Consensus (INT1038_12-07_COMPmay19_01-20)

This Interpretation applies to transfers of assets, or assets and liabilities, to wholly-owned public sector entities from other entities within the same group of entities, other than:

(a)            transfers made as consideration for the provision by the transferee of assets or services (including the provision of debt finance) at fair value to the transferor; and

(b)            transfers to or from government departments and other government controlled not-for-profit entities arising as a result of a “restructure of administrative arrangements”, which is defined in AASB 1004 as:

"The reallocation or reorganisation of assets, liabilities, activities and responsibilities amongst the entities that the government controls that occurs as a consequence of a rearrangement in the way in which activities and responsibilities as prescribed under legislation or other authority are allocated between the government’s controlled entities.

The scope of the requirements relating to restructures of administrative arrangements is limited to the transfer of a business (as defined in AASB 3 Business Combinations).  The requirements do not apply to, for example, a transfer of an individual asset or a group of assets that is not a business.”

A transfer to a wholly-owned public sector entity shall be recognised by the transferee as a contribution by owners when and only when it satisfies the definition of “contributions by owners” in AASB 1004. The criteria set out in paragraphs 8 and 9 shall be applied in determining whether a transfer satisfies the definition of contributions by owners.

Regardless of the other features or conditions of a transfer, the transfer is a contribution by owners where its equity nature is evidenced by any of the following:

(a) the issuance, in relation to the transfer, of equity instruments which can be sold, transferred or redeemed;

(b) a formal agreement, in relation to the transfer, establishing a financial interest in the net assets of the transferee which can be sold, transferred or redeemed; or

(c) formal designation of the transfer (or a class of such transfers) by the transferor or a parent of the transferor as forming part of the transferee’s contributed equity, either before the transfer occurs or at the time of the transfer.

The classification of a transfer to a wholly-owned public sector entity from the government or another entity controlled by the same government shall be determined by reference to the rights of the government in respect of the transfer held directly by the government or indirectly through any of its controlled entities.  Accordingly, for a transfer to a public sector entity to satisfy part (b) of the definition of contributions by owners in AASB 1004, a right to sell, transfer or redeem the financial interest in the net assets of the transferee shall be held directly or indirectly by the government.

Where the original transferor is another entity controlled directly or indirectly by the controlling government of the transferee, a transfer to a wholly-owned public sector entity shall be accounted for by the transferee as a transfer from that government or a government-controlled parent of the transferee.  Where the controlling government of the transferee is the original transferor, a transfer to a wholly-owned public sector entity shall be accounted for by the transferee as a transfer from the immediate transferor (which would be the controlling government if there was no interposed parent).

If a transfer to a wholly-owned public sector entity is classified by the transferee as a contribution by owners, and the transferor is the transferee’s controlling government or another entity controlled directly or indirectly by that government, that transferor shall classify the transfer as:

(a) a distribution to owners, if the transferor makes the transfer to all or part of its ownership group; or

(b) the acquisition of an ownership interest in the transferee, if the transferor makes the transfer to an investee.

A transfer designated as a contribution by owners shall not be redesignated as income.  Similarly, a transfer designated as income shall not be redesignated as a contribution by owners.

A transfer classified by the transferor as a distribution to owners shall be classified by the immediate transferee as a redemption of part or all of its ownership interest in the transferor when and only when its equity nature is evidenced by any of the following:

(a) the cancellation, in relation to the transfer, of equity instruments which can be sold, transferred or redeemed;

(b) amendment of a formal agreement, in relation to the transfer, to reduce the transferee’s financial interest in the net assets of the transferor which can be sold, transferred or redeemed; or

(c) formal designation of the transfer (or a class of such transfers) as a redemption of an ownership interest in the transferor, made by the government or a government-controlled parent of the transferee, either before the transfer occurs or at the time of the transfer.