Leases by the taxpayer ("GMAC") to GM dealership customers stipulated a "residual value" at which the customer could purchase the vehicle at lease termination. General Motors of Canada Limited ("GMC") would make "residual value support payments" to GMAC in consideration for GMAC increasing the residual values (thereby reducing lease payments).
Initially, GMAC was entitled to retain all the support payments. In a subsequent period, "true up" payments were made on the lease terminations based on the actual loss (if any) experienced by GMAC relative to the (inflated) residual value, so that if that loss were less than the support payment (or nil, if the customer purchased the vehicle for the residual value), GMAC refunded the support payment to GMC to that extent (and, conversely, received a further payment from GMC if the loss were greater.) Graham J found that, for both periods, the support payments were includable under s. 9, and thus excluded from s. 12(1)(x) per s. 12(1)(x)(v). They should be so treated, rather than as a contribution toward the purchase of the vehicles, as their purpose was to compensate GMAC for its lost income. The situation was more in line with Ikea than Woodward.
Graham J stated (at para. 30):
Had the contract residual value been set where it should have been, the customers' monthly lease payments would have been higher. The residual value support payments had the simple effect of replacing that lost income.
See summaries under s. 9 – timing, s. 12(1)(x), and s. 9 – computation of profit.