Leases by the taxpayer ("GMAC") to GM dealership customers leases stipulated a "residual value" at which the customer could purchase the vehicle at lease termination. If the car usage exceeded a stipulated maximum, a customer who returned rather than bought the vehicle on lease termination was charged an "excess kilometre charge," typically of $0.10 per kilometer. Customers at the inception of the lease could also increase the maximum kilometers the residual value by "purchasing" additional kilometers at 8 cents per kilometer. This reduced the residual value by the product of $0.08 and the number of "purchased" kilometers, thereby increasing their monthly rental payments.
GMAC treated the excess kilometre charges as proceeds of disposition reducing the undepreciated capital cost of its pool of Class 10 properties. In finding that they instead were received on income account, Graham J stated (at para. 18):
Whether the customer paid $0.08/km up front by purchasing additional kilometres or at the end of the lease by paying an Excess Kilometre Charge, the effect was the same. The customer was paying for an anticipated decrease in the market value of the vehicle at the end of the lease. If the customer paid for that amount up front by purchasing additional kilometres, GMAC considered it to be on income account. How then could it be on anything other than income account when the customer paid the same amount at the end of the lease?
See summaries under s. 9 – timing, s. 12(1)(x), and s. 9 – compensation payments.