Distributions – Canadian Tax Information 
The following information is intended to assist unitholders of Extendicare REIT and Exchangeable LP units in the preparation of their income tax returns and does not constitute legal or tax advice. Unitholders are advised to consult with a tax advisor as residency and other circumstances may vary. 

2010 Distributions for Canadian Residents Only
Management estimates that approximately 70% of the 2010 distributions of the REIT and Partnership will be characterized as tax deferred returns of capital for Canadian residents. To the extent the remaining 30% of distributions of the REIT and Extendicare LP to be made in 2010 are taxed as dividends, those paid to Canadian residents are eligible dividends as per the Income Tax Act (Canada).

A portion of these same distributions in 2010 will be subjected to 30% U.S. withholding tax if you failed to submit a valid form W-8 BEN to your broker/administrator.  For further information refer to "2008 Change to Composition of Distributions for U.S. Tax Purposes and Related U.S. Tax Withholding" below.

No assurance can be given that the composition of distributions by Extendicare REIT and Extendicare Limited Partnership for tax purposes will not be changed from that described above. Any change in such composition of Extendicare’s distributions will affect the after-tax return of its unitholders.

Canadian Withholding Tax Obligations
For foreign resident (non-Canadian) holders of units of Extendicare REIT and Extendicare Limited Partnership , the portion of the distribution that is taxable income for Canadian tax purposes (estimated to be 30% for 2010) will be subject to Canadian withholding tax at the rate applicable to foreign resident holders when distributed to such holders. This may be a 25% rate, or lower, if the foreign resident is in a treaty country.

Computershare Trust Company of Canada (Computershare), the transfer agent for Extendicare REIT and Extendicare Limited Partnership will withhold any applicable Canadian withholding tax from the distributions paid to registered holders, other than CDS. The broker/administrator holding the REIT and Exchangeable LP units is responsible for withholding Canadian withholding tax before paying the distributions to U.S. persons and foreign residents.

2010 Distributions for Canadian Residents Only
Approximately 70% of the distributions paid in 2010 by Extendicare REIT and Extendicare Limited Partnership were characterized as tax deferred returns of capital. 

For holders of REIT Units, the 2010 tax components of the distributions were: 
     *  Box 49 - "eligible" dividend of $0.25137 per unit; and
     *  Box 42 - return of capital of $0.58863 per unit.
 
For holders of Exchangeable LP Units, the 2010 tax components of the distributions were:
     *  Box 50 - interest of $0.12071 per unit;
     *  Box 52 - "eligible" dividend of $0.13129 per unit; and
     *  Box 27 - return of capital of $0.58800 per unit.

Details of the monthly components are provided in the T3 and T5013 forms as submitted to CDS, and included below.

U.S. Form 1042-S Reporting- 2010 Extendicare REIT Distributions
Non-U.S. residents will receive a U.S. Form 1042-S with respect to the 2010 distributions. The 2010 distributions that are reported on the Canadian tax forms, either a Canadian Form T3 or T5013, also includes the U.S. source interest income. As well, the U.S. source interest income,  may have been subjected to 30% U.S. withholding tax if you failed to submit a valid form W-8 BEN to your broker/administrator. Any such U.S. tax withheld will be reported on the U.S. Form 1042-S.  The amount of gross income reported in Box 2 of the U.S. Form 1042-S does not represent additional cash distributions paid during the year. It represents the portion of the distributions ($0.07 per unit per month) which were subject to U.S. withholding.  The amounts appearing on the U.S. Form 1042-S do not need to be reported in the Canadian income tax returns filed by Canadian residents as additional income for tax purposes. These distributions are already reflected in the applicable Canadian tax forms.

NR4 Reporting - 2010 Extendicare REIT Distributions for Non-Canadian Residents
The income distribution component of the 2010 distributions paid by Extendicare REIT of $0.25137 per unit had two components for purposes of NR4 reporting. One component is an actual dividend flow-through and designated to residents of Canada as a dividend. However, for non-residents, it is treated as "trust income" - code 11 on the NR4. The other component is comprised of non-portfolio earnings subject to SIFT tax, the after-tax amount of which is deemed a dividend for both residents and non-residents of Canada, and is classified as code 09 on the NR4. The remaining tax deferred return of capital portion is not reported on the NR4.

          NR4 2010 (split of $0.25137 income)
          *  Dividend income     (code 09) - $0.10525 per unit
          *  Trust income         (code 11) - $0.14612 per unit


Classification of Extendicare REIT for U.S. Federal Income Tax Purposes - Partnership Status Revoked Effective January 1, 2011

Upon conversion to a real estate investment trust in 2006, Extendicare REIT elected to be treated as a partnership for U.S. federal income tax purposes.

On December 15, 2010, Extendicare REIT revoked its U.S. partnership status effective January 1, 2011, and therefore, from this time onward will be treated as a corporation for U.S. federal income tax purposes.

The change in U.S. tax status from a partnership to a corporation should have no adverse impact on Extendicare REIT or its U.S. unitholders, as the change will be effected on a tax-free basis. U.S. unitholders will be affected prospectively as all future income received from Extendicare REIT will be treated as distributions from a Canadian corporation for U.S. tax purposes. As a result, beginning with the 2011 tax year, K-1s will no longer be issued to U.S. unitholders. Instead, Form 1099s issued to U.S. holders by their investment advisors will provide the necessary tax information. U.S. unitholders are urged to consult with, and rely solely upon, advice from their own tax advisors with respect to the tax consequences of an investment in REIT Units.

