U.S. Tax Information
U.S. Income Tax Information
following information is being provided to assist U.S. individual
unitholders of Argent Energy Trust (“Argent”) in reporting distributions
received from Argent on their Internal Revenue Service Form 1040, “U.S.
Individual Income Tax Return” (“Form 1040”).
summary is for the purpose of general knowledge only and does not
provide any financial, legal, tax or investment advice to anyone
currently invested in or considering investing in Argent Energy Trust
(“Argent”). Holders or potential holders of units (the “Units”) should
seek the advice of their own legal and tax advisors as to the tax
consequences of buying, holding and selling the Units based on their
consultation with its U.S. tax advisors, Argent believes that its trust
units should be properly classified as equity in a corporation, rather
than debt, and that distributions paid to individual U.S. unitholders
should be “qualified dividends” for U.S. federal income tax purposes.
As such, the portion of the distributions that are considered
“dividends” for U.S. federal income tax purposes should qualify for the
reduced rate of tax applicable to long-term capital gains. However, the
individual taxpayer’s situation must be considered before making this
respect to cash distributions paid during the year to U.S. individual
unitholders, a percentage should be reported as a return of capital (to
the extent of the unitholder's U.S. tax basis in their respective units)
and the remaining percentage should be reported as “qualified
dividends”. Following the end of each calendar year, Argent will
provide a table on its website that will summarize how the distributions
from Argent were allocated between the return of capital component and
the income (or “qualified dividends”) component.
portion of the distributions treated as “qualified dividends” should be
reported on Form 1040 unless the fact situation of the U.S. individual
unitholders determines otherwise. For examples of individual situations
where the dividends would not be “qualified dividends”, see the
commentary in the Form 1040 Instruction Booklet with respect to
“qualified dividends”. Where, due to individual situations, the
dividends are not “qualified dividends”, the amount should be reported
as “ordinary dividends”.
For U.S. federal
income tax purposes, in reporting a return of capital with respect to
distributions received, U.S. unitholders are required to reduce the cost
base of their trust units by the total amount of distributions received
that represent a return of capital. This amount is non-taxable if it
is a return of cost base in the trust units. If the full amount of the
cost base has been recovered, any further return of capital
distributions should be reported as capital gains.
unitholders are encouraged to utilize the Qualified Dividends and
Capital Gain Tax Worksheet of Form 1040 to determine the amount of tax
that may be otherwise applicable. No amounts are required to be reported on a Form 1040 where Argent trust units are held within a qualified retirement plan.
U.S. investors should report their dividend income and capital gain (if any), and make adjustments to their tax basis in Argent’s units, in accordance with this information and subject to advice from their tax advisors.
No Withholding Tax
The amount of the distribution that, under Canadian law, is allocated as income (i.e., the portion of the distribution that is not allocated as a return of capital) to a non-resident of Canada is distributed out of income of the Trust arising outside of Canada. Argent has received written confirmation from the Canada Revenue Agency (CRA) that there is currently no Canadian tax withholding on such amounts for unitholders of registered units who are resident in the United States and are entitled to benefits under the Canada – U.S. Tax Treaty on the basis that the Trust income arises from the U.S. To ensure the benefit of such treaty relief, U.S. residents who beneficially hold units should complete, or instruct their broker to complete on their behalf, CRA Forms NR301, NR302 or NR303, as applicable, and provide a copy of such completed form to Argent and to Computershare, the Trust's transfer agent. This should ensure accurate registration of their residency status. Absent receipt of such form, the income distributions may incur Canadian withholding tax, which is withheld prior to any payments being distributed to unitholders. To ensure units are registered it is also advised to hold formal TSX listed units of the Trust through a full service broker. Buying Argent units on the Pinksheets/OTC or through a discount brokerage does not guarantee that there will be no withholding tax on the distributions, as these type of holdings are generally not units identifiable by the Transfer Agent, or are with brokers who may not provide full registration information to allow the unitholder to gain the benefit of the tax exemption.
If tax is inadvertently withheld, where trust units are held outside a qualified retirement account, the full amount of all withholding tax should generally be creditable, subject to numerous limitations, for U.S. tax purposes in the year in which the withholding taxes are withheld. The amount of any Canadian tax withheld should be reported on Form 1116, “Foreign Tax Credit (Individual, Estate, or Trust)”. Information regarding the amount of any Canadian tax withheld in a taxation year should be determined from your own records and is not available from Argent. Amounts over-withheld, if any, from Canada should be claimed as a refund from the Canada Revenue Agency no later than two years after the calendar year in which the payment was paid.
If tax is inadvertently withheld, where trust units are held in a qualified retirement account, such withholding taxes would not be creditable for U.S. tax purposes. In such a circumstance, an application using CRA Form NR7-R would be required. Furthermore, any impacted unitholder would need to cite CRA Ruling 2013-0509431R3 in their associated cover letter, indicating that it confirms the availability of an exemption from Canadian withholding tax pursuant to paragraph 2 of Article XXII of the Canadian-U.S. Tax Treaty. The CRA Form NR7-R must be submitted within two years.