2.2 Institutional sectors dimension of the Canadian System of National Accounts – The Income and Expenditure Accounts

2.39 Economists use the circular flow of income diagram as a tool to illustrate the interactions among the different economic agents in the economy. One of the fundamental characteristics of such a representation of the economy is that it condenses information on markets and economic agents into an ordered framework.

2.40 The underlying idea of this representation is to group together economic agents (institutional units) that have similar behaviour and motivation. Households consume and supply the labour input. Companies sell the goods that they produce in order to make a profit. Governments provide public goods and attend to the redistribution of income within society. Non-residents sell goods and services to residents of the country and purchase goods and services from them in order to benefit from the comparative advantages related to trade.

2.41 National accounting uses a similar approach. In the SNA, groups of economic agents are called institutional sectors. The creation of institutional sectors in the compilation of national accounting statistics provides analysts with "ordered and usable" statistics for analysing the functioning of the economy and identifying relationships among its various components.

2.42 The System of National Accounts 1993 (SNA 1993) defines an institutional unit as "an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities". Institutional units may either be physical persons (or groups of persons) or legal or social entities. Households belong to the first class, while non-profit institutions (NPIs), governments and corporations (businesses) belong to the second. The two classes are mutually exclusive, and institutional sectors are mutually exclusive.

2.43 The Canadian System of National Accounts identifies three resident institutional sectors and a non-resident sector. The different accounts in the system are articulated for each of these four sectors. Each sector has sub-sectors.

The institutional sectors

2.44 The Income and Expenditure Accounts (IEA) presents a full sequence of accounts for the sectors shown in Table 2.4. As may be seen, there are minor difference in sectoring between the CSNA and the SNA 1993. In Canada, the household sector is more precisely called the persons and unincorporated business sector as it includes non-profit institutions serving households (NPISHs).The financial corporation and non-financial corporation sectors are called the corporate and government business enterprise sector. Lastly, the rest of the world sector is called the non-resident sector.

2.45 In the Canadian System of National Accounts, non-profit institutions serving households (NPISH) are included in the persons and unincorporated business sector. However, since 2004, Canadian statisticians in the Income and Expenditure Accounts Division have set up a satellite account¹ covering all non-profit institutions, whether they serve households or they are classified in the government sector or in the corporate sector. This more comprehensive approach to the treatment of non-profit institutions is more desirable from an analytical standpoint, and indeed it is an approach that is being examined by international statistical organizations.

The persons and unincorporated business sector

2.46 This sector includes all persons or households as well as associations of individuals and certain collective investment schemes. Associations of individuals include not only non-profit institutions serving households, but also selected components of fraternal organizations, credit unions and mutual life insurance companies. The same treatment is accorded certain collective investment schemes, including non-mutual life insurance companies, trusteed pension plans and mutual funds. The sector also includes institutional units in the business sector that are not legally incorporated. This group includes: independent business operators; unincorporated farmers; self-employed fishermen; self-employed professionals (consultants, notaries, etc.); and, unincorporated landlords, including owner-occupants as providers of housing services.

The corporate and government business enterprise sector

2.47 The corporate and government business enterprise sector covers institutional units that are legally incorporated businesses or special funds, and includes government business enterprises. These corporations cover all institutional units producing goods and services sold at an economically significant price that are legally incorporated, including: legally incorporated businesses selling non-financial goods and services (non-financial corporations); and, legally incorporated businesses providing financial goods and services (financial institutions). The saving of certain types of financial institutions are partially accounted for in the personal sector, as indicated in paragraph 2.46, but their capital and financial accounts are included in the corporate sector.

2.48 Government business enterprises include non-financial and financial government business enterprises and agencies operating on a for-profit or cost-recovery basis whose motivation is similar to that of private businesses. Among the best known are the Bank of Canada, the Canada Post Corporation, the Canada Mortgage and Housing Corporation, the Export Development Corporation, the Canadian Wheat Board, the various port authorities, Hydro-Québec, the Caisse de dépôts et placements du Québec, and metropolitan transportation agencies.

