2010 Tax Year

Pengrowth reports that distributions paid in Canada during the 2010 calendar year were 100 percent taxable. The Cdn $0.07 per unit payment made on January 17, 2011 to holders of record on December 31, 2010 was the final distribution paid by Pengrowth Energy Trust. This payment will also be included on the 2010 T3 in Box (26), “Other income”.

Canadian beneficial unitholders who received distributions outside of an RRSP, RRIF or DPSP should receive a T3 Supplementary slip from their brokerage or intermediary.  Canadian registered unitholders will receive a T3 Supplementary slip from Computershare Trust Company of Canada. The deadline for issuance of T3 Supplementary slips is March 31, 2011. A copy of the 2010 Canadian Tax Letter can be found below. Please refer questions regarding the T3 slips directly to your brokerage. dd 

  2010 CANADIAN TAXATION LETTER  

Eligible Dividends for Canadian Tax Purposes

Pengrowth Energy Corporation hereby advises all shareholders that, effective from January 1, 2011, all dividends paid on its common shares will be designated as “eligible dividends” for Canadian income tax purposes. This designation will apply until a notification of a change is posted on this website.

If you have any questions regarding the taxation of eligible dividends, please contact your Canadian tax advisor or your local office of the Canada Revenue Agency.

• Please refer all historical K-1 inquiries for the taxation periods prior to July 2009 to Pengrowth’s K-1 toll free hotline at 1-877-527-6387. 
• Please refer ALL taxation questions for taxation periods after July 2009 regarding the 1099-DIV to your brokerage or intermediary.  Pengrowth does not produce the 1099-DIV and cannot answer questions regarding the 1099 forms.

U.S. Taxation, Regulation 1.6045B.1 

2010 Taxation Year

Pengrowth understands that each payment in 2010 will be a qualified dividend.  The tax information will come in the form of 1099-DIVs which will be sent by the brokerage, bank or other intermediary where the shares are held. Computershare will send the 1099-DIV forms to all U.S. resident registered shareholders. 

Withholding Tax

The 15 percent withholding tax is part of a reciprocal tax treaty between Canada and the US.  When dividends or distributions cross the border, the Canadian government takes a 15 percent withholding.  Conversely, when a U.S. company pays a dividend or distribution to a Canadian resident, the US government also takes a 15 percent withholding tax. Due to Pengrowth's recent conversion from an income trust to a corporation, beginning with the February 15, 2011 payment, there will no longer be withholding tax deducted from IRAs or other non-taxable retirement accounts.

Unfortunately, the tax still applies to investments held in regular taxable accounts.   

Pengrowth believes traditional IRAs are Canadian withholding tax exempt.  However, since different forms of IRAs exist, the CRA has stated that where the IRAs are operated exclusively to administer or provide pension, retirement or employee benefits, Article XXI(2) can be used to exempt the IRA from Canadian taxation.  However, where the IRA does not exclusively provide retirement benefits, such as IRAs  used as to fund medical costs (i.e. MSAs), and education (i.e. Coverdell ESAs) the current position of the CRA is that Article XXI(2) cannot be used to exempt the IRA from Canadian taxation. 

2010

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If you were a Monterey shareholder and elected to receive Pengrowth Trust Units, you may be subject to having to pay tax on any capital gains and losses associated with this transaction in addition to income tax on your Pengrowth Energy Trust Units.   Please discuss this with your tax advisor.

If you elected to receive exchangeable shares, you should send two copies of your completed T2057 forms to Pengrowth for signature.  You will have to file the T2057 forms with CRA in order to defer the tax on the transfer of Monterey shares into Pengrowth units.    Please send your completed T2057 forms to Pengrowth by January 13, 2011 for execution.

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If you owned exchangeable shares in 2010, please refer to your tax advisor for additional information.