Paramount Energy Trust

Paramount Energy Trust

March 01, 2005 10:56 ET

Paramount Energy Trust Advises on 2004 U.S. Income Tax Reporting




MARCH 1, 2005 - 10:56 ET

Paramount Energy Trust Advises on 2004 U.S. Income Tax

CALGARY, ALBERTA--(CCNMatthews - March 1, 2005) - The following
information is being provided to assist individual U.S. Unitholders of
Paramount Energy Trust (TSX:PMT.UN) (TSX:PMT.DB) ("PET") who hold their
Units through a broker or other intermediary in reporting distributions
received from PET on their IRS Form 1040 - U.S. Individual Income Tax
Return for the calendar year 2004.

The information contained herein is of a general nature only and not
exhaustive of all possible U.S. tax considerations. It is not intended
to constitute legal or tax advice to any holder or potential holder of
PET Units. Readers should consult their own legal or tax advisors as to
their particular tax consequences of holding PET Units. PET has not
obtained a legal or tax opinion, nor has it requested a ruling from the
IRS, on these matters.

Paramount Energy Trust Units Within a Qualified Retirement Plan

No amounts are required to be reported on an IRS Form 1040 - U.S.
Individual Income Tax Return if PET Trust Units are held within a
qualified retirement plan.

Paramount Energy Trust Units Held Outside a Qualified Retirement Plan

The table below summarizes the taxability of distributions paid in 2004.

In consultation with its U.S. tax advisors, PET believes that it should
be treated as a corporation and its units as equity under U.S. tax law.
Therefore, a portion of the trust's distributions paid during the year
should be considered dividends for U.S. federal income tax purposes. The
dividend component is based on PET's current and accumulated earnings
and profits determined in accordance with U.S. income tax principles.
PET has determined that 82.39% of the distributions paid during 2004
should be reported as dividends and the remaining 17.61% as tax-deferred
return of capital (and possibly a capital gain if this portion of the
distribution exceeds your tax basis in the Units).

PET believes that the dividend portion of the 2004 distributions should
be considered "Qualified Dividends" under the Jobs and Growth Tax Relief
Reconciliation Act of 2003. Such Qualified Dividends should be eligible
for the reduced tax rate applicable to long-term capital gains and
should be reported on line 9(b) of the Federal income tax return. There
are certain individual circumstances, as provided on page 20 of the IRS
2004 Form 1040 Instruction Booklet, where the dividends may not be
Qualified Dividends (such as in situations where the individual
Unitholder does not meeting a holding period test). Where these
circumstances apply, they are to be reported as Ordinary Dividends on
Schedule B - Part II and line 9(a) of the Federal income tax return.

It has come to PET's attention that a database established on behalf a
number of U.S. brokerage firms in the U.S. may not recognize PET - and
many other foreign entities that do not issue common shares - as
"qualified foreign corporations". Accordingly, U.S. brokerage firms and
other intermediaries may report a portion (or perhaps all) of the trust
distributions received in 2004 as ordinary dividends. The U.S. Internal
Revenue Service has provided guidance that they contemplate there will
be situations where intermediaries may be required to report
distributions as ordinary dividends on Form 1099-DIV although the US
taxpayer may be entitled to (and, therefore, should) report the
distributions as a qualified dividend. Likewise, they are also aware
that there may be situations where the intermediaries report
distributions as qualified dividends although the taxpayer knows they
are not. In light of these potential differences, we have been advised
by our U.S. tax advisors that the Form 1099-DIV reporting does not
control how the taxpayer is entitled to report distributions.

Subject to advice from your legal and tax advisors, we recommend that
you reference this press release as support for your treatment of the
2004 distributions from PET. Furthermore, Unitholders may also wish to
obtain a copy of a letter issued by KPMG LLP entitled "U.S. Investors in
Canadian Income Trusts - Do Your Dividends Qualify for Low U.S. Tax
Rate". A copy of the KPMG letter will be available at PET's website
under "Unitholder Information/Tax Information", then click "Tax
Information - U.S. Residents".

The table below also summarizes the portion of distributions paid during
2004 that represent a return of capital. This amount is generally
non-taxable if it is a return of your cost (or other basis) in the Trust
Units. You must reduce your cost (or other basis) by this amount to
calculate the capital gain or loss when Units are sold. If this amount
exceeds your cost (or other basis) the excess must be reported as a
capital gain.

Unitholders are encouraged to utilize the Qualified Dividends and
Capital Gain Worksheet to determine the amount of tax that may otherwise
be applicable.

Canadian withholding taxes that have been withheld from your
distributions should be reported on Form 1116 "Foreign Tax Credit
(Individual, Estate or Trust)". Information regarding the amount of
Canadian tax withheld from 2004 distributions should be available
through your broker or other intermediary and is not available from PET.
Amounts over withheld from Canada should be claimed as a refund from the
Canada Revenue Agency no later than two years after the calendar year in
which the distributions were paid and should not be claimed as a
deduction or credit against your U.S. tax liability.

U.S. individual Unitholders who hold their PET Units through a broker or
other intermediary will normally receive a Form 1099-DIV (or similar
form) from their broker or other intermediary providing tax reporting
information in respect of trust distributions received during the year.
PET is not required to file Form 1099-DIV and is providing this
information in lieu of that requirement. As mentioned above, U.S.
Unitholders could receive a Form 1099-DIV from a broker or intermediary
that may not reflect the correct classification of the distributions. As
a result, U.S. Unitholders should report their dividend income, capital
gain (if any) and adjust the tax basis of their PET Units in accordance
with this press release. U.S. Unitholders should consult their brokers
and/or tax advisors to ensure that this information is accurately
reflected on their tax returns.

2004 Summary of U.S. Tax Information

The following schedule summarizes, on a per Unit basis, the U.S. tax
treatment of monthly cash distributions paid by PET (prior to Canadian
withholding tax) for the period January 1st to December 31st, 2004. The
amounts are segregated between the portion of the distribution that
would be reported as a qualified dividend and the amount reported as a
tax-deferred return of capital. The amounts are expressed in $ U.S.
converted on the date of payment.

Cash Cash Qualified of
Record Payment Distribution Conversion Distribution Dividend Capital
Date Date ($Cdn) Rate (1) ($U.S.) ($U.S.) ($U.S.)
Dec 31 Jan 15
2003 2004 0.20 0.7705 0.154 0.127 0.027
Jan 30 Feb 16
2004 2004 0.20 0.7606 0.152 0.125 0.027
Feb 27 Mar 15
2004 2004 0.16 0.7505 0.120 0.099 0.021
Mar 31 Apr 15
2004 2004 0.16 0.7423 0.119 0.098 0.021
Apr 30 May 17
2004 2004 0.16 0.7220 0.115 0.095 0.020
May 28 Jun 15
2004 2004 0.16 0.7305 0.117 0.096 0.021
Jun 30 Jul 15
2004 2004 0.16 0.7556 0.121 0.100 0.021
Jul 30 Aug 16
2004 2004 0.18 0.7648 0.137 0.113 0.024
Aug 31 Sep 15
2004 2004 0.20 0.7699 0.154 0.127 0.027
Sep 30 Oct 15
2004 2004 0.20 0.7988 0.160 0.132 0.028
Oct 30 Nov 15
2004 2004 0.20 0.8312 0.166 0.137 0.029
Nov 30 Dec 15
2004 2004 0.20 0.8177 0.164 0.135 0.029
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TOTAL 2.18 1.679 1.384 0.295
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(1) Bank of Canada noon rate on date of payment

About PET

Paramount Energy Trust is a natural gas-focussed Canadian energy trust.
PET's Trust Units and Convertible Debentures are listed on the Toronto
Stock Exchange under the symbol "PMT.UN" and "PMT.DB", respectively.

Forward-looking Information

This news release contains forward-looking information. Implicit in this
information, particularly in respect of cash distributions, are
assumptions regarding natural gas prices, production, royalties and
expenses which, although considered reasonable by PET at the time of
preparation, may prove to be incorrect. These forward-looking statements
are based on certain assumptions that involve a number of risks and
uncertainties and are not guarantees of future performance. Actual
results could differ materially as a result of changes in PET's plans,
changes in commodity prices, general economic, market, regulatory and
business conditions as well as production, development and operating
performance and other risks associated with oil and gas operations.
There is no guarantee by PET that actual results achieved will be the
same as those forecast herein.


Contact Information

    Paramount Energy Trust
    Susan L. Riddell Rose
    President and Chief Operating Officer
    (403) 269-4400
    Paramount Energy Trust
    Cameron R. Sebastian
    Vice President, Finance and Chief Financial Officer
    (403) 269-4400
    Paramount Energy Trust
    Gary C. Jackson
    Vice President, Land, Legal and Acquisitions
    (403) 269-4400
    Paramount Energy Trust
    Sue Showers
    Investor Relations & Communications Coordinator
    (403) 269-4400
    (403) 269-6336 (FAX)
    Paramount Energy Operating Corp,
    administrator of Paramount Energy Trust
    Suite 500, 630 - 4 Avenue SW, Calgary, AB T2P 0J9
    The Toronto Stock Exchange has neither approved nor disapproved the
    information contained herein.