The government sector

2.49 The government sector includes all departments, agencies and funds (budgetary and non-budgetary) of the federal, provincial, territorial and local levels of government, as well as crown corporations that receive more than 50% of their revenues in grants from their parent government. This sector is divided into the following sub-sectors:

• Federal government
  • Government administration
    • Departments and agencies
    • Independent agencies, councils, commissions and funds
    • Non-autonomous employer-sponsored pension plans
• Provincial and territorial governments
  • Government administration
    • Departments and agencies
    • Independent agencies, councils, commissions and funds
    • Non-autonomous employer-sponsored pension plans
    • Universities and colleges
    • Universities
    • Colleges, vocational training institutes and trade schools
  • Health services and social services institutions
    • Public hospitals
    • Other health and social services institutions
• Local governments
  • Government administration
    • Municipalities
    • Independent agencies, councils, commissions and funds
  • School boards
• Canada and Quebec pension plans

2.50 The publication Financial Management System (FMS), provides a complete description of the government sector in Canada.

The non-resident sector

2.51 Unlike the other sectors, the non-resident sector is not made up of homogeneous institutional units, since it includes all non-resident institutional units that carry out transactions with resident units. In practice, the non- resident sector includes all institutional units that have no centre of economic interest (dwelling or place of business) within Canada's economic territory. By definition, non-residents engage in financial investment only. Any agent engaging in non-financial investment is considered resident.

2.52 This sector also includes some institutional units that are physically located within a country's geographic territory. The following are considered non-resident: embassies, consulates, military bases and international organizations.

The sequence of the institutional sector accounts

2.53 The System of National Accounts 1993 recommends that the following sector accounts be produced:

1. The production account – Records the value of production and the intermediate expenses by industry yielding gross value added, or GDP for the economy.
2. The primary distribution of income account – Records the generation of income into its various income components: wages and salaries, supplementary labour income, net taxes on production, mixed income and operating surplus.
3. The secondary distribution of income account – Records, in addition to the income from the allocation of primary income accounts, the transfers between the sectors.
4. The use of income account – Focuses on how resident institutional sectors allocate their disposable income between current expenditure and saving.
5. The capital account – Comprises the second accumulation account that focuses on non-financial assets.
6. The financial account – Comprises the second accumulation account that focuses on financial transactions.
7. Other changes in assets account – Comprises the third accumulation account that articulates capital gains and losses and other volume changes e.g., resource discoveries, destruction of assets due to catastrophic events.
8. The balance sheet account – Is the wealth statement, detailing assets, liabilities and net worth.

2.54 The Canadian System of National Accounts-IEA provides a slightly modified version of the international standard, as follows:

1. The gross domestic product account. The Income and Expenditure Accounts does not produce a production account by sector or by industry (GDP by industry is available from the Input-Output Tables). At an aggregate level for the economy (without sectoring), the Income and Expenditure Accounts presents GDP by types of income and by types of expenditure. The income details correspond to the primary distribution of income account (see Table 2.5). 
2. The income and outlay account of each of the sectors traces current incomes and outlays related to the production process and current transfers between sectors. The difference between incomes and outlays constitutes the saving of the sector. This item balances the account. This account combines allocation of income account and secondary distribution of income account, as well as use of income account. It is produced for the four main institutional sectors described in Table 2.4.
3. The capital account of each sector traces, on the one hand, the resources available for acquiring non- financial capital (saving, capital consumption allowance and net transfers of capital) and on the other hand, the acquisition of non-financial capital. This account is produced for five sectors where corporations are disaggregated into financial and non-financial corporations. The gap between resources and acquisitions is called the net lending of the sector. This item balances the account.
4. The financial account of each of the sectors traces both the transactions on financial assets and the transactions on financial liabilities taking place during a given period. This account is recorded for the five sectors of the economy in the National Income and Expenditure Accounts.² In addition, financial accounts are published for 35 detailed sub-sectors in the Financial Flow Accounts. The balance between financial asset and liability flows consists of the net financial investment of the sector. In theory, net financial investment from this account and net lending from the capital account are equal, with each measuring a different side of the same coin. In practice, statistical imperfections generate a gap between the two measures.

2.55 The balance sheet reflects the result of accumulation of wealth in the economy, by recording the assets, liabilities and net worth of the sectors. As such, it is inclusive of the other changes in assets. It is published as the National Balance Sheet Accounts, at both the 5 sector and 35 sector level.

