## Boundary between capital and current transfers

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---

### Key findings on definitions and conceptual alignment
- Comparison of definitions:
  - 2025 SNA (paragraphs 4.28, 9.10, 11.239) defines capital transfers as “unrequited transfers, either in cash or in kind, linked to the acquisition, disposal or transfer of an asset (other than cash or inventories); or where a liability is forgiven or assumed; or where the transfers are intended to address accumulated losses incurred over a multi-year period.”
  - GFSM 2014 (paragraphs 3.15–3.16) first states capital transfers as transfers “in which the ownership of an asset (other than cash or inventories) changes from one party to another” and only subsequently clarifies cash transfers may qualify as capital transfers.
- Noted ambiguity:
  - GFSM ordering (“other than cash”) may suggest capital transfers are primarily non-cash, creating potential misinterpretation.
- 2025 SNA improvement:
  - explicit upfront mention that transfers can be “in cash or in kind” and explicit inclusion of transfers intended to address accumulated losses incurred over a multi-year period.
- Practical examples in other standards:
  - ESA 2010 (paragraphs 4.145–4.167, 11.252) and 2025 SNA provide helpful enumerations (investment grants, capital taxes, debt forgiveness/assumption, major compensation payments, transfers to cover large accumulated deficits).
- GFSM existing guidance:
  - paragraphs 6.91 and 6.124 clarify distinction from subsidies and treat investment grants and transfers to cover large operating deficits accumulated over two or more years as capital transfers, but these examples are not explicit in Chapter 3 (paragraph 3.16).

### Issue A — Definition of capital transfers: options and recommendation
- Options identified:
  - Option A1: Maintain current GFSM 2014 language.
  - Option A2: Align GFSM language to 2025 SNA / BPM7 by replacing first two sentences of GFSM 2014 paragraph 3.16 with wording mirroring 2025 SNA paragraphs 4.28, 9.10 and 11.239 (and BPM7 paragraph 3.33).
  - Option A3: Align Chapter 3 core definition with 2025 SNA and supplement it with illustrative examples directly after the definition; explicitly reference investment grants and capital injections and the more detailed Chapter 6 descriptions.
- Potential drawbacks of A3:
  - illustrative list may be perceived as exhaustive, creating unintended boundary effects;
  - drafting examples that work across all country contexts is challenging.
  - Proposed mitigation: include an explicit sentence stating examples are not exhaustive.
- Draft recommendation:
  - Task Team recommends Option A3 to combine conceptual alignment with 2025 SNA and clearer, more operational guidance by adding examples in Chapter 3.
- GFSAC feedback:
  - At the May 2026 GFS Advisory Committee (GFSAC) meeting there was support for Option A3.
  - GFSAC suggested considering a box to clarify different types of unrequited transfers and their implications for fiscal policy analysis.

### Issue B — Distinguishing between current and capital transfers: options and recommendation
- Background:
  - GFSM defines current transfers as transfers which are not capital transfers; GFSM 2014 paragraph 3.17 and 2025 SNA paragraph 9.39 state “Current transfers directly affect the level of disposable income and influence the consumption of goods or services.”
  - GFSM and SNA adopt the rule: “if there is doubt about whether a transfer should be treated as current or capital, it should be treated as current” (GFSM 2014 paragraph 3.18).
  - Classification may often be easier from the perspective of the government’s counterparty (e.g., investment grants for home improvements seen as capital transfers by households).
  - 2025 SNA paragraphs 9.40 and 11.241 give illustrative examples where counterparty perspective is crucial.
- Options identified:
  - Option B1: Maintain current GFSM 2014 language without additional guidance.
  - Option B2: Add guidance that, in determining whether a transfer is current or capital, it may be useful to consider the perspective of the government’s counterparty.
- Potential drawbacks of B2:
  - compilers may lack reliable information about the counterparty’s balance sheet treatment;
  - without worked examples, counterparty perspective test may be interpreted inconsistently across countries.
- Draft recommendation:
  - Task Team recommends Option B2 to strengthen practical guidance by clarifying that in borderline cases classification may be easier from the counterparty’s perspective.
- GFSAC feedback:
  - At the May 2026 GFSAC meeting there was support for Option B2.
- Interaction with Issue A:
  - Recommendation B2 complements Proposal A3 (revised definition and examples in Chapter 3).

