Tax Restructuring Q & A

GENERAL INFORMATION ABOUT THE TRANSACTION

CANADIAN INCOME TAX CONSIDERATIONS

TAX ELECTION TO DEFER A GAIN

GENERAL INFORMATION ABOUT THE TRANSACTION

What is the transaction that is going to take place?

On May 3, 2010, holders of units (“Unitholders”) of Enbridge Income Fund (“ENF”) voted to accept a proposed Plan of Arrangement (the “Arrangement”) whereby the trust units of ENF (“Units”) held by all Unitholders other than Enbridge Inc. and 5,000,000 Units held by Enbridge Inc. will be exchanged on a one-for-one basis for common shares (“EIFH Shares”) of Enbridge Income Fund Holdings Inc. (“EIFH”). ENF has received approval from the Court of Queen’s Bench of Alberta to proceed with the Arrangement and it is expected that on completion of the Arrangement, the EIFH Shares will be listed on the Toronto Stock Exchange (“TSX”) and that the Units will be de-listed.

Why is the Arrangement taking place?

The Arrangement is taking place primarily as a result of changes to Canadian federal income tax legislation relating to specified investment flow through trusts (“SIFTs”) that were enacted into law (the “SIFT Rules”) in June 2007. The SIFT Rules will make ENF subject to federal income tax beginning in 2011. Therefore, ENF will not be able to continue to distribute pre-tax income out to Unitholders. The Arrangement provides an alternative vehicle for income from ENF to be distributed on a more tax effective basis. Please refer to the ENF Information Circular dated March 31, 2010 for further details.

When will the exchange of Units for EIFH Shares take place?

The exchange of Units for EIFH Shares will occur pursuant to the Arrangement at the first moment (the “Effective Time”) on the date selected for the Arrangement to be completed (the “Effective Date”). It is expected that the Effective Date will be on December 17, 2010.

Who is affected by the Arrangement?

The Arrangement affects any “Unitholder of record” as at the Effective Time on the Effective Date. Generally, if you beneficially own Units at such time, you will be affected. Unitholders should contact their broker(s) or review their December 2010 investment statements to determine if their Units were exchanged for EIFH Shares in December 2010.

The Information Circular refers to a “Subsequent Mailing”. What will be mailed to Unitholders?

The Subsequent Mailing will be mailed out shortly after the Effective Date and will:

1. advise Unitholders that the Arrangement has been completed and of the Effective Date;
2. direct Unitholders to the ENF website for more information;
3. remind Unitholders that the exchange of Units for EIFH Shares (“Exchange”) pursuant to the Arrangement is a taxable transaction (disposition) which must be reported on their tax returns;
4. confirm the closing price of the Units on the TSX on the last trading day prior to the time of the Exchange;
5. direct eligible Unitholders who wish to elect to defer all or a portion of any gain arising from the Exchange to complete an election form either electronically through a link on the ENF website or manually by requesting a hard copy of the election form, pre-populated with general information about EIFH, through the Help Line set up by ENF; and
6. provide a toll-free telephone help line number (the “Help Line”) which eligible Unitholders can call for information pertaining to the forms required to make an election to defer all or a portion of any gain. The Help Line will be available shortly after the Effective Date until the close of business on February 28, 2011.

Do the federal tax legislation amendments that provide for automatic tax-deferred conversions for holders of trust units to shares of corporations apply to the Arrangement?

Under the structure as approved, an automatic tax-deferred conversion is not applicable to the Arrangement or to the Exchange. However, certain eligible Unitholders may elect to defer all or a portion of the gain arising from the Exchange by filing an election form with the Canada Revenue Agency (“CRA”). The election form must be filed with CRA in accordance with strict time limitations so Unitholders should ensure they give themselves adequate time to obtain the information required to prepare the election form. A more detailed review of the election process for eligible Unitholders is included below.

CANADIAN INCOME TAX CONSIDERATIONS

The following brief summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Unitholder. It is impractical to comment on all aspects of Canadian federal income tax laws which may be relevant to any particular Unitholder. The summary that follows applies to a Unitholder who is a resident of Canada (“Resident Holder”) and holds Units as capital property for purposes of the Income Tax Act (Canada) (the “Tax Act”). Where the Units are held by Resident Holders who might not otherwise be considered to hold their Units as capital property, they may, in certain circumstances, be entitled to have such the Units treated as capital property by making the irrevocable election pursuant to subsection 39(4) of the Tax Act. Unitholders contemplating making this election should consult with their own tax advisors. Unitholders who hold Units on account of income are urged to consult their own tax advisors.

All Unitholders are advised to obtain independent advice from a tax advisor who is knowledgeable on the income tax consequences arising from the Exchange based on the Unitholder’s own personal circumstances.

