Circular No.: 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
Introduction
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.
Definitions
4. For the purpose of this policy:
(a) "Crown corporations" includes both Crown corporations included
in Schedules C and D to the Financial Administration Act
and other Crown-owned corporations.
(b) "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.
(c) "Financial claim on a corporation" means instruments of
indebtedness, common shares or other forms of ownership, (i.e., loans, advances
and investments).
(d) "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.
(e) "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.
(f) "Physical assets" mean the tangible assets of plant, property,
equipment and inventories.
(g) "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.
Application
5. This policy applies in all instances where:
(a) 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
(b) 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.
Policy
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:
(a) 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
(b) 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:
(a) 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
(b) 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.
Policy Guidelines
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:
(a) Canada Post Corporation Act
(b) Financial Administration Act
(c) National Parks Act
(d) Public Lands Grants Act
(e) Public Service Rearrangement and Transfer of
Duties Act
(f) Public Works Act
(g) 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.
Implementation
19. This policy is applicable to all future transactions, as well as to all
past transactions, not yet finalized in the accounts of Canada.
Enquiries
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
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