assets	$	–		$	–