2011 Canadian Shareholder Tax Information
The following information is provided to assist individual Canadian shareholders of NAL in the preparation of their 2011 Income Tax Return and is not to be considered tax advice to any particular individual but rather, general information. Shareholders should consult their own legal tax advisors as to their particular tax consequences of holding NAL shares.
NAL Energy dividends declared in 2011 are designated as "eligible dividends" for Canadian income tax purposes.
The deadline for mailing T5 slips to shareholders as required by the Canada Revenue Agency (the "CRA") is on or before February 29, 2012.
For additional details on monthly distributions and dividends paid in years prior to 2011, please visit our website at: http://www.nalenergy.com/investors/dividends
2011 U.S. Shareholder Tax Information
The following information is provided to assist individual U.S. shareholders of NAL in the preparation of their 2011 income tax return. The information is of a general nature only and does not address U.S. state or local tax treatment, and is not intended to constitute legal or tax advice to any holder of NAL shares. U.S. investors should consult their own legal or tax advisors as to their particular tax consequences of holding NAL shares, including the proper U.S. federal income tax treatment of distributions from NAL.
For U.S. tax purposes, NAL has not elected to be a partnership and, according to its tax advisors, should be treated as a corporation by its U.S. investors. Under U.S. federal tax law, 100% of the Corporation's 2011 distributions should be considered dividends for U.S. income tax purposes.
NAL believes that the 2011 distributions paid to U.S. residents should be treated as "qualified dividends" under the Jobs and Growth Tax Relief Reconciliation Act of 2003 and, generally, these dividends should be eligible for the maximum tax rate of 15% applicable to "qualified dividends". However, the individual taxpayer's situation must be considered before making this determination.
Shareholders who are resident in the U.S. are subject to a 15% Canadian withholding tax on the distributions received from NAL. U.S. shareholders should receive an NR4 statement regarding, among other things, the aggregate distributions NAL paid for the year and the amount of Canadian withholding tax withheld from such distributions. The deadline for mailing NR4 slips to shareholders as required by the CRA is on or before April 2, 2012.
Canadian withholding taxes should generally qualify for a foreign tax credit for the purposes of computing U.S. federal income taxes, subject to certain limitations.
WITHHOLDING TAX INFORMATION
US shareholders that hold their common shares in certain tax-exempt accounts may be eligible for zero percent withholding tax on dividends paid on their common shares. Dividends received by a trust, company, organization or other arrangement that is a resident of the US, generally exempt from income taxation in a taxation year in the US and operated exclusively to administer or provide pension, retirement or employee benefits, are exempt from Canadian withholding tax at source in that taxation year. The process for obtaining the zero percent withholding tax treatment is dependent on whether the US shareholder is a registered shareholder or a beneficial shareholder. A discussion pertaining to both types of shareholders follows.
The information contained herein is intended to be a general guideline only and not an exhaustive discussion of all possible income tax consequences. It is not intended to constitute legal or tax advice to any holder or potential holder of common shares. Holders or potential holders of common shares should consult their own legal or tax advisors as to their particular tax consequences of holding common shares.
A shareholder who holds their common shares through a broker, investment dealer, financial institution or other nominee is not a registered shareholder (such a shareholder is often referred to as a "beneficial shareholder"). NAL does not directly withhold taxes on dividends ultimately paid to such shareholders. Most brokers, investment dealers, and financial institutions deposit their clients' securities (including common shares) with the Depository Trust Company ("DTC"). The DTC solicits these brokers, investment dealers, and financial institutions for withholding instructions in respect of the deposited securities. The Canadian Depository for Securities Limited ("CDS"), DTC's withholding agent, then uses these instructions to withhold Canadian tax from payments (including dividends) made in respect of the deposited securities.
The administrator (e.g., brokers, investment dealers and financial institutions) of a tax-exempt account that has common shares deposited with the DTC is required to provide the DTC with proper withholding instructions to take advantage of the reduced withholding tax rate as may be applicable. Information on the provision of the required instructions in Canadian tax withholdings is available on the DTC website at:
Such information should also be provided to NAL at Suite 1000, 550 - 6th Avenue S.W., Calgary, Alberta T2P 0S2, Attention: Manager, Tax Planning and Compliance.