Gross domestic product measured by income and expenditure

2.56 The first two tables in the Income and Expenditure Accounts present GDP calculated using the income and the expenditure approaches. The balancing item between the two measures of GDP is the statistical discrepancy.

Statistical discrepancy

2.57 In principle, when GDP is calculated using the income approach, and again using the expenditure approach, the two totals should be the same. In practice, this is never so because of the different sources of information underlying both approaches. This, in trun, gives rise to measurement errors. The difference between the two methods of measuring GDP is divided in two, with one half subtracted from the highest estimate and one half added to the lowest estimate. This amount is shown in tables 1 and 2 of the publication National Income and Expenditure Accounts under the name of statistical discrepancy.

2.58 A small statistical discrepancy is a desired result, since it implies that the two estimates of GDP derived independently, have turned out almost the same.

Income-based GDP aggregates

2.59 GDP measured by the income approach is shown in Table 1 of National Income and Expenditure Accounts. The methods of estimating income catagories are described in detail in the following chapters. The paragraphs below provide a brief description of these aggregates.

2.60 The first category is wages, salaries and supplementary labour income. Wages and salaries are the total compensation, in cash or in kind, paid to workers for work performed. This item is entered before any deduction for income tax, pensions, employment insurance or other social insurance plans. Wages and salaries also include commissions, tips, performance premiums, directors' fees, and vacation and sick leave allowances, as well as military pay and allowances. Supplementary labour income includes employers' social contributions. The following are examples of supplementary labour income: retiring allowances, employment insurance contributions, and contributions to the Canada and Quebec pension plans, contributions to other pension plans, occupational health and safety funds, health insurance, dental care plans, etc. Wages, salaries and supplementary labour income is presented in tables 1 and 5 of National Income and Expenditure Accounts. Monthly estimates, by province and by industry, are also available in Estimates of Labour Income.

2.61 Corporation profits before taxes and government business enterprise profits before taxes represent net earnings resulting from the economic activity of private and select³ public corporations, respectively. Net earnings are measured after deduction of capital consumption allowances. Corporation profits before taxes and government business enterprise profits before taxes are analyzed in tables 1 and 6 of National Income and Expenditure Accounts. Table 32 of the same publication reconciles corporation profits before taxes with undistributed corporation profits.

2.62 Interest and miscellaneous investment income comprise the interest paid by businesses to households,⁴ governments and non-residents to compensate them for the loan or rental of financial or non-financial assets⁵ for use in production. Information on interest and miscellaneous investment income is presented in Table 1 and in more sector detail in tables 5, 6, 9, 10, 11, 12, 13 and 14 of National Income and Expenditure Accounts. Appendix 2B explains the link between the aggregate and its distribution in the incomes and outlays of the institutional sectors.

2.63 Accrued net income received by farm operators from farm production refers to the net farm proceeds that go to unincorporated farm operators. The estimate is obtained by deducting expenditures from receipts. Receipts include gross sales of farm products, the imputed value of farm output consumed by farming households, investment in farm inventories and the distributed and undistributed portions of earnings arising out of the operations of the Canadian Wheat Board. Expenditures include farm operating expenditures and capital consumption allowances. Accrued net income received by farm operators from farm production is presented in tables 1 and 5 of National Income and Expenditure Accounts.

2.64 Net income of non-farm unincorporated business, including rent, consists of the earnings of unincorporated proprietors, except farm operators, from their own business. It also includes the net income of independent members of professions, such as physicians, dentists, lawyers and engineers. Lastly, it includes the net rental income of persons (but not corporations). This includes rents paid or imputed, after deduction of expenses, on residential properties and net rents paid on non-residential properties. Imputation for rents is explained by the fact that in national accounting, owner-occupants are considered as producers of housing services who rent a dwelling to themselves (more fully discussed in Chapter 5). Net income of non-farm unincorporated business, including rent, is presented in tables 1 and 5 of National Income and Expenditure Accounts.

2.65 The inventory valuation adjustment represents the net holding gain or loss incurred by businesses as a result of price changes. This is an adjustment to profits, since gains or losses on inventories are included in the corporation profits before taxes. This gain (or loss) must be removed in order to measure current output. The inventory valuation adjustment is available in tables 1 and 6 of National Income and Expenditure Accounts.

