Canadian Oil Sands Trust >>

Where Participants elect to accumulate additional Units under the distribution reinvestment plan, the Participants reinvest their distributions in additional Units at 95% of the Average Market Price. (See Canadian Oil Sands Trust's premium distribution, distribution reinvestment and optional unit purchase plan (“DRIP”) for a description of the plan.)

The Canada Revenue Agency (the "CRA") generally takes the position that under a DRIP where the fair market value of the Units acquired exceeds the purchase price, that the difference is a benefit and must be included in the Participant's income for tax purposes. The cost of the Units acquired under the DRIP is the amount reinvested plus the amount of the benefit. The units acquired under the DRIP must be averaged with the cost of all other Units the Participant holds for the purpose of determining the adjusted cost base of all the Participant's Units. Capital gains or losses arising on a disposition of the Participant's Units will be measured by reference to the adjusted cost base of all the Participant's Units.

Electing the premium distribution option

Where Participants elect to receive the Premium Distribution under the DRIP, the Agent will pre-sell, through the Plan Broker the number of Units to be purchased through the DRIP and such Participants, subject to proration, will receive a Premium Distribution in an amount up to 102% of the distribution that such Participants would have otherwise been entitled to receive on that distribution date (as fully described in the Canadian Oil Sands Trust's premium distribution, distribution reinvestment and optional unit purchase plan).

Under the current assessing policies of the CRA, a Participant in the Premium Distribution is required to include in computing income any benefit and must also account for any gain or loss on the units sold on his or her behalf through the Premium Distribution DRIP.

The benefit is equal to the amount by which the closing price of Units acquired under the premium DRIP exceeds the cost of such Units. The Benefit enjoyed pursuant to the participation in the DRIP may not be reported by the Trust on a Unitholder's T-3; however, a Participant will be required to report such Benefit when preparing his or her tax return for the year in which the Units were acquired.

In addition to including the Benefit in income the Participant is also required to compute the profit (or loss) from the sale of the Units. However, as the amount of benefit is added to the cost of the units sold, the cost will generally equal the proceeds and no further gain or loss will result.

For example for a holder with 10,000 units the net effect of the sale of Premium DRIP on income account would be:

Profit (or loss) = Sale price – Cost of Units Acquired under the DRIP
                        = (102% x distribution) – (Cost of Units)
                        = (1.02% x $0.30 x 10,000) - $3,000)
                        = $3,100 – $3,000

Total Income = $100

Although a Participant may hold existing Units as capital property, Units sold pursuant to the Premium Distribution option of the DRIP will generally constitute inventory. In circumstances where a Unitholder is considered to hold the Units acquired under the Premium DRIP as capital property, the calculations required are more complex as the holder must average the cost of the units acquired with the cost of all other units held. Unitholders should consult their own tax advisors with respect to such calculations.

For the Average Market Price, Discounted Price and Closing Price for each distribution payment, please see DRIP and Optional Cash Unit Prices.

THE FOREGOING INFORMATION IS FOR ILLUSTRATIVE PURPOSES ONLY AND THERE CAN BE NO ASSURANCE THAT THE ABOVE ILLUSTRATIONS WILL APPLY TO THE PARTICIPANT'S PARTICULAR CIRCUMSTANCES. PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES.