TAX ELECTION FILING PACKAGE

Transcription

1 TAX ELECTION FILING PACKAGE FOR ELIGIBLE HOLDERS OF COMMON SHARES OF LITHIUM ONE INC. For further information, please contact Martin R. Gagné, Legal counsel At (418) Or Kimberley Okell, Legal counsel At (418) LITHIUM ONE INC. GALAXY LITHIUM ONE INC.

2 CAUTION TO ELIGIBLE HOLDERS OF COMMON SHARES LITHIUM ONE INC. ( LITHIUM ONE ) The instructions contained in this Tax Election Filing Package are of a general nature only and are not intended to be, and should not be construed to be, legal, business or tax advice to any particular exchanging Lithium One Shareholder. This Tax Election Filing Package does not take into account your particular circumstances and does not address consequences that may be particular to you. All capitalized terms in this section have the meaning ascribed to them in this Tax Election Filing Package. The law in this area is complex and contains numerous technical requirements. Exchanging Lithium One Shareholders are urged to consult their own tax advisors for advice in respect of: whether or not they are Eligible Holders; whether or not they should make the Joint Tax Election ( or any relevant provincial or territorial election); whether or not separate election forms must be filed with any provincial or territorial tax authority; the proper completion, delivery and filing of the CRA Forms T2057/T2058 (the Federal Form )(and any relevant provincial or territorial forms) and any other relevant documents, for those who wish to make the Joint Tax Election (and any relevant provincial or territorial election); the deadlines applicable to their own particular circumstances for filing the Federal Form (and any relevant provincial or territorial forms); whether or not their Lithium One Common Shares were held by them as capital property at the Exchange Time (see Instruction on page 5); and if you are a corporation, whether or not your Lithium One Common Shares transferred under the arrangement represented 90% or more of all your properties. An exchanging Lithium One Shareholder that is a corporation, trust or estate should consult its own legal advisors for advice as to whether the representative signing the Federal Form (and any relevant provincial or territorial forms) has the proper authorization (see Instruction on page 8). It will be the sole responsibility of each Eligible Holder wishing to make a Joint Tax Election to obtain and complete all portions of the forms which are prescribed for such purpose under the Income Tax Act (Canada) and any applicable provincial or territorial legislation relevant to such party, to sign the appropriate number of forms and to deliver two signed copies of each completed form to the Galaxy Lithium One Inc. ( Canco ) for execution within 90 days following the Effective Date. Such forms must be duly completed with all required information including the number of Lithium One Common Shares transferred and the applicable agreed amounts, in accordance with the limitation provided in the Income Tax Act (Canada), for the purpose of such election. Canco will not be responsible for the proper completion of any election form and, except for Canco s obligation to return the duly completed election forms which are received by it, to the applicable Eligible Holder within 90 days after the receipt thereof, Canco will not be responsible for any taxes, interest, penalties or any other costs or damages resulting from the failure by an Eligible Holder to properly complete or file the election forms in the form and manner and within the time prescribed by the the Income Tax Act (Canada) (or any applicable provincial or territorial income tax law). Compliance with the requirements to ensure the validity of any Joint Tax Election, including the timely filing thereof, will be the sole responsibility of the Eligible Holders making the election and Canco assumes no liability for the failure to execute and file a valid Joint Tax Election or for the late filing of any Joint Tax Election. The procedure and forms required to complete a Joint Tax Election are technical in nature and, as a result, Eligible Holders are urged to consult their own tax advisors as soon as possible regarding the deadlines and procedures for making the Joint Tax Election which are appropriate to their circumstances.

3 July 2012 To: Former Holders of Common Shares of Lithium One ( Common Shares ) who Exchanged their Common Shares for Exchangeable Shares of Canco ( Exchangeable Shares ) on July 3, 2012: TAX INSTRUCTION LETTER July 2012 This tax instruction letter is for use by former holders of Common Shares of Lithium One who exchanged their Common Shares for Exchangeable Shares on July 3, 2012 pursuant to the Plan of Arrangement approved at the special meeting of securityholders of Lithium One held on June 18, Capitalized terms not defined in this package have the meaning assigned in the management proxy circular (the Circular ) furnished to Lithium One Shareholders in connection with the special meeting. Lithium One Shareholder who disposed of such shares to Canco and received consideration that included Exchangeable Shares as part of the Plan of Arrangement may be able to defer some or all of any tax otherwise arising upon such disposition under the Income Tax Act (Canada) 1 (the "Tax Act") by making a joint tax election with Canco under subsection 85(1) of the Tax Act or, in the case of a Lithium One Shareholder that is a partnership, under subsection 85(2) of the Tax Act (in either case, a "Joint Tax Election"). The procedure for making a Joint Tax Election (the "Tax Election Procedure") is discussed herein and in the Circular under the heading "Certain Canadian Federal Income Tax Considerations for Lithium One Shareholders and Lithium One teholders. This Tax Election Filing Package contains two copies of CRA Form T2057 (or, in the event that the Common Shares are held as partnership property, as indicated on your Letter of Transmittal and Election Form or by you when you otherwise requested the Tax Election Filing Package, CRA Form T2058). Additional copies of the relevant Canadian federal tax election forms may be obtained by contacting the CRA or from their website ( Canco will make a Joint Tax Election only with a Lithium One Shareholder who is an "Eligible Holder". An Eligible Holder is a shareholder who: is (i) a resident of Canada for purposes of the Tax Act, other than a person who is exempt from tax under Part I of the Tax Act, or (ii) a partnership that is a Canadian partnership for the purposes of the Tax Act, none of the partners of which is exempt from tax under Part I of the Tax Act; 1 Income Tax Act, RSC 1985, c.1 (5 th Supp.), as amended.

4 - 2 has properly completed and executed the required Joint Tax Election forms (two copies of CRA Form T2058 for partnerships, two copies of CRA Form T2057 for all other Lithium One Shareholders, and two copies of any applicable provincial or territorial election forms); and has ensured the receipt of the completed Joint Tax Election forms by Canco on or before October 1, 2012 (the date that is 90 days following the Effective Date of the Plan of Arrangement) at: Galaxy Lithium One Inc. 140 Grande Allée Est, Suite 800 Quebec, Quebec G1R 5M8 Attention: Martin R. Gagné and/or Kimberley Okell The Canco is not required to make a Joint Tax Election with anyone who is not an Eligible Holder. Please review the enclosed forms very carefully and consult your tax advisor as to their proper completion and delivery and any filing deadlines. You are also advised to review Information Circular 76-19R3 and Interpretation Bulletin IT-291R3 issued by the CRA for information in respect of the Joint Tax Election. In order to achieve a deferral of tax in some provinces or territories similar to that resulting from the Joint Tax Election, it may be necessary to file a separate copy of the Federal Form or a separate provincial or territorial tax election analogous to the Joint Tax Election with the taxing authority of such province or territory. Canco will also make such a provincial or territorial tax election with an Eligible Holder under the same conditions that it is willing to make the Joint Tax Election. Lithium One Shareholders are entirely responsible for determining whether any such separate federal, provincial or territorial election is applicable and appropriate in their circumstances and (if so) obtaining, completing and forwarding the related forms to Canco (at the address listed above). Canco will assume that any representative that signs the Federal Forms on behalf of a corporation, trust or estate has been duly authorized to do so, and will not take any action to verify the validity of any such authorization. Lithium One Shareholders that are corporations, trusts or estates should consult their own legal advisors in determining whether such authorization has been properly given.

5 - 3 In order to make a Joint Tax Election, two copies of the applicable Federal Forms must be signed and properly completed with the necessary information, including the number of Common Shares transferred, the consideration received therefore and the applicable elected amounts for the purposes of such elections and must be received by Canco at the address stated above no later than October 1, Canco will execute any properly completed Federal Forms submitted to it by an Eligible Holder in the time and manner specified herein, and will mail them to the Eligible Holder within 90 days after their receipt. The proper filing of the Federal Forms with the relevant tax authority is the sole responsibility of the Eligible Holder (see Schedule A). In order for the CRA to accept a Joint Tax Election without a late filing penalty, the Joint Tax Election must be received by the CRA on or before the earlier of the days on which either Canco or the Eligible Holder is required to file an income tax return for the taxation year in which the exchange occurs. Canco's tax return for that taxation year is scheduled to be due no later than June 30, Thus, in the case of an Eligible Holder who is an individual with a December 31 taxation year, you must generally ensure that the Joint Tax Election is received by the applicable taxation office by April 30, Eligible Holders are urged to consult their own advisors as soon as possible with respect to the deadlines applicable in their own particular circumstances. However, regardless of such due date, in order to make a Joint Tax Election an Eligible Holder must ensure that the appropriate Federal Forms, duly completed and signed by the Eligible Holder, are received by Canco at the address noted above on or before October 1, 2012 for execution by Canco. Canco is not required to sign Federal Forms received after October 1, 2012 and thus any Eligible Holder who does not ensure that Canco has received the completed Federal Forms, each containing an original signature of the Eligible Holder, on or before October 1, 2012, may not be able to benefit from the elections. Estimates of Fair Market Value Common Shares of Lithium One Under the Plan of Arrangement, a holder of Common Shares received Exchangeable Shares and Ancillary Rights for their Common Shares. Based on the five day weighted average trading price of the Common Shares prior to the Effective Date of the Plan of Arrangement, Canco has determined that the fair market value of each Common Share was $1.15. Since the determination of fair market value is a question of fact, neither the CRA nor any other tax authority will be bound by the views of Canco as expressed above. Consequently, former holders of Common Shares should seek independent advice regarding the value of the consideration received by them pursuant to the Plan of Arrangement.

6 - 4 Ancillary Rights Canco is of the view that it would be reasonable to prepare the Federal Forms on the basis that the fair market value of the Ancillary Rights is a nominal amount. Such determination is not binding on the CRA and Canco cannot assure Eligible Holders that the CRA will accept any such determination and accepts no responsibility for the consequences of the use by the Eligible Holders of such determination for tax purposes. If the CRA were to successfully assert that the Ancillary Rights have more than nominal value, such greater value would need to be taken into account in determining the proceeds of disposition of Exchangeable Elected Shares, the elected amount in the Federal Forms, and the adjusted cost base of the Exchangeable Shares. Procedure for Completing Prescribed CRA Form T2057 The following section illustrates the information required to be provided by an Eligible Holder completing CRA Form T2057. Please consult your tax advisor on the completion of any additional prescribed forms (such as CRA Form T2058 and any applicable provincial tax forms). The information should be typed or legibly printed on the Prescribed Forms. Do not write the required information on this letter of instructions. Page 1 of CRA Form T2057 Complete the information in this first box for the Eligible Holder making the election: Name of Taxpayer (print) Social Insurance or Corporate Account Number/ Business Number Address Postal Code Tax Services Office Taxation of Taxpayer For the period,20 to,20. The address inserted by the Eligible Holder in the above box is the address to which the Federal Form will be returned after Canco has signed the election form. The taxation year for individuals is January 1, 2012 to December 31, Complete the information in this box if the Common Shares are held in joint ownership; otherwise enter "N/A". Name of co-owners(s),if any, (if more than one, attach schedule giving similar details) Social Insurance Number Address Postal Code Tax Services Office

7 - 5 - Canco has completed the next section in the provided Federal Forms: Name of corporation (transferee) (print) Galaxy Lithium One Inc. Business Number Address 140 Grande Allee Est, Suite 800, Quebec, Quebec Postal Code G1R 5M8 Tax year of corporation for the period from / / Date / / Date 2012/ 03/ 26 to 2012/12/31 Tax services office Quebec Tax Services Office Complete the next section, by filling in your name and telephone number or, if appropriate, the name and telephone number of your tax advisor: Name of Person to Contact for Additional Information Area Code Telephone Number The last section of page 1 of CRA Form T2057 relates to late filed elections, and Eligible Holders whose Joint Tax Elections will be filed late are responsible for filling in this section and sending in the required late-filing penalty payments. Page 2 of CRA Form T2057 Canco has completed the answers to the first four questions. Eligible Holders should answer the following questions based on their particular circumstances: Have all / or substantially all (90% or more) of all the properties of the corporation(s) been transferred to the transferee corporation? If you are a corporation, indicate whether your Common Shares transferred to Canco under the Plan of Arrangement, represented 90% or more of all your properties. Canco has completed the answer to the fifth question in the provided Federal Forms: Are any of the properties transferred capital properties? Whether the Common Shares are capital properties to a particular Eligible Holder is a question of fact and law that must be determined by each Eligible Holder based on a consideration of all the relevant facts and circumstances.

8 - 6 - If, (a) have they been owned continuously since Valuation (V-- Dec 31, 1971)?... (b) have they been acquired after V- in a transaction considered not to be at arm s length?... Eligible Holders who hold their Common Shares as capital property and acquired their Common Shares in an arm s length transaction should check. (c) since V-, has the taxpayer or any person from whom shares were acquired in a non-arm s length transaction received any subsection 83(1) dividends for transferred shares? ( if yes, provide details of amounts and dates received and attached a schedule)... Is the agreed amount of any of the properties transferred based on an estimate of the fair market value on V-?... a) If does a formal documented V- value report exist?... Has an election under subsection 26(7) of the Income Tax Application Rules (Form T2076) been filed by or on behalf of the taxpayer?... Eligible Holders should complete the next section as follows: Where shares of the capital stock of a private corporation are included in the property disposed of, provide the following: Name of corporation (print) N/A Business Number Paid up capital of shares transferred Eligible Holders must complete the information in the blank box in the next section, as follows: Number of Shares Transferor Received Class of Shares Redemption Value Per Share Paid-Up Capital Voting or n-voting Are Shares Retractable? Class D Preferred Fair value of Galaxy Resources Limited share and dividend amount To be determined under S. 85 (2.1) of the Tax Act n-voting Enter the number of Exchangeable Shares received by the Eligible Holder

9 - 7 - Page 3 of CRA Form T2057 Canco has inserted in the provided Federal Forms the date on which it took up and paid for the Common Shares. Complete the information in this section according to the instructions below: Capital Excluding Depreciable Disposed of Elected Amount Limits Description Fair Market Value (Brief Legal) Agreed Amount Consideration Received Amount to be reported B-A n-share Share Fair Market Value of A B if >0 ( see Description Number Total note 4) and Class Considerati on (1) (2) (3) (4) (5) (6) (7) Ancillary Rights Complete this section if the Common Shares are held as capital property; if the Common Shares are held as inventory, complete the section with the sidebar entitled "Inventory Excluding Real " in a similar manner. (1) Enter the number of Common Shares exchanged and their description as "Common Shares of Lithium One Inc." (2) Enter the total fair market value of your Common Shares at the Effective Time (see the Estimates of Fair Market Value for the value of Common Shares). (3) Enter the adjusted cost base (or cost amount in the case of inventory) of your Common Shares. (4) See the rules described below with respect to calculation of the agreed amount. (5) Subtract B - A. Input only a positive amount, if applicable. (6) Enter the number of Exchangeable Shares received and their description as Class D Preferred Shares. (7) Enter the total fair market value as at July 3, 2012 of the Exchangeable Shares and the Ancillary Rights received. The amount entered here should equal the amount described in (2) above.

10 - 8 - Rules with Respect to Calculation of Agreed Amount Subject to the rules set out below, Eligible Holders who wish to avoid a capital gain must elect an agreed amount equal to the adjusted cost base (or cost amount, if the Common Shares are held as inventory) of the Common Shares. The agreed amount must be determined in accordance with the following rules: (1) The agreed amount may not be less than the fair market value at the Effective Time of the Ancillary Rights acquired on the Exchange; (2) The agreed amount may not be less than the lesser of the adjusted cost base (or cost amount, if the Common Shares are held as inventory) to the Eligible Holder of the Common Shares exchanged, determined immediately before the Effective Time, and the fair market value of the Common Shares at that time; and (3) The agreed amount may not exceed the fair market value of the Common Shares at the Effective Time. Eligible Holders should consult their tax advisors regarding the selection of the agreed amount in respect of their Common Shares. The Eligible Holder must sign in the last box as indicated: ELECTION AND CERTIFICATION The taxpayer and corporation hereby jointly elect under subsection 85 (1) in respect of the property specified, and certify that the information give in this election, and in any documents attached, is to the best of their knowledge, correct and complete. Signature of Transferor of Authorized Officer or Authorized Person* *attain a copy of an authorizing agreement Signature of Authorized Officer or Transferee Date Eligible Holder should sign here Leave this space blank for the authorized signature of Canco Completion of CRA Form T2058 and/or any Applicable Provincial Tax Forms Eligible Holders completing CRA Form T2058 and/or any applicable provincial tax forms (such as TP-518V or TP-529V) may refer to the instructions set out above, although the order of presentation of the information on the other forms may differ from that of CRA Form T2057 and some of the required information may be different.

11 - 9 - SCHEDULE A LIST OF CANADA REVENUE AGENCY TAX CENTRES Your Geographic Location British Columbia, Yukon Territory and Regina Alberta, Manitoba, rthwest Territories, London, Saskatoon, Thunder Bay and Windsor Toronto Centre, Toronto East, Toronto rth, Toronto West, Barrie and Sudbury (Sudbury/Nickel Belt only) 1 Laval, Montréal, Nunavut, Ottawa, Rouyn- randa, Sherbrooke and Sudbury (rth- Eastern Ontario only) 2 Chicoutimi, Montérégie-Rive-Sud, Outaouais, Québec, Rimouski and Trois- Rivières New Brunswick, Newfoundland and Labrador, va Scotia, Kingston, Peterborough and St. Catharines Prince Edward Island, Belleville, Hamilton and Kitchener/Waterloo Tax Centre Surrey Tax Centre 9755 King George Boulevard Surrey BC V3T 5E1 Winnipeg Tax Centre 66 Stapon Road Winnipeg MB R3C 3M2 Sudbury Tax Centre 1050 tre-dame Avenue Sudbury ON P3A 5C1 Shawinigan-Sud Tax Centre PO Box 3000 Station Bureau-chef Shawinigan QC G9N 7S6 Jonquière Tax Centre 2251 René-Lévesque Blvd. Jonquière QC G7S 5J1 St. John's Tax Centre 290 Empire Avenue St. John's NL A1B 3Z1 Summerside Tax Centre 275 Pope Road Summerside PE C1N 6A2 1 Sudbury/Nickel Belt areas include all postal codes beginning with P3A, P3B, P3C, P3E, P3G, P3L, P3N, P3P, P3Y, and all postal codes beginning with P0M and ending with 1A0, 1B0, 1A0, 1E0, 1H0, 1J0, 1K0, 1L0, 1M0, 1N0, 1P0, 1R0, 1S0, 1T0, 1V0, 1W0, 1Y0, 2C0, 2E0, 2M0, 2R0, 2S0, 2X0, 2Y0, 3A0, 3B0, 3C0, 3E0 and 3H0. 2 rtheastern Ontario includes all areas outside of Sudbury/Nickel Belt that are served by the Sudbury Tax Services Office.

12 ELECTION ON DISPOSITION OF PROPERTY BY A TAXPAYER TO A TAXABLE CANADIAN CORPORATION For use by a taxpayer and a taxable Canadian corporation to jointly elect under subsection 85(1) where the taxpayer has disposed of eligible property within the meaning of subsection 85(1.1) to the corporation and has received as consideration shares of any class in that corporation. File one completed copy of the election and related schedules (if any) as follows: 1 a) one copy by the transferor, or b) two or more copies if two or more transferors elect regarding the transfer of the same property (co-ownership), or two or more members of the same partnership elect for the transfer of their partnership interests. In these situations, one transferor designated for the purpose should file simultaneously one copy for each transferor, together with a list of all transferors electing. This list should contain the address and Social insurance number or Business Number of each transferor; 2 on or before the earliest date on which any one of the parties to the election is required to file an income tax return for the tax year in which the transaction occurred, taking into consideration any election under subsection 99(2) (due date); 3 at the tax centre serving the area where the transferor is located. Where two or more co-owners or members of a partnership referred to above elect, the elections will be processed in bulk and should be filed at the tax centre of the transferee; and 4 separate from any tax returns. You may put it in the same envelope with a return, but do not insert it in or attach it to the return. Sections and subsections referred to on this form are from the Income Tax Act. Name of taxpayer (transferor) (print) Do not use this area Social insurance number or Business Number Address Postal code Tax year of taxpayer for the period from to Tax services office Name of co-owner(s), if any (if more than one, attach schedule giving similar details) (print) Social insurance number Address Postal code Tax services office Name of corporation (transferee) (print) Business Number Address Postal code Tax year of corporation for the period from to Tax services office Name of person to contact for additional information Area code Telephone number Penalty for late-filed and amended elections An election that is filed after its due date is subject to a late-filing penalty. Form T2057 can be filed within 3 years after its due date if an estimate of the penalty is paid at the time of filing. Form T2057 can also be amended or filed after the 3-year period, but in these situations, a written explanation of the reason the election is amended or late-filed must be attached for consideration by the Minister and an estimate of the applicable penalty must be paid when this election is filed. Calculation of late-filing penalty: Fair market value of property transferred Less: agreed amount Difference A Do not use this area Amount A x 1/4 x 1% x N* = B $100 x N* = C * N represents the sum of each month or each part of a month in the period from the due date to the actual filing date. Amount C cannot exceed $8,000. Late-filing penalty is the lesser of B and C above Make a cheque or money order payable to the Receiver General. Specify "T2057" on the remittance and, to ensure proper credit, indicate the name and social insurance number of the taxpayer, or Business Number if a corporation. Amount enclosed Unpaid amounts including late-filing penalties are subject to daily compound interest, at a prescribed rate. T2057 (08) (Vous pouvez obtenir ce formulaire en français à ou au ) Page 1 of 3

13 Information required On the following page, list, describe, and state the fair market value of transferred properties. The description and fair market value of the consideration received has to be shown opposite the related property transferred. Where the transferred property is a partnership interest, attach a schedule of the calculation of the adjusted cost base. If space on the form is insufficient, attach schedules giving similar details. You have to designate the order of disposition of each depreciable property. With this election you do not have to file the following materials: schedules supporting this designation, documentation relating to the responses to the questions below, and a brief summary of the method of evaluating the fair market value of each property transferred. However you have to keep them as the Canada Revenue Agency may ask to see them at a later date. 1 Is there a written agreement relating to this transfer? Does a price adjustment clause apply to any of the properties? (See the Interpretation Bulletin IT-169 for details.) Do any persons other than the taxpayer own or control directly or indirectly any shares of any class of the transferee? Does a non-arm's length rollover exist between 2 or more corporations? a) Have all or substantially all (90% or more) of all the properties of the corporation(s) been transferred to the transferee corporation? Is the taxpayer a non-resident of Canada? Are any of the properties transferred capital properties? If yes, a) have they been owned continuously since Valuation- (V-)? b) have they been acquired after V- in a transaction considered not to be at arm's length? c) since V-, has the taxpayer or any person from whom shares were acquired in a non-arm's length transaction received any subsection 83(1) dividends for transferred shares? (If yes, provide details of amounts and dates received and attach a schedule.) Is the agreed amount of any of the transferred properties based on an estimate of fair market value on V-? a) If yes, does a formal documented V- value report exist? Has an election under subsection 26(7) of the Income Tax Application Rules (Form T2076) been filed by or on behalf of the taxpayer? Where shares of the capital stock of a private corporation are included in the property disposed of, provide the following: Name of corporation (print) Business Number Paid-up capital of shares transferred Description of shares received Number of shares transferor received Class of shares Redemption value per share Paid-up capital Voting or non-voting Are shares retractable? * * Retractable means redeemable at the option of the holder. The rules for section 85 elections are complex. Essential information is contained in Information Circular, IC76-19 and Interpretation Bulletins, IT-169, IT-291, and IT-378. Complete all the information areas and answer all questions. If this form is incomplete, the Canada Revenue Agency may consider the election invalid, and subsequent submissions may be subject to a late-filing penalty. Informative notes If the agreed amount exceeds the adjusted cost base of the property in the election, you must report the difference as a capital gain, as income or a combination of both, whichever applies. Page 2

14 Particulars of Eligible Disposed of and Consideration Received Date of sale or transfer of all properties listed below: te: For properties sold or transferred on different dates, use separate T2057s. Description Disposed of Elected Amount Limits* Fair Market Value A Agreed Amount (cannot be zero) B Amount to be reported B A (If greater than 0 see te 4) Consideration Received n-share Description Share Number and Class Fair Market Value of Total Consideration Capital Excluding Depreciable (Brief legal) (See te 1) $ $ $ $ $ Depreciable (Description and prescribed Class) (See te 2) Eligible Capital Inventory Excluding Real (Kind) (Kind) (See te 3) (Cost Amount) Resource (Brief legal) NIL NIL Security or Debt Obligation (Description) (Cost Amount) Specified Debt Obligation (For financial institutions only) (Cost Amount) Capital That is Real Owned by a n- Resident Person NISA Fund. 2 (see note 5) (Cost Amount) te 1: te 2: te 3: te 4: te 5: Adjusted cost base (which is subject to adjustment per section 53). The lesser of undepreciated capital cost of all property of the class and the cost of the property. The lesser of 4/3 x cumulative eligible capital and the cost of the property. (Under proposed changes, new rules will apply on subsequent dispositions of eligible capital property occurring after December 20, 2002). This amount is to be reported either as a capital gain or as income, whichever applies. Also, in the case of depreciable property and eligible capital property, a portion of the amount may have to be reported as a capital gain while another portion of the amount may have to be reported as income. Contributions made in a tax year ending after 2007, and amounts earned on those contributions, are only eligible if that property is owned by an individual. * Refer to current Interpretation Bulletin IT-291 for more information on eligible property and an explanation of the limits. Election and Certification The taxpayer and corporation hereby jointly elect under subsection 85(1) in respect of the property specified, and certify that the information given in this election, and in any documents attached, is to the best of their knowledge, correct and complete. Signature of Transferor, of Authorized Officer or Authorized Person* and Signature of Authorized Officer of Transferee Date * Attach a copy of authorizing agreement Printed in Canada Page 3

15 ELECTION ON DISPOSITION OF PROPERTY BY A TAXPAYER TO A TAXABLE CANADIAN CORPORATION For use by a taxpayer and a taxable Canadian corporation to jointly elect under subsection 85(1) where the taxpayer has disposed of eligible property within the meaning of subsection 85(1.1) to the corporation and has received as consideration shares of any class in that corporation. File one completed copy of the election and related schedules (if any) as follows: 1 a) one copy by the transferor, or b) two or more copies if two or more transferors elect regarding the transfer of the same property (co-ownership), or two or more members of the same partnership elect for the transfer of their partnership interests. In these situations, one transferor designated for the purpose should file simultaneously one copy for each transferor, together with a list of all transferors electing. This list should contain the address and Social insurance number or Business Number of each transferor; 2 on or before the earliest date on which any one of the parties to the election is required to file an income tax return for the tax year in which the transaction occurred, taking into consideration any election under subsection 99(2) (due date); 3 at the tax centre serving the area where the transferor is located. Where two or more co-owners or members of a partnership referred to above elect, the elections will be processed in bulk and should be filed at the tax centre of the transferee; and 4 separate from any tax returns. You may put it in the same envelope with a return, but do not insert it in or attach it to the return. Sections and subsections referred to on this form are from the Income Tax Act. Name of taxpayer (transferor) (print) Do not use this area Social insurance number or Business Number Address Postal code Tax year of taxpayer for the period from to Tax services office Name of co-owner(s), if any (if more than one, attach schedule giving similar details) (print) Social insurance number Address Postal code Tax services office Name of corporation (transferee) (print) Business Number Address Postal code Tax year of corporation for the period from to Tax services office Name of person to contact for additional information Area code Telephone number Penalty for late-filed and amended elections An election that is filed after its due date is subject to a late-filing penalty. Form T2057 can be filed within 3 years after its due date if an estimate of the penalty is paid at the time of filing. Form T2057 can also be amended or filed after the 3-year period, but in these situations, a written explanation of the reason the election is amended or late-filed must be attached for consideration by the Minister and an estimate of the applicable penalty must be paid when this election is filed. Calculation of late-filing penalty: Fair market value of property transferred Less: agreed amount Difference A Do not use this area Amount A x 1/4 x 1% x N* = B $100 x N* = C * N represents the sum of each month or each part of a month in the period from the due date to the actual filing date. Amount C cannot exceed $8,000. Late-filing penalty is the lesser of B and C above Make a cheque or money order payable to the Receiver General. Specify "T2057" on the remittance and, to ensure proper credit, indicate the name and social insurance number of the taxpayer, or Business Number if a corporation. Amount enclosed Unpaid amounts including late-filing penalties are subject to daily compound interest, at a prescribed rate. T2057 (08) (Vous pouvez obtenir ce formulaire en français à ou au ) Page 1 of 3

