A corporation acquired an automobile at the end of its lease term for $100 pursuant to exercising a bargain purchase option, and then made the automobile available to one of its employees. Is the standby charge based on $100 or a greater amount?
The Directorate indicated that a portion of each lease payment could be considered a payment for the right to purchase the property in the future, and that such portion of each lease payment added to the adjusted cost base of the bargain purchase option for the automobile. Consequently, pursuant to s. 49(3), the cost of the automobile acquired on exercise of the option was increased by the ACB of the option, and it was this increased cost that was to be used for the purposes of element C in the s. 6(2) formula. Conversely, the embedded option premiums were to be excluded from the lease payments for purposes of element E.