A shareholder who holds a physical share certificate to evidence their ownership of common shares is a registered shareholder. A registered shareholder receives dividends on their common shares from NAL's transfer agent, Computershare Trust Company of Canada.
To qualify for a zero percent Canadian withholding rate, a tax-exempt account must have a valid, unexpired letter of exemption from the Canada Revenue Agency. Otherwise, Computershare will continue to withhold Canadian tax from dividend payments. For information on how to obtain such a letter, please contact the International Tax Services Office at Canada Revenue Agency by telephone at 1-800-267-3395, by fax at 613-941-6905 or by clicking the following link to their website:
Once obtained, a copy of the exemption letter should be delivered to NAL's transfer agent at the following address:
Computershare Trust Company of Canada
100 University Avenue
9th Floor, North Tower
Toronto, Ontario M5J 2Y1
Attention: Tax Department
Should the registered shareholder have their exemption letter withdrawn by the Canada Revenue Agency, they are required to immediately advise NAL's transfer agent, Computershare Trust Company of Canada.
REFUND OF CANADIAN WITHHOLDING TAX PREVIOUSLY PAID
For those US shareholders holding common shares in a tax-exempt account that believe withholding tax has been improperly applied to their particular situation, the following discussion describes the process for claiming a refund of Canadian withholding tax.
To obtain a refund of any Canadian withholding tax (i.e., Part XIII tax) incorrectly paid in respect of common shares held on deposit with DTC, the US holder of an eligible tax-exempt account has 2 options:
1. Quick refund through DTC; or
2. File Form NR7-R "Application for Refund of Part XIII Tax Withheld" with
Copy 3 of the NR4 supplementary (provided by your broker or other
intermediary) with the Canada Revenue Agency for each relevant taxation
year. Click the following link to access the Form NR7-R: http://www.cra-
Form NR7-R has to be filed with the Canada Revenue Agency no later than two years from the end of the calendar year in which the withholding tax was remitted.
DTC Important Notice #4664-09 which provides more details on how to obtain a refund of Canadian withholding tax is available on the DTC website at:
To obtain a refund of any Canadian withholding tax (i.e., Part XIII tax) incorrectly paid, the US holder of an eligible tax-exempt account should complete Form NR7-R "Application for Refund of Part XIII Tax Withheld" and file the form with Copy 3 of the NR4 supplementary (to be provided by Computershare Trust Company of Canada) with the Canada Revenue Agency for each relevant taxation year. Click the following link to access the Form NR7-R: http://www.cra-arc.gc.ca/E/pbg/tf/nr7-r/README.html
The Form NR7-R must be filed with the Canada Revenue Agency no later than two years from the end of the calendar year in which the withholding tax was remitted.
Non-Resident Withholding Tax Policy Change
In 2011, the CRA made changes to the level and type of information payors must obtain in order to withhold tax at treaty rates when making payments to non-residents. The address of the recipient of the payment was previously sufficient to establish entitlement to the reduced withholding rate under an applicable treaty. However, for any payments after December 31, 2011, additional information must be provided by the recipient in order to be entitled to the reduced withholding rate. If the additional information is not provided, any payments after December 31, 2011 will be subject to the 25% withholding rate.
The information required can be provided using one of the new forms issued by the CRA in 2011. While these forms are not mandatory, the information provided on such forms is necessary for determining whether the reduced withholding rate will apply or not. The equivalent information can be provided in a letter or other format. A completed form will expire on the earlier of a change in eligibility for treaty benefits and three years from the year the form is signed and dated. Completed forms should be provided to your broker (or other intermediary) or NAL's Trustee and Transfer Agent, Computershare Trust Company of Canada.
The new forms issued by the CRA are:
- Form NR301 - "Declaration of Eligibility for Benefits under a tax treaty for a Non-Resident Taxpayer";
- Form NR302 - "Declaration of Eligibility for Benefits under a tax treaty for a Partnership with Non-Resident Partners"; and
- Form NR303 - "Declaration of Eligibility for Benefits under a tax treaty for a Hybrid Entity".
If the amount of Canadian withholding tax withheld is not the appropriate amount, please contact your broker or other intermediary as they are responsible for withholding the appropriate amount of tax.