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. 

2008 Distributions for Canadian Residents Only
Management estimates that approximately 70% of the 2008 distributions of Extendicare REIT and Extendicare Limited Partnership will be characterized as tax deferred returns of capital for Canadian residents. The remaining 30% of distributions of Extendicare REIT paid in 2008 are expected to be taxed as dividends and those paid to Canadian residents are eligible dividends as per the Income Tax Act (Canada) (the “Act”). To the extent a portion of the remaining 30% of distributions of Extendicare Limited Partnership allocated in 2008 is taxed as dividends, those paid to Canadian residents are eligible dividends as per the Act. 

A portion of these same distributions in 2008 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 holders of units of Extendicare REIT and Extendicare Limited Partnership that are U.S. persons, the entire distribution will be subject to Canadian withholding tax at a 15% rate.

For foreign resident (non-U.S.) holders of units of Extendicare REIT and Extendicare Limited Partnership , the entire distribution 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.

2007 Distributions for Canadian Residents Only
Approximately 70% of the distributions paid in 2007 by Extendicare REIT and Extendicare Limited Partnership were characterized as tax deferred returns of capital.  For holders of REIT Units, the 2007 tax components of the distributions were: "eligible" dividend of $0.33301 per unit and return of capital of $0.77699 per unit. For holders of Exchangeable LP Units, the 2007 tax components of the distributions were: interest of $0.20384 per unit; "eligible" dividend of $0.12916 per unit; and return of capital of $0.84747 per unit.

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

Classification of Extendicare REIT for U.S. Federal Income Tax Purposes

Extendicare REIT elected to be treated as a partnership for U.S. federal income tax purposes. An entity treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no U.S. federal income tax liability. However, as a “publicly traded partnership”, Extendicare REIT will be treated as a non-taxable entity only if at least 90% of its gross income for every taxable year consists of “qualifying income” and Extendicare REIT (if it were a domestic corporation) would not be required to register under the U.S. Investment Company Act. Qualifying income includes certain interest income, dividends, real property rents, gains from the sale or other disposition of real property and any gain from the sale or disposition of a capital asset or other property held for the production of income that otherwise constitutes qualifying income. Extendicare REIT intends to manage its affairs so that it will have sufficient qualifying income in each year and thus expects to be treated as a non-taxable partnership for U.S. federal income tax purposes.

Management will from time to time reassess the benefits of Extendicare REIT’s status for U.S. tax purposes. As such, there can be no assurance that Extendicare REIT will maintain its partnership status for U.S. tax purposes.

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 is relevant for (i) how certain income will be 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”).

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 change to the composition of distributions arises from the financing structure implemented for the 2007 acquisition of Tendercare. 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 and Extendicare Limited Partnership, and consequently of the unitholders for a portion of distributions in respect of those months, for U.S. tax purposes.

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. 

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.