### Issue C — Time of recording: assessment, options and recommendation
- Background:
  - 2025 SNA (paragraphs 4.198–4.204) gives detailed guidance on time of recording distributive transactions (fines and penalties recorded when issuing unit has an unconditional claim — paragraph 4.203; grants and voluntary transfers: recorded when conditions are fulfilled if recipient has a legal claim, otherwise when payment is made — paragraph 4.204).
  - GFSM 2014 wording on timing is largely aligned with 2025 SNA and identical in many cases (GFSM paragraphs 3.85–3.86).
  - Special case: transfers intended to address accumulated losses incurred over a multi-year period are recorded when obligation to cover losses arises, not when losses are incurred.
  - In-kind capital transfers in the form of a nonfinancial asset affect net worth but may have no impact on net lending/net borrowing (one exception noted).
- Options identified:
  - Option C1: Maintain current GFSM guidance on time of recording.
  - Option C2: Retain general principles but add more guidance for specific types of capital transfers where the meaning of accrual is less clear (paragraph 33).
- Considerations and potential drawbacks:
  - Option C1 potential drawback (paragraph 32): "there may be still some room for interpretation on time of recording, particularly for investment grants and transfers related to accumulated losses. This may lead to divergent practices across countries and frameworks over time."
  - Option C2 potential drawback (paragraph 34): risk of over-specifying rules where flexibility is appropriate and edge cases are limited; more detailed guidance could inadvertently create rigidity or unintended hierarchy among rules, complicating application and possibly contributing to inconsistencies.
- Draft recommendation:
  - Task Team recommends Option C1 (paragraph 35): "The existing GFSM guidance on time of recording is in line with the new SNA. While there may be some practical difficulties, they seem limited to a small number of specific cases. On balance, these issues do not appear to warrant a revision of the core guidance."
- GFSAC feedback:
  - At the May 2026 GFSAC meeting there was support for the Task Team’s recommendation of Option C1 (paragraph 36).
  - Preliminary views of the GFSAC (paragraph 37): An earlier version was discussed at the GFSAC meeting of May 2026; the current version has addressed suggestions made by GFSAC members at that meeting and the task team recommendations are consistent with the preliminary views of most GFSAC members.

### Proposed textual changes for the GFSM update (selected extracts)
- Proposed extension and alignment of paragraphs 3.16 and 3.18 with the 2025 SNA (paragraph 38).
- Key proposed elements for Paragraph 3.16 (proposed text highlights):
  - "Capital transfers are transfers in which the ownership of an asset (other than cash or inventories) changes from one party to another, or that oblige one or both parties to acquire or dispose of an asset (other than cash or inventories), or where a liability is forgiven by the creditor."
  - "Capital transfers are unrequited transfers, either in cash or in kind, linked to the acquisition, disposal or transfer of an asset (other than cash or inventories); or where a liability is forgiven or assumed; or where the transfers are intended to address accumulated losses incurred over a multi-year period."
  - "Cash transfers involving disposals of noncash assets (other than inventories) or acquisition of noncash assets (other than inventories) are also capital transfers."
  - "A capital transfer results in a commensurate change in the stock position of one or both parties to the transaction."
  - "Capital transfers are typically large and infrequent, but capital transfers cannot be defined in terms of size or frequency."
  - "A transfer in kind without a charge is a capital transfer when it consists of: the transfer of ownership of a nonfinancial asset (other than inventories); and or the forgiveness of a liability by a creditor when no corresponding value is received in return."
  - "Major nonrecurrent payments in compensation for accumulated losses or extensive damages or serious injuries not covered by insurance policies are also capital transfers."
  - "A transfer of cash is a capital transfer when it is linked to, or conditional on, the acquisition or disposal of an asset by one or both parties to the transaction. This means that investment grants to finance construction or acquisition of infrastructure assets are also capital transfers."
  - "Capital injections are recorded as capital transfers when the government does not expect a realistic rate of return or receive nothing of equal value."
  - Reference: "More detailed explanations can be found in paragraph 6.124 and Box 6.3."
  - Note: "While the above paragraph and the referenced text in Chapter 6 lists the most common types of capital transfers the list is necessarily non-exhaustive."
- Key proposed elements for Paragraph 3.18 (proposed text highlights):
  - "It is possible that some cash transfers may be regarded as capital by one party to the transaction and as current by the other party."
  - Classification rule: "So that a donor and a recipient do not treat the same transaction differently, a transfer should be classified as capital for both parties even if it involves the acquisition or disposal of an asset, or assets, by only one of the parties."
  - Observation: "The characteristic of capital transfers that they redistribute wealth but leave savings unaffected, is frequently more apparent on the side of the government’s counterparties."
  - Example: "investment grants for home improvements may constitute a regular and recurring budget item from the government’s perspective, but they are typically linked to the acquisition or improvement of assets by the recipient households and may therefore be more readily identified as capital transfers from the households’ perspective."
  - Rule for doubt: "When there is doubt about whether a transfer should be treated as current or capital, it should be treated as a current transfer."

