Lessor enters into equipment leases (the "Asset Leases") with users of the equipment (the "Asset Lessees"), who also have options to purchase the equipment. The Lessor then assigns each Asset Lease to a securitization trust (the "Lessee"), giving rise to a "Concurrent Lease" that commences on the lease date set out in the Asset Lease and ends XX months after the termination of the Asset Lease. The Lessee appoints the Lessor as the servicer. The Concurrent Lease also gives the Lessee the option to prepay rent under the Concurrent Lease for XX% of the net present value of the Asset Lease. The Concurrent Lessee is registered for GST and satisfies its obligations relating to GST on Prepaid Rent and Deferred Rent by providing the Lessor with a promissory note.
In connection with an interpretation that the Concurrent Leases would constitute an arrangement similar to a lease for purposes of s. 136(1) and the definition of "debt security" in s. 123(1), CRA stated "the form of the lease agreement should be respected where the Lessor has title to the underlying property," and that "the option to purchase granted by the Lessor does not necessarily result in a change in the characterization of the Concurrent Lease."