The following information is provided for information purposes only, is of a general nature only, and is not meant to be an exhaustive discussion of all possible income tax considerations. It is not intended to constitute legal or tax advice to any particular holder of Parkland Fuel Corporation’s (“Parkland”) common shares.
Investors are encouraged to seek advice from a qualified tax advisor in their country of residence to obtain guidance with respect to the appropriate tax treatment of their dividends and share disposals.
All 2012 regular dividends declared and paid to Canadian resident shareholders have been designated as eligible dividends for purposes of the Canadian Income Tax Act ("Tax Act") and thus qualify for the enhanced dividend tax credit regime for Canadian shareholders.
Canadian resident shareholders should include all 2012 dividends received on Parkland common shares for purposes of reporting income on their 2012 income tax return.
Canadian resident shareholders who hold their Parkland common shares in a Registered Retirement Savings Plan, Registered Retirement Income Fund, Deferred Profit Sharing Plan, Registered Education Savings Plan or Tax Free Savings Account need not report any income related to Parkland dividends on their 2012 income tax return.
Tax Consequences of the Premium Dividend™ and Dividend Reinvestment Plan
Participation in the Plan does not relieve you of any liability for taxes that may be payable in respect of the dividends reinvested in new shares or shares sold on your behalf under the Plan. In determining your tax liability, it is important to recognize that multiple transactions occur under the Plan even though you may only see the result of the final transaction.
Participation in the Dividend Reinvestment component of the Plan involves two transactions:
- first, you will receive a dividend from Parkland; and
- second, you will use the cash from the dividend to purchase new shares at 95% of the Average Market Price as defined by the Plan.
Participation in the Premium Dividend™ component of the Plan involves three transactions:
- first, you will receive a dividend from Parkland;
- second, you will use the cash from the dividend to purchase new shares at 95% of the Average Market Price as defined by the Plan; and
- third, you will sell the new shares purchased in exchange for the Premium Dividend™, resulting in a cash amount equal to 102% of the reinvested dividend.
The first transaction under each component will result in the receipt of a taxable dividend on your existing shares equal to the amount of the dividend, which in turn will be used to purchase new shares under the second transaction.
Registered Shareholders: In fiscal 2012, the third transaction will be reported by Valiant to registered shareholders on a T5008 Statement of Securities Transactions which will provide shareholders with the ability to choose between reporting this as “other income” or as “proceeds of disposition” under the Premium Dividend™ component of the Plan according to the shareholder’s own unique situation.
Beneficial Shareholders: The third transaction will be reported by brokers to their clients in accordance to the advice of their tax advisors. In most cases, brokerages have elected to report the proceeds of the third transaction as other income.
Canadian shareholders that have elected their shares (including the new shares purchased with the cash from the dividend) as capital property, would generally realize a capital gain or loss on the sale of the new shares under the third transaction under the Premium Dividend™ component equal to the amount by which the proceeds of disposition are greater (or less) than your average adjusted cost base of the shares sold. In this case, the average adjusted cost base of the shares sold at any time will be the average cost of all shares owned by you at that time, including those purchased with the cash from dividends under the Plan.
You are urged to consult your own tax advisors concerning the implications of your participation in the Plan having regard to your particular circumstances.
It is expected that all 2012 dividends declared and paid by Parkland will be 100% taxable and included in income as a Qualifying Dividend for United States Federal tax purposes.
Where the holder is a United States resident entitled to benefits under the Canada-U.S. Tax Treaty and is the beneficial owner of the shares, the rate of Canadian withholding tax applicable to dividends is generally reduced to 15%. U.S. taxpayers may be eligible for a foreign tax credit with respect to the Canadian withholding taxes paid. Information regarding the amount of Canadian tax withheld in 2011 should be available through your broker or other intermediary and cannot be provided directly by Parkland.
Valiant Trust, as Parkland's transfer agent, is required to withhold the 15% non-resident withholding tax on all dividends paid to US residents. However, US investors who hold their shares in an IRA may be entitled to a refund, and should check with their US tax advisor. In the event that you are eligible, you will have to complete form NR7-R with the help of your tax advisor and submit it to the Canada Revenue Agency.
Dividends paid to a non-resident holder of Parkland common shares will be subject to Canadian withholding tax at the rate of 25% prescribed by the Tax Act unless the rate is reduced under the provisions of a tax treaty between Canada and a non-resident holder's jurisdiction of residence.
Shareholders who are not residents of Canada for income tax purposes are encouraged to seek advice from a qualified tax advisor in the country of residence for the tax treatment of dividends. Investors should consult their brokers and tax advisors to ensure that the information presented here is accurately reflected on their tax returns.
Important Changes Relating to Non-Resident Withholding Tax
Effective April 19, 2011 the Canada Revenue Agency ("CRA") issued three new forms to assist Canadian payers in determining whether it is appropriate to apply a reduced rate of Part XIII withholding tax on payments made to non-residents.
The three new forms are as follows:
In early December 2011, Valiant took the initiative to: analyze its security holder database to determine which accounts would be impacted by the changes; sent out the applicable forms to these registered holders that did not meet the list of exceptions; and effective January 1, 2012 applied any applicable reduced rate of withholding tax upon return of the duly completed forms.
Going forward Valiant will send the new forms to all new foreign registered security holders that are affected by the changes (i.e. excluding those that the CRA consider as exceptions) and will apply the reduced rate of withholding tax applicable to the country of residence upon return of any duly completed forms to us.
Valiant’s bulletin on the matter can be found at: https://maxweb.cwt.ca/images/valiant/jan2012/article3.pdf
Recently, the CRA has extended the transitional period for acquiring the documentation supporting a reduced rate of non-resident withholding tax to December 31, 2012.
Registered non-Canadian resident shareholders whose names appear on the records of Valiant, Parkland's registrar and transfer agent, will receive a form directly from Valiant requesting information to confirm that they are eligible for tax treaty benefits. Failure to return a completed form to Valiant will result in Valiant withholding tax at the statutory rate of 25% on any payments to registered non-Canadian resident shareholders.
Non-registered, non-Canadian resident shareholders' eligibility for any applicable Reduced Treaty Rate will be determined by each such shareholder's broker and not by Parkland or Valiant. Non-registered shares are generally held in a brokerage account and are thus registered in the name of the investor's broker or a depositary. Certain brokers may require additional information or certifications in order to determine a non-registered non-Canadian resident shareholder's eligibility for any applicable Reduced Treaty Rate. Non-registered, non-Canadian resident shareholders are encouraged to contact their brokers or other tax, legal or financial advisors in the event that they have any questions or concerns in this regard.
Parkland encourages shareholders to seek advice from their respective broker or tax, legal or financial advisor for additional information relating to the status of their residency for tax purposes.
Adjusted Cost Base ("ACB") Reduction
Although Fund Units of Parkland Income Fund and Class B and Class C Units of Parkland Holdings Limited Partnership were converted to common shares of Parkland Fuel Corporation at the beginning of 2011, the “Adjusted Cost Base” section is presented for historical purposes. The Adjusted Cost Base is used in calculating capital gains or losses on the disposition of Trust Units held as capital property by a Unitholder as set out in forms that can be found in the Canadian Tax Forms section, the ACB of each Trust Unit is reduced by the portion of distributions received, which is not reported on the T3 slip (commonly referred to as a “Return of Capital”). If a taxpayer’s ACB is less than zero, the negative amount is deemed to be the taxpayer’s capital gain and the ACB is deemed to be nil. The capital gain must be reported on your income tax return in the year it is realized.