### Consolidated draft recommendations
- Revise the definition of capital transfers in GFSM 2014 in line with the 2025 SNA.
- Supplement the definition with illustrative examples, including:
  - investment grants or capital grants;
  - capital injections;
  - major compensation payments that qualify as capital transfers.
- Add examples of borderline current or capital cases, recommending consideration of the perspective of the government’s counterparty when distinguishing current from capital transfers.
- Retain the current GFSM guidance on the time of recording of capital transfers.

### Questions for global consultation (Issue structure)
- Issue A. Definition of capital transfers
  - Indicate preferred choice: Option A1, Option A2 or Option A3; explain reasons and provide additional comments or alternative options.
  - Is the current GFSM definition of a transfer (GFSM 2014, paragraph 3.10) clear and sufficient as a foundation for classifying capital and current transfers?
- Issue B. Distinction from current transfers
  - Indicate preferred choice: Option B1 or Option B2; explain reasons and provide additional comments or alternative options.
- Issue C. Time of recording
  - Indicate preferred choice: Option C1 or Option C2; explain reasons and provide additional comments or alternative options.
  - Do you encounter any challenges with respect to the time of recording of specific types of capital transfers for which the GFSM guidance is unclear or insufficient? If so, please specify.

*Source: GFSM 2014 Update Consultation: May 2026 (discussion note on the boundary between capital and current transfers).*

### 2.17 Boundary between capital and current transfers

### 2.17 Boundary between capital and current transfers

### Summary details and context
- Task Team Responsible: GFS Compilation Task Team (TT1)
- Authors of Discussion Note: Lukas Reiss, Simon Koller
- Context: GFSM 2014 Update Consultation: May 2026
- Core concern: GFSM 2014 wording does not always provide sufficient practical guidance to distinguish capital transfers from current transfers, especially for:
  - capital transfers in cash;
  - transfers linked to acquisition or disposal of assets;
  - investment grants, capital injections, and compensation payments.

### Key findings on definitions and conceptual alignment
- Comparison of definitions:
  - 2025 SNA (paragraphs 4.28, 9.10, 11.239) defines capital transfers as “unrequited transfers, either in cash or in kind, linked to the acquisition, disposal or transfer of an asset (other than cash or inventories); or where a liability is forgiven or assumed; or where the transfers are intended to address accumulated losses incurred over a multi-year period.”
  - GFSM 2014 (paragraphs 3.15–3.16) first states capital transfers as transfers “in which the ownership of an asset (other than cash or inventories) changes from one party to another” and only subsequently clarifies cash transfers may qualify as capital transfers.
- Noted ambiguity: GFSM ordering (“other than cash”) may suggest capital transfers are primarily non-cash, creating potential misinterpretation.
- 2025 SNA improvement: explicit upfront mention that transfers can be “in cash or in kind” and explicit inclusion of transfers intended to address accumulated losses incurred over a multi-year period.
- Practical examples in other standards: ESA 2010 (paragraphs 4.145–4.167, 11.252) and 2025 SNA provide helpful enumerations (investment grants, capital taxes, debt forgiveness/assumption, major compensation payments, transfers to cover large accumulated deficits).
- GFSM existing guidance: paragraphs 6.91 and 6.124 clarify distinction from subsidies and treat investment grants and transfers to cover large operating deficits accumulated over two or more years as capital transfers, but these examples are not explicit in Chapter 3 (paragraph 3.16).

### Issue A — Definition of capital transfers: options and recommendation
- Options identified:
  - Option A1: Maintain current GFSM 2014 language.
  - Option A2: Align GFSM language to 2025 SNA / BPM7 by replacing first two sentences of GFSM 2014 paragraph 3.16 with wording mirroring 2025 SNA paragraphs 4.28, 9.10 and 11.239 (and BPM7 paragraph 3.33).
  - Option A3: Align Chapter 3 core definition with 2025 SNA and supplement it with illustrative examples directly after the definition; explicitly reference investment grants and capital injections and the more detailed Chapter 6 descriptions.
- Potential drawbacks of A3:
  - illustrative list may be perceived as exhaustive, creating unintended boundary effects;
  - drafting examples that work across all country contexts is challenging.
  - Proposed mitigation: include an explicit sentence stating examples are not exhaustive.
- Draft recommendation:
  - Task Team recommends Option A3 to combine conceptual alignment with 2025 SNA and clearer, more operational guidance by adding examples in Chapter 3.
- GFSAC feedback:
  - At the May 2026 GFS Advisory Committee (GFSAC) meeting there was support for Option A3.
  - GFSAC suggested considering a box to clarify different types of unrequited transfers and their implications for fiscal policy analysis.

