Motor vehicle lease agreements provide that the lessee will automatically acquire ownership after making specified rent payment, and with the payment of an often nominal residual value – and if the lessee decides not to acquire, any excess of the sales proceeds are credited to it by the lessor After indicating that generally “re-characterization of legal relationships is only possible where a taxpayer's designation of the transaction does not adequately reflect its true legal effects,” CRA stated:
[W]hether a contract is a purchase contract or a lease contract should be resolved primarily on the basis of the legal relationships created by the terms of the agreement. However, in light of the facts as presented, we believe that there should be further study to determine the nature of the contract.