|Tax Info – 2012 Distribution|
TAX INFORMATION WITH RESPECT TO PAN ORIENT'S 2012 RETURN OF CAPITAL
This summary is of a general nature only and is not intended to be legal or tax advice to any particular holder or potential holder ("Shareholders") of common shares ("Shares") of Pan Orient Energy Corp. ("Pan Orient").
Shareholders should consult their own legal and tax advisors as to the tax consequences of the reorganization (the "Reorganization") described in the Notice of Meeting and Management Information Circular dated July 23, 2012. See "Certain Canadian Federal Income Tax Considerations" on pages 12 to 15 of such Management Information Circular for more information respecting the Canadian Federal income tax consequences of the Reorganization. The Management Information Circular is available under Pan Orient's issuer profile on the System for Electronic Document Analysis and Retrieval (www.sedar.com), at:
On June 15, 2012, Pan Orient Energy Corp. completed the sale of a portion of its Thailand assets (the "Thailand Sale"). Following completion of the Thailand Sale, Pan Orient announced on June 25, 2012 that it planned to pay a $0.75 per Share special distribution to Shareholders, subject to Shareholder and regulatory approval. This required the Reorganization, which was approved by Pan Orient's Shareholders at a meeting held on August 20, 2012.
The Reorganization comprised a $0.75 per share reduction of Pan Orient's stated capital, a return of that stated capital (the "Return of Capital") to Pan Orient's shareholders, an exchange (the "Share Exchange") of Pan Orient's then issued and outstanding Shares (the "Old Shares") for a new class of common shares (the "New Shares"), and other transactions contemplated by the Amendment of Articles approved and filed in connection with the Reorganization.
Tax Consequences of the Reorganization
For an Old Share held on the August 30, 2012 record date, a Shareholder received $0.75 as a return of capital upon exchange of such Old Share for one New Share.
Canadian Resident Shareholders
Generally speaking, and provided that at the relevant time an Old Share was held as capital property by a Shareholder resident in Canada (a "Resident Shareholder") who was not a financial institution and interests in which were not "tax shelter investments", the Return of Capital with respect to such Share:
A Resident Shareholder's aggregate adjusted cost base of the Old Shares immediately before the Share Exchange will become the aggregate adjusted cost base to such Shareholder of the New Shares received, less the amount of the Return of Capital. If the amount so required to be deducted from the adjusted cost base of the New Shares exceeds the adjusted cost base of the Old Shares to such Shareholder, the excess will be deemed to be a capital gain from a disposition of New Shares. A capital gain realized by a Resident Shareholder who is an individual may give rise to a liability for minimum tax. A Resident Shareholder that is throughout the year a Canadian-controlled private corporation may be liable to pay an additional refundable tax of 6 2/3% on certain investment income, including taxable capital gains.
Generally speaking, and provided that at the relevant time an Old Share is held as capital property by a Shareholder who is not resident in Canada (a "Non-Resident Shareholder"), the Return of Capital with respect to such Share:
A Non-Resident Shareholder's aggregate adjusted cost base of the Old Shares immediately before the Share Exchange will become the aggregate adjusted cost base to such Shareholder of the New Shares received, less the amount of the Return of Capital. If the amount so required to be deducted from the adjusted cost base of the New Shares exceeds the adjusted cost base of the Old Shares to such Shareholder, the excess will be deemed to be a capital gain from a disposition of New Shares.
A Non-Resident Shareholder will not be subject to Canadian income tax on any capital gain realized on any deemed disposition of New Shares that results from the Return of Capital unless such New Shares constitute "taxable Canadian property" to the Non-Resident Shareholder. Provided the New Shares are listed on a "designated stock exchange" (as defined in the Tax Act and which currently includes the Toronto Stock Exchange) at the time of the Return of Capital, the Shares generally will not be taxable Canadian property to the Non-Resident Shareholder unless:
Where New Shares represent taxable Canadian property to a Non-Resident Shareholder, any capital gains realized on any deemed disposition of the Shares resulting from the Return of Capital will be subject to taxation in Canada, except as otherwise provided in any tax treaty between Canada and the country in which the Non-Resident Shareholder is resident.
February 25, 2013