Financial Corporations (Transfer of Assets and Liabilities) Act 1993

The Financial Corporations (Transfer of Assets and Liabilities) Act 1993 is a specialised Commonwealth Act that facilitates certain transfers of assets and liabilities between qualifying financial corporations. Its object is tied to the proper organisation of Australian activities following the grant of an ADI authority to the receiving corporation.

For most businesses, this Act will never be part of day to day operations. It is not a general law for selling a business, moving assets between related companies, or restructuring an ordinary corporate group. It is directed to a narrow set of financial sector entities and a narrow class of transfers.

Its practical importance today is mainly historical. If a financial group completed a transfer before 1 July 2006 and relied on this Act, the law may still matter when checking title to assets, the validity of a transfer, registration steps, tax treatment, or whether third party consent was needed. That can become important in a sale process, refinancing, internal remediation project or tax review.

The Act does not apply to all corporations. It uses specific definitions such as ADI, eligible foreign ADI, eligible local ADI, newly established local ADI, eligible money market corporation, eligible subsidiary, transferring corporation and receiving corporation.

An ADI is a body corporate that is an ADI for the purposes of the Banking Act 1959. An eligible foreign ADI is an ADI that is a foreign ADI for Banking Act purposes and that was granted its ADI authority before the Act commenced, or after commencement under an application made before commencement or made after commencement but before 1 July 2003. An eligible local ADI is a local ADI granted its ADI authority on or before 18 June 1993. A newly established local ADI is a local ADI granted its ADI authority after 18 June 1993 in the circumstances set out in the definition.

An eligible money market corporation must be incorporated under Commonwealth, State or Territory companies legislation and be a registered entity included in the category for money market corporations under the Financial Sector (Collection of Data) Act 2001. An eligible subsidiary must also satisfy specific requirements, including being a financial corporation and a registered entity under that Act.

That means most businesses are outside the Act. Ordinary private companies, family businesses, retailers, technology companies, professional services firms and most SMEs will usually have no reason to rely on it. Even within a financial group, the Act only applies if the exact statutory pathway is satisfied.

Section 7 is the gateway provision. The Act applies only as provided in that section. It sets out the transfer situations in which the Act can apply.

First, the Act can apply where an eligible local ADI is a subsidiary of a foreign corporation, the foreign corporation is an eligible foreign ADI, and the eligible local ADI or one of its eligible subsidiaries proposes to transfer or transfers an asset or liability to the foreign corporation.

Second, it can apply where an eligible local ADI is a subsidiary of a foreign parent corporation and the eligible local ADI or one of its eligible subsidiaries proposes to transfer or transfers an asset or liability to an eligible foreign ADI that is also a subsidiary of that parent corporation.

Third, it can apply where an eligible money market corporation is a subsidiary of a foreign corporation, the foreign corporation is an eligible foreign ADI, and the eligible money market corporation or one of its eligible subsidiaries proposes to transfer or transfers an asset or liability to the foreign corporation.

Fourth, it can apply where an eligible money market corporation is a subsidiary of a foreign corporation and the eligible money market corporation or one of its eligible subsidiaries proposes to transfer or transfers an asset or liability to a newly established local ADI that is a wholly-owned subsidiary of the foreign corporation.

These pathways are narrow. The Act is not a general permission for any transfer within a banking group. The transfer must fit one of the listed structures and must also satisfy the extra conditions in section 7(6).

Section 7(6) adds three mandatory conditions. First, the Treasurer must determine in writing that the transfer is reasonably required for the proper organisation of the activities in Australia of the transferring and receiving corporations following the grant of an ADI authority to the receiving corporation. Second, within the prescribed period, the transferring corporation must give written notice of the proposed transfer identifying the asset or liability to be transferred to the Treasurer and, if State or Territory law requires registration, to the person authorised to register the transfer. Third, the transfer must be effected before 1 July 2006.

The prescribed period is 6 months from commencement if the receiving corporation already had an ADI authority when the Act commenced, or otherwise 6 months from the day the receiving corporation was granted an ADI authority.

If a transfer falls within the Act, the law changes the usual mechanics in several important ways.

Section 9 says that if, apart from the Act, the transferring corporation or receiving corporation would have been required before effecting the transfer to obtain the consent or approval of a third person in a particular respect, or to give particular information to a third person, the transfer may be validly effected without that consent, approval or information step. This is one of the Act's most commercially significant features because financial assets and liabilities are often tied to contracts, instruments, security arrangements and registration systems that would otherwise require multiple third party interactions.

Section 10 provides an exemption from taxes and fees that would otherwise be payable under Commonwealth law, State law or Territory law in respect of the transfer or its registration. However, the exemption does not extend to the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997. Income tax is dealt with separately in Part 3.

Section 11 deals with compensation if, apart from that section, the transfer would result in an acquisition of property otherwise than on just terms. In that case, reasonable compensation is payable as agreed or, failing agreement, as determined by a court of competent jurisdiction. The section also requires any damages, compensation or other remedy recovered in another proceeding arising out of the same event or transaction to be taken into account.

Section 8 extends the Act to every external Territory. Section 12 allows the Treasurer to delegate the power under section 7(6)(a) to APRA, an APRA member or an APRA staff member by signed instrument.

