Rescinded [2009-10-01] - Physical Asset Transfers to Crown and Other Wholly-owned Corporations, Policy on the Approval for, and Accounting of - TB Circular 1983-39

T.B. No.: 788228

File No.: 4295-6

Date: May 19, 1983

To: Deputy Ministers of Departments and Heads of Agencies and Government Corporations

Subject: Policy on the Approval for, and Accounting of, Physical Asset Transfers to Crown and Other Wholly-owned Corporations

1. This policy covers the procedures and the accounting which are to be followed whenever a physical asset is transferred from the Government of Canada accounting entity, to a Crown or other wholly-owned corporation outside the accounting entity, and Canada will not receive from the corporation cash or physical assets in exchange equal to the market value of the physical assets to be transferred.

2. The authority which the Governor in Council or appropriate Minister has to transfer physical assets will continue to exist under such statutes as the Surplus Crown Assets Act, the Public Works Act and the Public Lands Grants Act. However when the consideration to be received by Canada for a transfer is to be less than the market value of the asset, the Treasury Board, under the authority of section 5 of the Financial Administration Act, must agree to the transfer before a Minister acts under any general Governor-in-Council authority, or before a Minister applies to the Governor in Council for any specific authority to transfer physical assets.

3. The policy outlined herein governs the amount which Canada will record as a financial claim on a Crown or other wholly-owned corporation as a result of transferring a physical asset to that corporation. Parliamentary authority will be required to record the financial claim in the accounts of Canada. The policy also addresses the corporation's accounting.

4. For the purpose of this policy:

1. "Crown corporations" includes both Crown corporations included in Schedules C and D to the Financial Administration Act and other Crown-owned corporations.
2. "Dependent corporation" means a corporation which is not financially self-sufficient and must depend upon the Consolidated Revenue Fund (CRF) for annual appropriations to cover most or all of its cash requirements.
3. "Financial claim on a corporation" means instruments of indebtedness, common shares or other forms of ownership, (i.e., loans, advances and investments).
4. "Market value" means the price that would be agreed to in an open and unrestricted market between knowledgeable and willing parties, dealing at arm's length, who are fully informed and not under any compulsion to transact.
5. "Net transfer value" means the market value of the physical asset transferred, less the market value of any physical assets exchanged and/or cash paid.
6. "Physical assets" mean the tangible assets of plant, property, equipment and inventories.
7. "Self-sufficient corporation" means a corporation which is judged to be able to finance its operations and capital programs from internally generated funds and from funds which it could raise in the capital markets on its own credit.

5. This policy applies in all instances where:

1. title or ownership of the physical asset is transferred or whenever the proceeds of any future sale of the asset accrue to the Crown corporation; and
2. Canada will not receive from the Crown corporation cash and/or physical assets in exchange equal to the market value of the physical assets to be transferred.

6. Whenever a Crown corporation does not pay to Canada cash equal to the market value of the transferred physical asset, or exchanges equal-valued physical assets, a Treasury Board submission must be made by the appropriate Department seeking approval:

1. to apply to the Governor in Council to transfer the physical assets when specific Governor-in-Council authority is required, or to act under general Governor-in-Council authority; and
2. of the amount of the related financial claim, if any, to be recorded in the accounts of Canada.

7. When Canada transfers a physical asset to a dependent corporation, the transfer will be recorded in the accounts of Canada at a value equal to any cash received as payment. Canada will not record a financial claim on the corporation.

8. When Canada transfers a physical asset to a self-sufficient corporation, the transfer will be recorded in the accounts of Canada at a value equal to the cash and financial claims received in exchange. Parliamentary approval must be obtained, to record in the accounts of Canada a financial claim on a corporation.

9. The financial claim on the corporation required by Canada from a self-sufficient corporation at the time of the transfer will equal:

1. The net transfer value of the asset if the corporation is expected to generate an acceptable rate of return, over time, on the total investment (including the transfer transaction) recorded in the accounts of Canada; or
2. An amount less than the net transfer value if the corporation is not expected to generate an acceptable rate of return. The value would be reduced until the rate of return, over time, on the reduced recorded value is acceptable.

10. When the recipient corporation, in accordance with generally accepted accounting principles, is required to record the acquisition of a transferred asset at its market value but has issues financial claims to Canada of less than the net transfer value, the difference between the net transfer value and the financial claims issued will be recorded in the corporation's accounts as "contributed surplus" or equivalent.

11. Individual circumstances will dictate the statutory authority to be used to transfer the physical assets, but some transfer authority exists under such acts as:

1. Canada Post Corporation Act
2. Financial Administration Act
3. National Parks Act
4. Public Lands Grants Act
5. Public Service Rearrangement and Transfer of Duties Act
6. Public Works Act
7. Surplus Crown Assets Act

12. Treasury Board shall set a Crown corporation's status as dependent or self-sufficient. However, the appropriate Minister may, in the Treasury Board submission, present evidence for a particular status. A corporation's status would not change frequently.

13. The guidelines for financing Crown corporations, issued as circular 1980-46, define dependent and self-sufficient corporations. A self-sufficient corporation generally has internally generated funds sufficient to carry out its operations. The determination of self-sufficiency status involves such things as examination of the corporation's profits, projected cash flow, commitments, future earnings, market prospects, etc., to determine whether it can finance operations and capital programs (including interest payments and repayment of principal were applicable) without recourse to the CRF. A corporation that, at the time of transferring a physical asset is not self-sufficient, may be so deemed if there are reasonable prospects for the corporation to achieve self-sufficiency over the foreseeable future. Receipt of compensation payments and/or grants, contributions and subsidies (as one of an eligible class of recipients) does not change a corporation's self-sufficient status.

14. The policy on the valuation of recorded assets, issued as circular 1980-47 (and described in section 10.10 of the Guide on Financial Administration) presents factors which should be examined in valuing Canada's recorded loans and investments. An acceptable rate of return for self-sufficient corporations at the date of the transfer would be the appropriate "Crown corporation rate" established by the Minister of Finance, unless the Minister of Finance stipulates another rate. The Crown corporation rate is calculated to reflect the borrowing costs of the Government. The borrowing period chosen should reflect the time period over which the self-sufficiency of a corporation is being evaluated.

15. The market value must be based on evidence, such as an appraisal, and agreed to by the appropriate Minister and the corporation. Public Works Canada or the Crown Assets Disposal Corporation should be consulted. In the event of disagreement, the determination of the market value may be submitted to Treasury Board for decision.

16. Parliamentary approval to record a financial claim in a self-sufficient corporation would normally be obtained through Main or Supplementary Estimates. Preferably it should precede any specific authorization to transfer by Governor in Council, or any action when a Minister already has general authorization from the Governor in Council.

17. A vote in Main or Supplementary Estimates would be for an amount equal to the increased financial claim on the corporation. If Parliament does not approve the proposed additional financial claim on the corporation to which physical assets have been transferred, the accounts of Canada will not show an increased financial claim on that corporation.

18. When Canada receives and records a financial claim on a corporation as a result of transferring physical assets, the value attached to the non-cash financial assets received would be recorded as "proceeds from sales" under the budgetary revenues of Canada. They amount may, if considered material, be given special disclosure in Canada's summary financial statements.

19. This policy is applicable to all future transactions, as well as to all past transactions, not yet finalized in the accounts of Canada.

20. Enquiries about this policy should be directed to the Director, Financial and Operational Management Policy, Policy Development Branch, Office of the Comptroller General. 996-7031

Jacques C. Léger
Deputy Comptroller General
Policy Development Branch