An agreement between Zenbrand Foods and Bennett Leasing, with Zenbrand as the lessee andBennett as the lessor, contained the following conditions, among many:Zenbrand's annual lease payment was set at $10 755 for a term of 5 years. At the end of the lease term, the ownership of the leased asset would automatically be transferred to Zenbrand unless Zenbrand had already exercised the option to buy the asset from Bennett at fair market value during the lease term. Canada Revenue Agency ruled that the agreement was not a lease but a conditional sale arrangement. Which of the following reasons could have led Canada Revenue Agency to make such a ruling about this agreement?

Question

Quizplus · Accepted Answer

The fact that the lessee automatically receives ownership of the asset at any time during the leasing period, including at the end of the lease, indicates that the agreement is not a true lease but rather a conditional sale arrangement. In a lease, the ownership of the asset remains with the lessor at all times, and the lessee does not have automatic ownership rights.

An Agreement Between Zenbrand Foods and Bennett Leasing, with Zenbrand