2.66 Taxes less subsidies, on factors of production refer to taxes received and subsidies paid by government. These taxes and subsidies are payable or paid regardless of the quantity or value of the goods and services produced or sold. Capital taxes, licences and permits, property taxes and payroll taxes are examples of taxes included in this aggregate. Information on taxes less subsidies, on factors of production is presented in tables 1 and 9 to 12 of National Income and Expenditure Accounts.

2.67 Taxes less subsidies on products, refer to taxes received and subsidies paid by government. These taxes and subsidies are payable or paid, based on the quantity or value of goods and services produced or sold. This aggregate includes sales taxes, fuel taxes, import duties and taxes, and excise taxes on tobacco and alcoholic products. Taxes less subsidies, on products, is presented in tables 1 and 9 to 12 of National Income and Expenditure Accounts.

2.68 Capital consumption allowances are allowances for the using up of buildings, machinery and equipment and other assets in the productive process. This item also includes miscellaneous valuation adjustments bringing business accounting records into conformity with national accounting definitions. Capital consumption allowances is presented in tables 1 and 5 to 12 of National Income and Expenditure Accounts.

Expenditure-based GDP aggregates

2.69 GDP measured on the basis of final expenditures in current dollars is shown in Table 2 of National Income and Expenditure Accounts. Volume-based estimates for the same components appear in Table 3. The methods of estimating expenditure aggregates are described in later chapters. The following paragraphs provide a brief description of these aggregates.

2.70 Personal expenditure on consumer goods and services measure household expenditures on durable, semi-durable and non-durable goods as well as services. The aggregate also includes the operating expenses of non-profit organizations serving households. Personal expenditure on consumer goods and services is presented at a highly aggregated level in tables 2, 3, 4 and 5 of National Income and Expenditure Accounts. Tables 16, 17 and 18 show the aggregate in more detail.

2.71 Government current expenditure on goods and services includes current expenditure on goods and services (including military spending for strictly military purposes), compensation paid to government employees, and other purchases of goods and services, except capital goods. The aggregate also includes an imputation for capital consumption allowances. This aggregate is presented net of sales to avoid duplication. Government current expenditure on goods and services is presented at a highly aggregated level in tables 2, 3 and 4 of National Income and Expenditure Accounts. Detailed data also appears on a gross basis in tables 9, 10, 11 and 12, the institutional sector accounts.

2.72 Government and business gross fixed capital formation includes the expenditures of the business and government sectors on goods with an expected economic life of one year or more, and on buildings and engineering construction of any kind. This item also includes residential construction, alterations and improvements made to the building stock and transfer costs associated with the sale of existing assets. Government and business gross fixed capital formation is presented at a highly aggregated level in tables 2, 3 and 4 of National Income and Expenditure Accounts. Tables 19 to 24 of the same publication provide more detail on these aggregates. The data also appears in tables 5 to 13 of the institutional sector accounts.

2.73 Business and government investment in inventories refers to the change in the volume of the inventories of the business sector and the government sector, valued at average market prices for the period. This item represents the difference between demand and supply. A decrease in this aggregate indicates that part of the current demand has been met by supply from a previous period. Conversely, an increase in this item indicates that the current supply was greater than the current demand. Business and government investment in inventories is presented at a highly aggregated level in tables 2, 3 and 4 of the publication National Income and Expenditure Accounts. Tables 28 and 29 present more detail on business investment in inventories. The data also appears in tables 5 to 10, the institutional sector accounts.

2.74 Exports of goods and services include current receipts arising from exports of goods and services. The travel expenditures of non-residents in Canada are included in exports of services. In turn, imports of goods and services include current payments arising out of imports of goods and services. Canadians' travel expenditures abroad are included in imports of services. Imports are subtracted in computing GDP, because the goal is to measure domestic output. Imports and exports are available at a highly aggregated level in tables 2, 3 and 4 of the publication National Income and Expenditure Accounts. Tables 25 to 27 present more detail on exports and imports of goods and services. The data also appears in Table 14 of the institutional sector accounts.

2.75 For provincial and territorial estimates, international exports are distinguished from interprovincial exports. As with exports, the provincial and territorial estimates distinguish between international imports and interprovincial imports. Estimates of interprovincial trade appear only in the publication Provincial Economic Accounts.

