RE:RE:RE:RE:RE:RE:RE:Just Talked To My BrookerFrom mgmt circ....
Residents of Canada
The following portion of the summary applies to Holders who, at all relevant times are, or are deemed to be, resident in Canada for purposes of the Tax Act (a "Resident Holder").
Generally, where a "public corporation", as defined in the Tax Act, reduces the paid-up capital in respect of a class of its shares, the amount distributed to its shareholders on such reduction is deemed to be a dividend. However, where the paid-up capital of the relevant class of shares of the corporation exceeds the amount of the distribution, the amount distributed may be treated as a tax-free return of capital (subject to the comments below concerning the reduction of the adjusted cost base of the shares) and not as a deemed dividend where: (i) the distribution is made on the winding-up, discontinuance or reorganization of the corporation's business; or (ii) where the amount of the distribution is derived from proceeds realized by the distributing corporation on certain non-ordinary course transactions. The Company is of the view that either or both of these exceptions should apply to the distribution(s) as part of a Return of Capital or the Dissolution.
The aggregate amount of any distribution(s) by the Company as part of a Return of Capital or the Dissolution that the shareholders are being asked to approve at the Meeting is not expected to exceed the approximate amount of the current paid-up capital of the Common Shares. Accordingly, if either of the above exceptions applies on the date of the distribution, the entire amount of the Distribution should be treated as a tax-free return of capital and no portion thereof should be treated as a deemed dividend.
No income tax ruling or opinion has been sought or obtained to the effect that any such distribution will be treated as a tax-free return of capital and not as a deemed dividend on the basis of the above exceptions, and Holders should consult their own tax advisors in this regard.
To the extent that any portion of any distribution by the Company as part of a Return of Capital or the Dissolution is treated as a deemed dividend, the amount of the deemed dividend will be included in computing the income of the Resident Holder for purposes of the Tax Act. If the Resident Holder is an individual (including certain trusts), such dividends will be subject to the gross-up and dividend tax credit rules normally applicable to taxable dividends paid by taxable Canadian corporations including an enhanced gross-up and tax credit for "eligible dividends" (as defined in the Tax Act).
A deemed dividend received by a Resident Holder that is a corporation will normally be deductible in computing its taxable income. A Resident Holder that is a "private corporation" (as defined in the Tax Act) or a corporation controlled by or for the benefit of an individual (other than a trust) or related group of individuals (other than trusts), will generally be liable to pay a refundable tax under Part IV of the Tax Act on dividends deemed to be received to the extent that such dividends are deductible in computing taxable income, which may be refunded in certain circumstances. In the case of a Resident Holder that is a corporation, it is possible that in certain circumstances, all or part of the amount deemed to be a dividend will be treated as a capital gain and not as a dividend, except to the extent that the Resident Holder was subject to Part IV tax in respect of the deemed dividend.
The adjusted cost base of each Common Share to a Resident Holder will be reduced by an amount equal to the amount per Common Share received in connection with any distribution(s) of the remaining assets of the Company as part of a Return of Capital or the Dissolution. If the amount per Common Share received on any such distribution exceeds the adjusted cost base of such share, a Resident Holder will realize a capital gain equal to such excess. Under the provisions of the Tax Act, one half of any capital gain realized by a Resident Holder will be required to be included in computing such holder's income as a taxable capital gain. A Resident Holder that is a "Canadian-controlled private corporation" (as defined in the Tax Act) may also be liable to pay an additional refundable tax of 10.67% on its "aggregate investment income" (as defined in the Tax Act) for the year which will include amounts in respect of taxable capital gains realized in the year. The Tax Act provides for an alternative minimum tax applicable to individuals (including certain trusts) resident in Canada, which is computed by reference to an adjusted taxable income amount under which certain items are not deductible or exempt. Capital gains realized by and taxable dividends received by an individual will be relevant in computing liability for alternative minimum tax.
Non-Residents of Canada
This portion of the summary is applicable to shareholders who, for the purposes of the Tax Act and any applicable income tax convention or treaty, and at all relevant times, are not and are not deemed to be resident in Canada and are not deemed to use or hold, their Common Shares in connection with carrying on a business in Canada (a "Non- Resident Holder"). Special rules not discussed in this summary may apply to (i) a non-resident insurer carrying on an insurance business in Canada, (ii) a "financial institution" (as defined in the Tax Act) or (iii) an "authorized bank" (as defined in the Tax Act). Such shareholders should consult their own tax advisors.
The tax consequences of a distribution to a Non-Resident Holder as part of a Return of Capital or the Dissolution will be generally the same as described above with respect to Resident Holders. No Canadian non-resident withholding tax will apply to such distribution if the distribution is treated as a tax-free return of capital, as described above.
If any portion of the distribution is treated as a deemed dividend, as described above, Canadian withholding tax at a rate of 25% will apply, subject to reduction under the provisions of an applicable income tax convention between Canada and the Non-Resident Holder's country of residence (a "Tax Treaty").
A Non-Resident Holder who realizes a capital gain as a result of the distribution, as described above, will not be subject to Canadian income tax under the Tax Act in respect of such gain provided the Common Shares are not "taxable Canadian property" to such Non-Resident Holder. The Common Shares generally will not be taxable Canadian property provided that: such shares are listed on a designated stock exchange within the meaning of the Tax Act (which currently includes the TSXV); unless at any time during the sixty month period immediately preceding the Distribution, (a) the Non-Resident Holder has, either alone or in combination with persons with whom the Non-Resident Holder does not deal at arm's length, owned 25% or more of the issued shares of any class or series of shares in the capital of the Company, and (b) more than 50% of the fair market value of the Common Shares was not derived directly or indirectly from one or any combination of real or immovable property situated in Canada, "Canadian resource properties" (as defined in the Tax Act), "timber resource properties" (as defined in the Tax Act), and options in respect of, or interests in, or for civil law rights in, any such property.
Notwithstanding the above, a Common Share may be deemed under the Tax Act to be "taxable Canadian property" of a particular Non-Resident Holder where the Non-Resident Holder acquired or held the share in certain circumstances, including acquiring the share in consideration of the disposition of other taxable Canadian property. Non-Resident Holders for whom a Common Share may be taxable Canadian property should consult their own tax advisors.
In the event that the Common Shares constitute taxable Canadian property to a particular Non-Resident Holder, the consequences under the Tax Act of realizing a capital gain will generally be the same as those for Resident Holders described above. Non-Resident Holders should consult with their own tax advisors as to the availability of relief from Canadian tax under an applicable income tax convention between Canada and the Non-Resident Holder's country of residence.
The Company has not sought advice from legal counsel in other jurisdictions with respect to the return of capital or the distributions for Shareholders that are not resident in Canada for the purposes of the Tax Act, therefore all such Shareholders should consult their own legal and accounting professionals for advice as to the tax and legal impact of the Return of Capital and the Dissolution in their own circumstances and applicable jurisdictions.