Unitholders are urged to consult their own tax advisors for the tax implications to them, particularly if they are not Resident Holders; are uncertain as to whether their holdings of Units are in registered or unregistered accounts; are uncertain as to whether their Units are held on account of capital or income; or if they need assistance with the preparation of the tax election to defer any gain arising on the Exchange.

What is the impact of the Exchange on Units held by a Resident Holder through a registered account?

Generally, there should be no tax impact to a Resident Holder if his or her Units are held in a tax-exempt registered account (a “registered account”) such as an RRSP, RRIF, pension plan, etc.

What about Units held by a Resident Holder that are not held in a registered account?

The exchange of Units that are not held in registered accounts by a Resident Holder will generally be a taxable transaction to the Unitholder and the following considerations will apply.

Does ENF have my ACB?

ENF does not have the information required to determine a Unitholder’s ACB for his or her Units as each person’s situation is unique. For example, ENF is not privy to the price paid for any Units acquired on the open market nor does it know the length of time that a Unitholder has held his or her Units for purposes of determining the impact of any distributions on the ACB.

How do I calculate my ACB in determining the capital gain or loss?

Unitholders should contact their investment brokers and/or refer to their current and historical investment documentation (such as brokerage statements) to determine both a) the total number of Units held in non registered accounts at the Effective Time on the Effective Date and b) the historical cost amount of the Units acquired and c) the dates they were acquired. If Units are held with various brokers, the Unitholder must ensure that all Units held in each non registered account be included and aggregated. If Units have been transferred to another broker, the current broker may not have the acquisition history (i.e., purchase price and date acquired). Thus, Unitholders may have to go back to the original broker through which they purchased the Units. The ACB is determined only with respect to Units held in non-registered accounts. The Units held in registered accounts are not taken into consideration.

The ACB calculation will generally be: actual purchase price paid plus acquisition costs less the non-taxable portion of distributions received on the Units held from the acquisition date to the Effective Date. Where Units are acquired over time, the Unitholder should begin with the first Units acquired and keep a running total of the ACB with new purchases being added to it. Further complexity arises where some, but not all, of the Units have been sold. The weighted average cost of the Units must be determined in order to determine the decrease to the total ACB with respect to the Units disposed of.

The EIFH website www.enbridgeincomefund.com has a complete listing of all distributions made on the Units since inception of Enbridge Income Fund in 2003, including the allocation between taxable and non-taxable (i.e., return of capital) on the following link www.enbridgeincomefund.com/investor/tax-information.php. If a Unitholder does not have access to a computer, the Unitholder may contact EIFH’s Investor Relations Department at (866) 859-5957 (Toll Free) to have a copy sent to them. The non-taxable portion is given on a per Unit basis. Therefore, the total amount of the non-taxable portion of a particular distribution can be determined by multiplying the number of Units that received a particular distribution with the non-taxable per Unit allocation for that distribution.

As a simple example, to the extent the Units held on the Effective Date were all acquired on the initial public offering in 2003 for $10.00 per Unit, a Unitholder’s ACB might be calculated as follows:

Sample Calculation:

Are Units received from a Distribution Reinvestment Investment Plan (“DRIP”) taken into account in determining the ACB?

Any Units acquired from a DRIP that are held in a non-registered account must be included in the total number of Units disposed of for income tax purposes. The ACB of Units received from the DRIP is the amount of the distribution which a Unitholder received in the form of Units and must be calculated from the date such Units were received in the manner as set forth above.

Is it possible to defer the gain, if any, to a later date?

Yes, a Resident Holder that is an Eligible Unitholder may make a joint election (the “Tax Election”) with EIFH pursuant to subsection 85(1) of the Tax Act (or in the case of a Unitholder that is a partnership, pursuant to subsection 85(2) of the Tax Act) and thereby obtain a full or partial tax-deferred “rollover” for purposes of the Tax Act in respect of the Exchange. The extent of such rollover will depend on the amount specified in the Tax Election (the “Elected Amount”) and the ACB to the Eligible Unitholder of such Units immediately before the Effective Time. Provided that the Elected Amount equals the aggregate ACB to the Eligible Unitholder of the Units in respect of which a Tax Election is made, the exchange of such Units for EIFH Shares can occur on a fully tax-deferred basis. Unitholders wishing to defer a gain should consult their own tax advisors for assistance in making a Tax Election.

TAX ELECTION TO DEFER A GAIN

Who is eligible to make the Tax Election?

