The following information is intended to assist United States of America individual holders of trust units (“U.S. Individual Unitholder”) of Peak Energy Services Trust (“Peak” or the “Trust”) in reporting distributions received from the Trust during 2007 on their Internal Revenue Service (“IRS”) Form 1040, “U.S. Individual Income Tax Return” (“Form 1040”).

 

 

 

Peak believes that its trust units should be classified as equity in a corporation, rather than debt, and that dividends paid to U.S. Individual Unitholders should be “qualified dividends” for U.S. federal income tax purposes. As such, the portion of the distributions made during 2007 that are considered dividends for U.S. federal income tax purposes should qualify for the reduced rate of tax applicable to long-term capital gains. However, the U.S. Individual Unitholder’s situation must be considered before making this determination.

 

 

 

No amounts are required to be reported on Form 1040 for Trust units held within a qualified retirement plan.

 

 

The portion of the distributions treated as “qualified dividends” should be reported on Line 9b of Form 1040, unless the fact situation of the U.S. Individual Unitholder determines otherwise. Commentary on page 19 of the Form 1040 Instruction Booklet for 2007 with respect to “qualified dividends” provides examples of individual situations where the dividends would not be “qualified dividends”. Where, due to individual situations, the dividends are not “qualified dividends”, the amount should be reported  on Schedule B – Part II – Ordinary Dividends and Line 9a of Form 1040.

For U.S. federal income tax purposes, in reporting a return of capital with respect to distributions received, U.S. Individual Unitholders are required to reduce the cost base of their Trust units by the total amount of distributions received that represent a return of capital. This amount is non-taxable if it is a return of cost base in the Trust units. A return of capital for U.S. income tax purposes is calculated differently than for Canadian income tax purposes. For U.S. income tax purposes, a return of capital occurs only after all the current and accumulated earnings and profits of a corporation have been distributed. If the full amount of the cost base has been recovered, any further distribution deemed a return of capital should be reported as a capital gain.

 

U.S. Individual Unitholders are encouraged to utilize the Qualified Dividends and Capital Gain Tax Worksheet of Form 1040 to determine the amount of tax that may be otherwise applicable.

 

With respect to distributions paid during 2007 to U.S. Individual Unitholders, 100.00 percent should be reported as “qualified dividends” and 0.00 percent should be reported as a return of capital (to the extent of the Unitholder’s U.S. tax basis in their respective units). The following schedule details the distributions paid in 2007 and the tax treatment of each distribution per Trust unit for income tax purposes, in Canadian dollars:

 

 

The taxable portion (for Canadian income tax purposes) of the distributions is subject to a minimum 15 percent Canadian withholding tax that is withheld prior to any payments being distributed to Unitholders that are non-residents of Canada. For Trust units held in a cash account, we believe the full amount of all withholding tax should be creditable, subject to numerous limitations, for U.S. income tax purposes in the year in which the withholding tax is withheld. Where Trust units are held in qualified retirement account, the same withholding tax applies but the amount is not creditable for U.S. income tax purposes.

 

The amount of Canadian withholding tax withheld should be reported on Form 1116, “Foreign Tax Credit (Individual, Estate, or Trust)”. Information regarding the amount of Canadian withholding tax withheld in 2007 should be determined from your own records as Peak is not able to provide this information. Amounts over withheld by Canada, if any, should be claimed as a refund from the Canada Revenue Agency no later than two years after the calendar year in which the payment was paid.

U.S. Individual Unitholders should report their dividend income and capital gain (if any), and make adjustments to their tax basis in Trust units, in accordance with this information and subject to advice from their legal and tax advisors. U.S. Individual Unitholders who hold their Trust units through an investment broker or other intermediary should receive tax reporting information from their investment broker or other intermediary. We expect that the investment broker or other intermediary will issue a Form 1099–DIV, “Dividends and Distributions” or a substitute form developed by the investment broker or other intermediary. The Trust is not required to furnish such Unitholders with Form 1099-DIV. Information on the Form 1099-DIV issued by the investment broker or other intermediary may not accurately reflect the information in this press release for a variety of reasons. U.S Individual Unitholders should consult their investment broker, legal and tax advisors to ensure that the information presented here is accurately reflected on their tax returns. Investment brokers and/or intermediaries may or may not be required to issue amended Forms 1099-DIV.