16 Information required On the following page, list, describe, and state the fair market value of transferred properties. The description and fair market value of the consideration received has to be shown opposite the related property transferred. Where the transferred property is a partnership interest, attach a schedule of the calculation of the adjusted cost base. If space on the form is insufficient, attach schedules giving similar details. You have to designate the order of disposition of each depreciable property. With this election you do not have to file the following materials: schedules supporting this designation, documentation relating to the responses to the questions below, and a brief summary of the method of evaluating the fair market value of each property transferred. However you have to keep them as the Canada Revenue Agency may ask to see them at a later date. 1 Is there a written agreement relating to this transfer? Does a price adjustment clause apply to any of the properties? (See the Interpretation Bulletin IT-169 for details.) Do any persons other than the taxpayer own or control directly or indirectly any shares of any class of the transferee? Does a non-arm's length rollover exist between 2 or more corporations? a) Have all or substantially all (90% or more) of all the properties of the corporation(s) been transferred to the transferee corporation? Is the taxpayer a non-resident of Canada? Are any of the properties transferred capital properties? If yes, a) have they been owned continuously since Valuation- (V-)? b) have they been acquired after V- in a transaction considered not to be at arm's length? c) since V-, has the taxpayer or any person from whom shares were acquired in a non-arm's length transaction received any subsection 83(1) dividends for transferred shares? (If yes, provide details of amounts and dates received and attach a schedule.) Is the agreed amount of any of the transferred properties based on an estimate of fair market value on V-? a) If yes, does a formal documented V- value report exist? Has an election under subsection 26(7) of the Income Tax Application Rules (Form T2076) been filed by or on behalf of the taxpayer? Where shares of the capital stock of a private corporation are included in the property disposed of, provide the following: Name of corporation (print) Business Number Paid-up capital of shares transferred Description of shares received Number of shares transferor received Class of shares Redemption value per share Paid-up capital Voting or non-voting Are shares retractable? * * Retractable means redeemable at the option of the holder. The rules for section 85 elections are complex. Essential information is contained in Information Circular, IC76-19 and Interpretation Bulletins, IT-169, IT-291, and IT-378. Complete all the information areas and answer all questions. If this form is incomplete, the Canada Revenue Agency may consider the election invalid, and subsequent submissions may be subject to a late-filing penalty. Informative notes If the agreed amount exceeds the adjusted cost base of the property in the election, you must report the difference as a capital gain, as income or a combination of both, whichever applies. Page 2

17 Particulars of Eligible Disposed of and Consideration Received Date of sale or transfer of all properties listed below: te: For properties sold or transferred on different dates, use separate T2057s. Description Disposed of Elected Amount Limits* Fair Market Value A Agreed Amount (cannot be zero) B Amount to be reported B A (If greater than 0 see te 4) Consideration Received n-share Description Share Number and Class Fair Market Value of Total Consideration Capital Excluding Depreciable (Brief legal) (See te 1) $ $ $ $ $ Depreciable (Description and prescribed Class) (See te 2) Eligible Capital Inventory Excluding Real (Kind) (Kind) (See te 3) (Cost Amount) Resource (Brief legal) NIL NIL Security or Debt Obligation (Description) (Cost Amount) Specified Debt Obligation (For financial institutions only) (Cost Amount) Capital That is Real Owned by a n- Resident Person NISA Fund. 2 (see note 5) (Cost Amount) te 1: te 2: te 3: te 4: te 5: Adjusted cost base (which is subject to adjustment per section 53). The lesser of undepreciated capital cost of all property of the class and the cost of the property. The lesser of 4/3 x cumulative eligible capital and the cost of the property. (Under proposed changes, new rules will apply on subsequent dispositions of eligible capital property occurring after December 20, 2002). This amount is to be reported either as a capital gain or as income, whichever applies. Also, in the case of depreciable property and eligible capital property, a portion of the amount may have to be reported as a capital gain while another portion of the amount may have to be reported as income. Contributions made in a tax year ending after 2007, and amounts earned on those contributions, are only eligible if that property is owned by an individual. * Refer to current Interpretation Bulletin IT-291 for more information on eligible property and an explanation of the limits. Election and Certification The taxpayer and corporation hereby jointly elect under subsection 85(1) in respect of the property specified, and certify that the information given in this election, and in any documents attached, is to the best of their knowledge, correct and complete. Signature of Transferor, of Authorized Officer or Authorized Person* and Signature of Authorized Officer of Transferee Date * Attach a copy of authorizing agreement Printed in Canada Page 3