### Issue B — Distinguishing between current and capital transfers: options and recommendation
- Background:
  - GFSM defines current transfers as transfers which are not capital transfers; GFSM 2014 paragraph 3.17 and 2025 SNA paragraph 9.39 state “Current transfers directly affect the level of disposable income and influence the consumption of goods or services.”
  - GFSM and SNA adopt the rule: “if there is doubt about whether a transfer should be treated as current or capital, it should be treated as current” (GFSM 2014 paragraph 3.18).
  - Classification may often be easier from the perspective of the government’s counterparty (e.g., investment grants for home improvements seen as capital transfers by households).
  - 2025 SNA paragraphs 9.40 and 11.241 give illustrative examples where counterparty perspective is crucial.
- Options identified:
  - Option B1: Maintain current GFSM 2014 language without additional guidance.
  - Option B2: Add guidance that, in determining whether a transfer is current or capital, it may be useful to consider the perspective of the government’s counterparty.
- Potential drawbacks of B2:
  - compilers may lack reliable information about the counterparty’s balance sheet treatment;
  - without worked examples, counterparty perspective test may be interpreted inconsistently across countries.
- Draft recommendation:
  - Task Team recommends Option B2 to strengthen practical guidance by clarifying that in borderline cases classification may be easier from the counterparty’s perspective.
- GFSAC feedback:
  - At the May 2026 GFSAC meeting there was support for Option B2.
- Interaction with Issue A:
  - Recommendation B2 complements Proposal A3 (revised definition and examples in Chapter 3).

### Issue C — Time of recording: assessment and option
- Background:
  - 2025 SNA (paragraphs 4.198–4.204) gives detailed guidance on time of recording distributive transactions (fines and penalties recorded when issuing unit has an unconditional claim — paragraph 4.203; grants and voluntary transfers: recorded when conditions are fulfilled if recipient has a legal claim, otherwise when payment is made — paragraph 4.204).
  - GFSM 2014 wording on timing is largely aligned with 2025 SNA and identical in many cases (GFSM paragraphs 3.85–3.86).
  - Special case: transfers intended to address accumulated losses incurred over a multi-year period are recorded when obligation to cover losses arises, not when losses are incurred.
  - In-kind capital transfers in the form of a nonfinancial asset affect net worth but may have no impact on net lending/net borrowing (one exception noted).
- Options identified:
  - Option C1: Maintain current guidance in GFSM 2014 on time of recording.
- Assessment and recommendation:
  - Conceptual changes to time of recording do not seem warranted given alignment with 2025 SNA; Task Team recommends maintaining current GFSM guidance (Option C1).

### Consolidated draft recommendations
- Revise the definition of capital transfers in GFSM 2014 in line with the 2025 SNA.
- Supplement the definition with illustrative examples, including:
  - investment grants or capital grants;
  - capital injections;
  - major compensation payments that qualify as capital transfers.
- Add examples of borderline current or capital cases, recommending consideration of the perspective of the government’s counterparty when distinguishing current from capital transfers.
- Retain the current GFSM guidance on the time of recording of capital transfers.

*IMF — GFSM 2014 Update Consultation: May 2026*

### 32.      A potential drawback of Option C1 is that there may be still some room for interpretation on time of

### Boundary between capital and current transfers

### Options for time of recording (Issue C)

- Option C1: Maintain current GFSM guidance on time of recording, aligned with the 2025 SNA.
  - Potential drawback (paragraph 32): "there may be still some room for interpretation on time of recording, particularly for investment grants and transfers related to accumulated losses. This may lead to divergent practices across countries and frameworks over time."
- Option C2: Retain general principles but add more guidance for specific types of capital transfers where the meaning of accrual is less clear (paragraph 33).
  - Scope of additional guidance: cases where timing of recording does not coincide with the period in which the underlying economic event occurred; in particular, transfers intended to cover losses incurred over a multi-year period; treatment of borderline cases of legal claims on investment grants.
  - Potential drawback (paragraph 34): risk of over-specifying rules where flexibility is appropriate and edge cases are limited; more detailed guidance could inadvertently create rigidity or unintended hierarchy among rules, complicating application and possibly contributing to inconsistencies.