Part 3 is directed to income tax relief for transfers. Section 13 states that the object of the Part is to provide income tax relief by modifying the effect of certain provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. Section 14 says expressions used in Part 3 and in the 1936 Act have the same meaning, and that for the purposes of applying the 1936 Act to a taxpayer, the provisions of Part 3 are to be treated as if they were provisions of that Act.

This is important because the Act does not simply exempt a covered transfer from income tax. Instead, it creates targeted rules that alter how the transferor and transferee are treated for particular tax purposes.

Section 14A modifies the operation of Part 3 for transfers from subsidiary members of consolidated groups or MEC groups. Its object is to ensure that, where appropriate, relevant provisions affect the income tax position of the head company and that the receiving corporation's position is worked out by reference to the head company's tax attributes, including those arising from the single entity rule, entry history rule and head company tax cost setting rule in the Income Tax Assessment Act 1997. The section also states that it does not affect the operation of section 23 or Division 8.

For businesses reviewing a historical group restructure, this means the tax analysis may need to be done at head company level rather than only at the level of the subsidiary that actually transferred the asset or liability.

Section 15 deals with asset transfers generally. For the transferring corporation, the transfer is treated as if it had not occurred when determining whether certain amounts are included in assessable income or allowable as deductions under the listed provisions. For the receiving corporation, a deduction is not allowable under section 8-1 of the 1997 Act for expenditure incurred in acquiring an asset as a result of the transfer, except for trading stock. The receiving corporation is generally treated as having acquired the asset for an amount equal to what would have been the asset's cost base to the transferring corporation for CGT purposes.

Section 16 deals with liability transfers generally. For the transferring corporation, the transfer is again treated as if it had not occurred for the listed assessable income and deduction questions. For the receiving corporation, an amount is not included in assessable income merely because it assumed the liability as a result of the transfer. For later tax treatment of the liability, the receiving corporation is treated as if it had been paid or given consideration for the original transfer, with the amount of that consideration worked out by reference to the consideration paid or given to the transferring corporation for assuming the liability.

The table of contents also shows later divisions dealing with securities, capital gains and capital losses, trading stock, bad debts, interest withholding tax, tax losses and continuity of partnerships. The available text begins section 17 on securities and confirms that it adjusts the receiving corporation's consideration for a transferred security by reference to amounts previously included in assessable income or allowed as deductions to the transferring corporation. However, the available text stops part way through section 17, so the later detailed provisions should be checked in the full current compilation before relying on them.

The practical point is that Part 3 creates a carry-over style framework in many situations. A group reviewing an old transfer should not assume a fresh deduction, a market value reset, or a simple tax exemption. Historical tax returns, cost base records, bad debt treatment, trading stock treatment, withholding tax analysis and loss utilisation may all need to be checked against the exact provision that applied.

Because this Act now matters mainly in legacy reviews, document checking is critical. A transfer deed on its own may not be enough to show that the Act applied. The statutory conditions require evidence of the receiving corporation's ADI authority timing, the written determination that the transfer was reasonably required, the written notice identifying the asset or liability, and any registration-related notice required by State or Territory law.

Businesses and advisers should also check implementation records. These may include board papers, approval minutes, asset and liability schedules, completion statements, registration confirmations, tax advice and accounting workpapers. If the transfer involved land, securities, loan books or other regulated assets, separate title or registry records may also be needed to confirm what moved and when.

This matters because a missing record can become a live issue years later. A buyer, lender, auditor or regulator may ask how a particular asset moved from one entity to another, whether consent was required, or why a tax or fee was not paid. If the answer depends on this Act, the file should show the statutory pathway clearly.

The Act commenced on the day it received Royal Assent. The public metadata for the Act identifies it as No. 97 of 1993. The current public compilation referenced here is Compilation No. 17, showing the law as amended and in force on 6 May 2016 and registered on 14 June 2016.

For practical use, the most important date inside the operative provisions is 1 July 2006. Section 7(6)(c) requires the transfer to be effected before that date. That means the Act is now primarily a historical review law rather than a framework for new transactions.

The compilation notes also state that uncommenced amendments are not shown in the text of the compilation and that modifications by another law may affect how the compiled law operates without changing the text. If a transaction depends heavily on this Act, the current series page and full compilation should be checked before final advice is given.

If you run an ordinary business outside the prudentially regulated financial sector, this Act is unlikely to affect your transaction. It is not a substitute for the usual contract, corporations, tax, duty and registration analysis that applies to ordinary asset transfers.

If you are part of a banking or money market group, the practical question is usually retrospective. Did an older transfer actually satisfy the Act's gateway conditions, and were the claimed legal and tax consequences available? That question can affect title chains, due diligence responses, transaction warranties, tax risk allocation and remediation planning.

A careful reading starts with scope and timing. Then move to the written determination and notice requirements. Then check whether the group actually relied on section 9, section 10 or Part 3, and whether the records support that position. If the issue is tax, the full current compilation should be used because the later Part 3 provisions are not fully reproduced in the available text.

This page is based on the Federal Register of Legislation compilation of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993, Compilation No. 17, showing the law as amended and in force on 6 May 2016 and registered on 14 June 2016.

The available text includes Parts 1 and 2 and substantial parts of Part 3, but it is truncated during section 17. The table of contents confirms later provisions on capital gains and capital losses, trading stock, bad debts, interest withholding tax, tax losses and continuity of partnerships. Those later provisions should be checked in the full compilation before relying on detailed tax outcomes.