The following information is general in nature and is not meant to be an exhaustive discussion of all possible income tax considerations. This information should not be construed as legal or tax advice to any particular shareholder. Holders or potential holders of common shares of Vermilion should consult their own income tax advisors as to the particular income tax consequences of holding Vermilion common shares.
Following Vermilion’s conversion to a corporation which was effective September 1, 2010, all dividends declared and paid to Canadian Resident Individual Shareholders have been designated as eligible dividends for purposes of the Canadian Income Tax Act ("Tax Act"). As such, Canadian Resident Individual Shareholders are entitled to the enhanced dividend tax credit normally applicable to eligible dividends received from a taxable Canadian corporation.
Dividends received during the taxation year should be included in calculating taxable income. A T5 – Statement of Investment Income, which discloses the taxable amount of dividends, is issued to shareholders on or before the last day of February following the calendar year in which the dividends were paid. Registered shareholders who receive the dividend through Vermilion’s transfer agent, Computershare Trust Company of Canada (“Computershare”) should receive a T5 slip directly from Computershare. Beneficial owners should receive a T5 slip from their broker, investment dealer, financial institution, or other nominee (collectively referred to as the “Financial Institution”) as applicable.
Canadian resident individual shareholders who hold Vermilion 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 dividend income related to those shares on their income tax return.
Following Vermilion’s conversion to a corporation which was effective September 1, 2010, all dividends declared and paid by Vermilion are generally considered to be 100% taxable. Where the holder of Vermilion common shares is a United States shareholder, all dividends received from Vermilion are generally expected to be reflected in income as a Qualified Dividend for United States Federal income tax purposes. Please note that there are certain individual circumstances where the dividends may not be a Qualified Dividend.
Beneficial United States shareholders that hold their shares through a Financial Institution that is not resident in Canada (e.g. a U.S.-based brokerage house) should receive a Form 1099-DIV - Dividends and Distributions from the respective intermediary. Form 1099-DIV indicates the amount of the dividends paid in the calendar year as well as the foreign taxes paid. The amounts will be in U.S. dollars and do not need to be converted.
Shareholders who are not residents of Canada for income tax purposes are strongly encouraged to seek advice from a qualified tax advisor in the country of residence for the tax treatment of dividends received from a Canadian corporation. Dividends paid to a Non-Canadian Resident Individual Shareholder of Vermilion common shares will be subject to Canadian withholding tax at the rate of 25% as prescribed by the Tax Act unless the rate is reduced under the provisions of a tax treaty between Canada and a non-Canadian resident holder's jurisdiction of residence.
In 2011 the Canada Revenue Agency ("CRA") introduced new forms (the "Forms") to be completed by non-Canadian resident shareholders that reside in countries with which Canada has a tax treaty to certify that they are eligible for treaty benefits in that country in order to continue to have non-resident tax withheld at the reduced tax rate specified by the applicable tax treaty (the "Reduced Treaty Rate"). Income tax treaties between Canada and foreign countries generally provide for a lower rate of withholding tax to be deducted from various kinds of income payments to non-residents of Canada, including dividends.
Effective January 1, 2013, CRA has instructed Vermilion's paying agent, Computershare Trust Company of Canada ("Computershare"), subject to receiving the appropriate completed Form, to begin withholding tax at a statutory rate of 25% from all applicable payments or credits to non-Canadian resident shareholders.
Registered, non-Canadian resident shareholders whose names appear on the records of Computershare, Vermilion's registrar and transfer agent, will receive a form directly from Computershare requesting information to confirm that they are eligible for tax treaty benefits. Failure to return a completed form to Computershare will result in Computershare 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 Financial Institution and not by Vermilion or Computershare. Non-registered shares are generally held in an account managed by the holders Financial Institution and are thus registered in the name of the Financial Institution or a depositary. Certain Financial Institutions 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 Financial Institution or other tax, legal or financial advisors in the event that they have any questions or concerns in this regard.
Where the holder is a United States shareholder (for whom eligibility for benefits under the Canada-U.S. Tax Treaty has been appropriately documented in accordance with the requirements of the CRA noted above) and the beneficial owner of the dividends, the rate of Canadian withholding tax applicable to dividends is generally reduced to 15%. U.S. taxpayers may be further eligible for a foreign tax credit with respect to the Canadian withholding taxes paid. Information regarding the amount of Canadian tax withheld should be available through your Financial Institution or other intermediary and cannot be provided directly by Vermilion.
Registered United States shareholders should receive an NR4 – Statement of Amounts Paid or Credited to Non-Residents of Canada from Computershare prior to, or at, the end of March following the calendar year in which dividends are paid. Beneficial United States shareholders that hold their shares through a Financial Institution that is resident in Canada should receive an NR4 slip prior to, or at, the end of March following the calendar year in which dividends are paid from the respective intermediary. The NR4 indicates the amount of dividends paid in the calendar year and the Canadian tax withheld. These amounts are in Canadian dollars and need to be converted to U.S. dollars at an appropriate exchange rate.