### Draft recommendation and consultation views

- The task team recommends Option C1 (paragraph 35): "The existing GFSM guidance on time of recording is in line with the new SNA. While there may be some practical difficulties, they seem limited to a small number of specific cases. On balance, these issues do not appear to warrant a revision of the core guidance."
- At the May 2026 GFSAC meeting there was support for the Task Team’s recommendation of Option C1 (paragraph 36).
- Preliminary views of the GFSAC (paragraph 37): An earlier version was discussed at the GFSAC meeting of May 2026; the current version has addressed suggestions made by GFSAC members at that meeting and the task team recommendations are consistent with the preliminary views of most GFSAC members.

### Proposed textual changes for the GFSM update

- The drafting team proposes to substantially extend paragraphs 3.16 and 3.18 in the GFSM and align the definition of capital transfers with the 2025 SNA (paragraph 38).
  - Paragraph 3.16 (proposed text) — definition and characteristics of capital transfers:
    - "Capital transfers are transfers in which the ownership of an asset (other than cash or inventories) changes from one party to another, or that oblige one or both parties to acquire or dispose of an asset (other than cash or inventories), or where a liability is forgiven by the creditor."
    - "Capital transfers are unrequited transfers, either in cash or in kind, linked to the acquisition, disposal or transfer of an asset (other than cash or inventories); or where a liability is forgiven or assumed; or where the transfers are intended to address accumulated losses incurred over a multi-year period."
    - "Cash transfers involving disposals of noncash assets (other than inventories) or acquisition of noncash assets (other than inventories) are also capital transfers."
    - "A capital transfer results in a commensurate change in the stock position of one or both parties to the transaction."
    - "Capital transfers are typically large and infrequent, but capital transfers cannot be defined in terms of size or frequency."
    - "A transfer in kind without a charge is a capital transfer when it consists of: the transfer of ownership of a nonfinancial asset (other than inventories); and or the forgiveness of a liability by a creditor when no corresponding value is received in return."
    - "Major nonrecurrent payments in compensation for accumulated losses or extensive damages or serious injuries not covered by insurance policies are also capital transfers."
    - "A transfer of cash is a capital transfer when it is linked to, or conditional on, the acquisition or disposal of an asset by one or both parties to the transaction. This means that investment grants to finance construction or acquisition of infrastructure assets are also capital transfers."
    - "Capital injections are recorded as capital transfers when the government does not expect a realistic rate of return or receive nothing of equal value."
    - Reference: "More detailed explanations can be found in paragraph 6.124 and Box 6.3."
    - Note: "While the above paragraph and the referenced text in Chapter 6 lists the most common types of capital transfers the list is necessarily non-exhaustive."
  - Paragraph 3.18 (proposed text) — differing perspectives and classification guidance:
    - "It is possible that some cash transfers may be regarded as capital by one party to the transaction and as current by the other party."
    - Classification rule: "So that a donor and a recipient do not treat the same transaction differently, a transfer should be classified as capital for both parties even if it involves the acquisition or disposal of an asset, or assets, by only one of the parties."
    - Observation: "The characteristic of capital transfers that they redistribute wealth but leave savings unaffected, is frequently more apparent on the side of the government’s counterparties."
    - Example: "investment grants for home improvements may constitute a regular and recurring budget item from the government’s perspective, but they are typically linked to the acquisition or improvement of assets by the recipient households and may therefore be more readily identified as capital transfers from the households’ perspective."
    - Rule for doubt: "When there is doubt about whether a transfer should be treated as current or capital, it should be treated as a current transfer."

### Questions for global consultation (Issue structure)

- Issue A. Definition of capital transfers
  - Indicate preferred choice: Option A1, Option A2 or Option A3; explain reasons and provide additional comments or alternative options.
  - Is the current GFSM definition of a transfer (GFSM 2014, paragraph 3.10) clear and sufficient as a foundation for classifying capital and current transfers?
- Issue B. Distinction from current transfers
  - Indicate preferred choice: Option B1 or Option B2; explain reasons and provide additional comments or alternative options.
- Issue C. Time of recording
  - Indicate preferred choice: Option C1 or Option C2; explain reasons and provide additional comments or alternative options.
  - Do you encounter any challenges with respect to the time of recording of specific types of capital transfers for which the GFSM guidance is unclear or insufficient? If so, please specify.

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_Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/may-2026/gfsm-discussion-note-217-boundary-between-capital-and-current-transfers.pdf_