The change in U.S. tax status of Extendicare REIT from a partnership to a corporation in 2011 will result in the recharacterization of U.S. source interest income of Extendicare REIT to a dividend for U.S. tax purposes. As a result, Extendicare REIT unitholders will no longer be subject to U.S. withholding tax on distributions paid by Extendicare REIT beginning in 2011.

Extendicare Limited Partnership (Extendicare LP) will remain as a partnership for U.S. tax purposes. As a result, any U.S. source interest income of Extendicare LP will continue to be characterized as such for U.S tax purposes and consequently to holders of Class B limited partnership units (Exchangeable LP Units) of Extendicare LP.

This change of the U.S. federal income tax status of Extendicare REIT from a partnership to a corporation does not change the status of Extendicare REIT for Canadian income tax purposes or the Canadian taxation of distributions. Extendicare REIT continues to be a mutual fund trust and a SIFT under the Income Tax Act (Canada).


Distributions – U.S. Tax Information
The following information is intended to assist unitholders of Extendicare REIT and Exchangeable LP units in the preparation of their income tax returns and does not constitute legal or tax advice. Unitholders are advised to consult with a tax advisor as residency and other circumstances may vary. 

Extendicare REIT is not required to, and does not, calculate its “earnings and profits” pursuant to the United States Internal Revenue Code of 1986, as amended (the “Code”), and therefore no portion of its distributions represent qualified dividend income, or a tax deferred return of capital, for U.S. tax purposes.

2008 Change to Composition of Distributions for U.S. Tax Purposes and Related U.S. Tax Withholding
On April 18, 2008, Extendicare announced a change impacting all unitholders to the taxation of certain distributions for U.S. tax purposes beginning with the May 2008 distribution.

This announcement was relevant for (i) how certain income was taxed for U.S. tax purposes to U.S. persons who hold units of Extendicare REIT and/or Extendicare Limited Partnership (“U.S. Holders”) and (ii) U.S. withholding tax issues for non-U.S. persons who hold units of Extendicare REIT and/or Extendicare Limited Partnership (“Non-U.S. Holders”).

Interest payments to be made semi-annually in May and November by a wholly owned U.S. subsidiary of Extendicare REIT will be treated as U.S. source interest income of Extendicare REIT (applicable only for 2008, 2009 and 2010) and Extendicare Limited Partnership, and consequently of the unitholders for a portion of distributions in respect of those months, for U.S. tax purposes.

Effective January 1, 2011, holders of Extendicare REIT units will no longer receive distributions of U.S. source interest income. Please refer to the discussion under the heading “Classification of Extendicare REIT for U.S. Federal Income Tax Purposes”.  Holders of Extendicare LP units will still be subject to any U.S. source interest income earned by Extendicare LP.

The change to the composition of distributions does not affect Canadian taxation of distributions, including the Canadian tax withholding obligations of Extendicare in respect of distributions to non-Canadian holders of Units. 

The actual amount of U.S. source interest income pertaining to distributions to be declared in May and November will be disclosed in the distribution press releases for those months, and are indicated in the table below. 

U.S. Source Interest in May and November Distributions
Record Date	Payment Date	U.S. Source Interest
May 30, 2008	June 16, 2008	C$0.0497
November 30, 2008	December 15, 2008	C$0.0331
May 29, 2009	June 15, 2009	C$0.02093
November 30, 2009	December 15, 2009	C$0.01828
May 31, 2010	June 15, 2010	C$0.01581
November 30, 2010	December 15, 2010	C$0.01597

1. Non-U.S. Holders 
The portion of the distributions that constitute U.S. source interest income is subject to U.S. withholding tax at a 30% statutory rate. A Non-U.S. Holder may be eligible for the portfolio interest exemption under Sections 871 and 881 (the “Portfolio Interest Exemption”) of the Code. A Non-U.S. Holder may assert entitlement to the Portfolio Interest Exemption by submitting a valid Form W-8BEN to their broker/administrator. This is explained in more detail in the Management Proxy Circular dated September 13, 2006.

2. U.S. Holders
The portion of the distributions that constitute U.S. source interest income is subject to U.S. backup withholding tax at the 28% statutory rate. U.S. Holders who receive distributions of U.S. source income can avoid backup withholding by submitting a valid Form W-9 to their broker/administrator.

Obligation to Withhold U.S. Tax
Extendicare will withhold any applicable U.S. withholding tax before distributions are forwarded to its transfer agent, Computershare Trust Company of Canada, for payment to registered holders, including CDS.


Redemption of Class B Limited Partnership Units - November 10, 2011
The former Class B limited partnership units of Extendicare Limited Partnership (Exchangeable LP Units) were exchangeable for Extendicare REIT Units on a 1:1 basis at any time prior to November 10, 2011. 

On November 10, 2011, Extendicare LP redeemed all of the Exchangeable LP Units then outstanding in exchange for one REIT Unit for each Exchangeable LP Unit. The redemption price for each Exchangeable LP Unit redeemed by Extendicare LP  shall be an amount equal to the sum of: (a) the closing price of a REIT Unit on the TSX on November 9, 2011; and (b) the amount of all declared and unpaid distributions on such Exchangeable LP Unit as of the date of redemption (being the October distribution of $0.07 per unit). 

The closing price of the REIT Units on the TSX on November 9, 2011 was $7.24, therefore the redemption price per unit was $7.31 ($7.24 + $0.07).