An “Eligible Unitholder” is a beneficial holder of Units that is not a Non Resident Unitholder or a Tax Exempt Unitholder immediately before the Effective Time. Generally, residents of Canada who pay Canadian income taxes will be eligible to make the Tax Election. Unitholders who are uncertain as to their eligibility to make a Tax Election are urged to consult their own tax advisors. Eligible Unitholders who hold their Units on account of income may be eligible to make a Tax Election. Such Unitholders are urged to consult their own tax advisors in this regard.

Who is a “Non-Resident Unitholder”?

A “Non Resident Unitholder” is a beneficial holder of Units that is a Non Resident. A “Non Resident” Is (i) a person who is not a resident of Canada, and is not deemed to be a resident of Canada for purposes of the Tax Act, or (ii) a partnership that is not a “Canadian partnership” within the meaning of the Tax Act.

Who is a “Tax-Exempt Unitholder”?

A “Tax Exempt Unitholder” is a beneficial holder of Units that is exempt from tax under Part I of the Tax Act. This includes Units held in registered accounts such as RRSPs, RRIFs and pension plans.

What is the deadline for filing the Tax Election?

Pursuant to subsection 85(6) of the Tax Act, the Tax Election in respect of Units of an Eligible Unitholder must be filed with the CRA on or before the day that is the earliest of the days on or before which that Eligible Unitholder and EIFH are required to file a tax return for the taxation year in which the Exchange occurred. The Tax Election is a joint election between an Eligible Unitholder and EIFH. As this is a joint election and the ACB of the ENF Units received by EIFH are determined from the Tax Elections, ENF has advised that, to allow time for processing and ensure that all elections will be filed by the earliest possible deadline for certain Unitholders, EIFH will not execute or file Tax Elections that are received by EIFH after February 28, 2011.

EIFH will forward to the CRA and applicable provincial or territorial taxation authorities ON OR BEFORE March 31 only those properly completed elections received by ENF by February 28, 2011. Eligible Unitholders who wish to enter into one or more Tax Elections should give their immediate attention to this matter and should carefully review the instructions in the Subsequent Mailing immediately upon the receipt and/or consult the ENF website for additional information. Eligible Unitholders are urged to consult their own tax advisors with respect to the advisability of making the Tax Election, including in connection with computing the ACB of their Units and determining the Elected Amount.

Since the Tax Election is a joint election, who is responsible for initiating this election?

It is the sole responsibility of the Eligible Unitholder who wishes to take advantage of the tax deferral provided for by section 85 of the Tax Act (and any corresponding provincial or territorial legislation) to attend to the proper completion of the Tax Election forms required under the Tax Act (and any corresponding provincial or territorial legislation). ENF, EIFH or any nominee thereof will not be responsible for the accuracy of the ACB and/or the number of Units reported on a Tax Election form, except for the obligation of EIFH to sign and forward to the CRA (and any applicable provincial or territorial taxation authority) such duly completed Tax Elections that are received by EIFH by February 28, 2011. ENF, EIFH or any nominee thereof will not be responsible or liable for any taxes, interest, penalties, damages or expenses resulting from the failure by a Unitholder to properly complete any form of Tax Election.

What can I do now in anticipation of making the Tax Election?

Unitholders can prepare now by doing the following:

1. Determine if they are an “Eligible Holder”;
2. Determine the number of Units held in non-registered accounts;
3. Determine whether the Units are held on account of capital or income; and
4. Determine the preliminary ACB of the Units held in these non-registered accounts

I do not anticipate making the Tax Election, is there anything I can do now in anticipation of the Exchange?

Unitholders can prepare now by doing the following:

1. Determine if they are a Resident Holder;
2. Determine if they hold Units in non-registered accounts since they will have a taxable transaction to report;
3. Determine if the Units are held on account of income or capital;
4. Determine the preliminary ACB of the Units held in these non-registered accounts; and
5. If they are not a Resident Holder, contact their tax advisor to determine the tax implications applicable to their specific circumstances.

The allocation between taxable and non-taxable distributions for 2010 will not be known until January or February 2011. How can I determine my ACB now?

At this time, Unit holders who hold their Units on account of capital can only determine the ACB of their Units held as at December 31, 2009. Based on information posted on the ENF website, 2010 distributions will continue to be $0.096 per Unit per month until November 30, 2010 (the December 14, 2010 distribution will be paid in January 2011) and the taxable component is estimated to be 80%, which means that the non-taxable component is estimated to be 20%. When determining the ACB of their Units, Unitholders can use this as an estimate for 2010 to obtain a preliminary calculation. The actual non-taxable component for 2010 will be reported on the ENF website as soon as it is known after the December 31, 2010 year end. Unitholders will then be able to adjust for the actual 2010 non-taxable component and be ready to ensure that EIFH receives the Tax Election before the February 28, 2011 deadline.

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