Taxability

Canadian Individual Unitholders

For the 2009 taxation year, the treatment of distributions is 100% return on capital (taxable income).

For purposes of the Canadian Income Tax Act, the Trust is a mutual fund trust.  Each year, an income tax return is filed by the Trust with the taxable income allocated to and taxable in the hands of unitholders.  Distributions paid by the Trust can be both a return of capital (i.e. a repayment of a portion of the investment) and a return on capital (i.e. income). 

Each year the taxable income portion or return on capital, is calculated and reported in the Trust's T3 return and allocated to each unitholder who received distributions for that taxation year and reported in Box 26 ‘Other income' on the T3 Supplementary forms, which are mailed to unitholders before March 31^st in accordance with regulatory requirements. Registered unitholders will receive a T3 Supplementary form directly from the Trust's transfer agent, Computershare Trust Company of Canada.  Beneficial unitholders will receive a T3 Supplementary form from their broker or other intermediary.  The T3 slip will report both the taxable and non-taxable income components of their distributions.  The tax deferred, or return of capital component of distributions which is reported in Box 42 "Amount Resulting in Cost Base Adjustment" reduces the unitholder's adjusted cost base of trust units.

Unitholders who hold their investment in a Registered Retirement Savings Plan, Registered Retirement Income Fund, Deferred Profit Sharing Plan, Registered Education Savings Plan or any other types of registered plans need not report any income related to trust unit distributions on their 2009 income tax return.

The following table sets out the allocation of the Canadian 2009 monthly distributions:

Payment Date	Record Date	Total Distribution	Tax Deferred Amount	Taxable Amount (Income)
Feb 16/09	Jan 30/09	0.19000	0.00000	0.19000
Mar 16/09	Feb 27/09	0.19000	0.00000	0.19000
Apr 15/09	Mar 31/09	0.19000	0.00000	0.19000
May 15/09	Apr 30/09	0.19000	0.00000	0.19000
Jun 15/09	May 29/09	0.19000	0.00000	0.19000
Jul 15/09	Jun 30/09	0.19000	0.00000	0.19000
Aug 17/09	Jul 31/09	0.19000	0.00000	0.19000
Sep 15/09	Aug 31/09	0.19000	0.00000	0.19000
Oct 15/09	Sep 30/09	0.19000	0.00000	0.19000
Nov 16/09	Oct 30/09	0.19000	0.00000	0.19000
Dec 15/09	Nov 30/09	0.19000	0.00000	0.19000
Jan 15/10	Dec 31/09	0.19000	0.00000	0.19000
		2.28000		2.28000

United States Individual Unitholders

We believe the Trust should be treated as a qualified corporation and the units are equity for United States tax purposes. The Trust has calculated that 94.75% of the distributions paid in 2009 are dividends that are "Qualifying Dividends".  The remaining 5.25% of the 2009 distributions are a tax-deferred reduction to the cost of units for tax purposes.  If the amount of "Non-Taxable Return of Capital" exceeds the cost of units, the excess should be reported as a capital gain.  The taxability of distributions for US purposes is calculated using U.S. tax rules.  The taxable portion of the monthly distribution is determined annually by the Trust based upon 2009 current and accumulated earnings in accordance with U.S. tax law. 

Unitholders 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 distributions.  Monthly distributions payable to non-residents of Canada are normally subject to a withholding tax of 25% as prescribed by the Income Tax Act of Canada.  This withholding tax may be reduced in accordance with reciprocal tax treaties, and in the case of the Tax Treaty between Canada and the United States, the withholding tax for residents of the United States is prescribed at 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 2009 should be available through your broker or other intermediary and is not provided by Vermilion.

Investors should consult their brokers and tax advisors to ensure that the information presented here is accurately reflected on their tax returns.

Summary

The information is not meant to be an exhaustive discussion of all possible income tax considerations, but a general guideline and is not intended to be legal or tax advice to any particular holder or potential holder of Vermilion trust units. Holders or potential holders of trust units should consult their own income tax advisors as to the particular income tax consequences of holding the trust units.

Adjusted Cost Base ("ACB") Reduction

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 the Tax History section, the ACB of each Trust Unit is reduced by the portion of distributions received, which is not reported on the T3 slip. If a taxpayer's ACB is less than zero, the negative amount is deemed the individual's capital gain, and the ACB is deemed to be nil. The capital gain must be reported on Schedule 3 of your T1 return.