14.114    A transfer is defined as a transaction in which one institutional unit provides a good, service or asset to another unit without receiving in return from the latter any counterpart in the form of a good, service or asset. Transfers may be made in cash or in kind and can be divided into current or capital transfers. A capital transfer is one in which:

1. ownership of an asset (other than cash or inventories) is transferred from one institutional unit to another (i.e. a capital transfer in kind);
2. cash is transferred to enable the recipient to acquire another asset; or
3. the funds realised by the disposal of an asset are transferred.

14.115    The first category of capital transfers includes cancellation of liabilities by mutual agreement between creditor and debtor, sometimes known as 'debt forgiveness'. However, writing off debt is not a transaction between institutional units and therefore does not appear in either the capital or financial accounts of the ASNA. The repudiation of debt by a debtor is also not a transaction and is not recognised in the ASNA. Ideally, a debt write-off should be recorded in the other changes in the volume of assets account of the creditor and debtor.

14.116    The second category of capital transfers includes grants made by governments or international organisations to other governments, including grants by one level of government to another. Such grants are recognised as capital grants because the recipients, under the terms of the grants, are required to spend the money on capital projects (i.e. acquisition of non-financial assets). It also includes taxes that are deemed to be capital taxes, which are taxes, such as inheritance and gift taxes, that are non-recurrent and required to be paid only when a specific event (such as the death of the taxpayer) occurs. Capital taxes do not include taxes on sales of assets (e.g. capital gains taxes) as these are not taxes on transfers.

14.117    In the ASNA, examples of capital transfers from the private sector to the public sector include contributions to local government by real estate developers towards the cost of the construction of roads etc. on their subdivisions; contributions by coal companies towards the cost of construction of railway lines; and contributions by businesses and persons towards the cost of erecting power lines on private property.

14.118    Examples of capital transfers from the general government sector to other sectors (i.e. capital grants) include building and equipment grants made by general government to research laboratories, private schools, and university residential colleges, as well as assistance to first home buyers. Capital grants from the Commonwealth government to State and local governments consist of the following:

• general purpose capital grants (untied payments to assist with State and Territory outlays for capital purposes);
• specific purpose grants, which are payments to the States and Territories to meet capital expenditure, the purpose of which is designated by the Commonwealth, and/or which are conditional on States agreeing to undertake particular actions. Some of these grants are passed on by State and Territory governments to local government authorities. Examples of specific purpose grants for capital purposes include grants to the States and Territories for universities and technical colleges, government and non-government schools, teaching hospitals, public housing and roads; and
• direct capital grants to local government authorities.

14.119    The only capital taxes in Australia are inheritance and gift taxes. In the late 1970s, their value started to decline considerably, and they have been insignificant since the mid-1980s.

14.120    Capital transfers to non-residents comprise Commonwealth general government foreign aid in the form of the provision of capital assets. Other transactions, such as debt forgiveness, could also be classified as capital transfers to/from non-residents, as described in Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods. To date, no such transactions have been identified. When households change their economy of residence, there are changes to the status for the assets they own and liabilities they owe. These changes are recorded as reclassifications through the other changes in volume of assets account.

14.121    Capital transfers also include major payments in compensation for extensive damages or serious injuries not covered by insurance policies. The payments may be awarded by courts of law or settled out of court. Legacies and large gifts from corporations to non-profit institutions to finance GFCF are also included.