In consultation with its U.S. tax advisors, Eagle 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 determination.
With 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, Eagle will post IRS Form 8937 under the "US Tax Forms" section of its website that will summarize how the distributions from Eagle were allocated between the return of capital component and the income (or "qualified dividends") component.
The 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.
U.S. 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 Eagle trust units are held within a qualified retirement plan.
Investors should report their dividend income and capital gain (if any), and make adjustments to their tax basis in Eagle's units, in accordance with this information and subject to advice from their tax advisors.
The amount of any 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 interest income of Eagle arising outside of Canada. Such distributions made to registered holders of Units who are resident in the United States and are entitled to benefits under the Canada – U.S. Tax Treaty (the "Treaty
") are exempt from Canadian withholding tax on such distributions, on the basis that the Trust income arises outside Canada.
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 of Canada Revenue Agency ("CRA
") Forms NR301, NR302 or NR303, as applicable, and provide a copy of such completed form to Eagle. This should ensure accurate registration of unitholder 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 held in an investment account that will be properly coded by the broker with respect to the Canadian tax withholding status of the unitholder, U.S. resident unitholders are also advised to hold formal TSX listed units of the Trust through a full service brokerage. Buying Eagle 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 in accounts with brokers who may not provide full registration information of the account 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 Eagle. Amounts over-withheld, if any, from Canada should be claimed as a refund from the CRA no later than two years after the calendar year in which the payment was paid.
Where trust units are held in a qualified retirement account, such withholding taxes would not be creditable for U.S. tax purposes. Amounts over-withheld, if any, from Canada should be claimed as a refund from the CRA no later than two years after the calendar year in which the payment was paid using CRA Form NR7-R.
CRA Form NR301 (Non-Resident Taxpayer)
CRA Form NR302 (Partnership with Non-Resident Partners)
CRA Form NR303 (Hybrid Entity)
CRA Information on forms NR 301, NR302 and NR 303
CRA Form NR7-R
Unitholders who are residents of the United States and wishing to benefit from the withholding tax exemption should send the duly completed CRA form to their Investment Broker, with a copy of the completed CRA form to Eagle Energy Trust at Suite 2710, 500 – 4th Avenue S.W., Calgary, Alberta, T2P 2V6 Attention: Chief Financial Officer.