The income and outlay account

2.76 These accounts are a statistical summary of the current income and outlays of each sector. The incomes and outlays of each institutional sector are of two types: they arise either from productive activity or from current transfers. Income from productive activity can in turn be classified into factor incomes and property incomes. Incomes and outlays arising from productive activity are tied to the expenditure and income-based measures of GDP.The other type of incomes and outlays consists of inter-sector transfers. These are unrequited transactions, that is, transactions involving a unilateral transfer with no compensation. In this category, for example, are income tax paid by individuals to government or employment insurance benefits paid by government to unemployed workers. The structure of the income and outlay account is the same for each of the four institutional sectors (illustrated in Table 2.6).

2.77 The difference between current incomes and outlays represents the saving of each of the institutional sectors. This balance is carried down to the capital account of each of the sectors as a source of funding for gross fixed capital formation.

The income and outlay account for persons and unincorporated businesses

2.78 Table 2.7 shows the income and outlay account of the persons and unincorporated business sector. Production-related aggregates link to the income-based and expenditure-based GDP tables. Interest, dividends and miscellaneous investment income is not found directly in the GDP measure. Thus, to reconcile this item with the interest and miscellaneous investment income aggregate of income-based GDP, information must be drawn from all sectors (see Appendix 2B).

2.79 Transfer income is described in the paragraphs below. Descriptions of transfer payments are provided in the sections dealing with the other institutional sectors.

2.80 Income from government includes income redistributed by the federal government, the provincial and territorial governments, local governments and the Canada and Quebec pension plans.

2.81 Transfers from the federal government to persons and unincorporated businesses include the following:

• family and youth allowances;
• child tax benefit;
• child tax credit;
• employment insurance benefits;
• payments from the Old Age Security Fund;
• grants to aboriginal people and their organizations;
• goods and services tax credit;
• pensions, World Wars I and II;
• veterans' allowances;
• national associations;
• Canada Council for the Arts;
• adult vocational training;
• scholarships and research grants; and
• miscellaneous other transfer payments to persons, such as athletes and athletic associations, community organizations and arts and culture organizations.

2.82 Transfers from provincial and territorial governments to persons and unincorporated businesses include the following:

• social assistance–income maintenance;
• social assistance–other;
• workers' compensation benefits;
• payments to non-profit organizations; and
• other transfers to persons.

2.83 Transfers from local governments to persons and unincorporated businesses include the following:

• social assistance;
• payments to non-profit organizations; and
• other current transfers to persons.

2.84 Transfers from corporations and government business enterprises include the following:

• charitable gifts;
• miscellaneous other contributions; and
• write-off of bad debts.

2.85 Lastly, transfers from non-residents include:

• retirement benefits paid by foreign governments to residents of Canada;
• institutional payments for assistance, research or other (wartime compensation payments, other transfers from non-residents to residents of Canada, etc.); and
• other transfers from non-residents to Canadian residents, such as personal gifts.

2.86 Transfers to other sectors are dominated by income tax and social contributions and appear in the sections that follow (see paragraph 2.94 and paragraph 2.96).

The income and outlay account for corporations and government business enterprises

2.87 Table 2.8 shows the income and outlay account for the corporations and government business enterprise sector. Production-related aggregates link to the income-based and expenditure-based GDP tables. Interest, dividends and direct receipts and interest on public debt are not found directly in the GDP measure. Thus, to reconcile these items with the interest and miscellaneous investment income aggregate of GDP by income approach, information must be drawn from all sectors (see Appendix 2B).

2.88 In income from current transfers, there is only one item: interest on consumer debt. This is the non- productive portion of interest paid by persons on account of liabilities incurred to finance personal expenditure on consumer goods and services. It is considered that part of the interest on the consumer debt is the cost of rendering service to borrowers, while the other part (the non-productive portion) is merely a transfer between sectors. The transfer portion is income for the corporate and government business enterprise sector and expenditure for the persons and unincorporated businesses sector. The productive portion is found in personal expenditure on consumer services.⁶

2.89 The descriptions of transfer expenditures appear in the sections dealing with the other institutional sectors (see paragraph 2.84, paragraph 2.92, and paragraph 2.98).

The income and outlay account for governments

2.90 Table 2.9 shows the income and outlay account of the government sector. The production-related aggregates link to the income-based and expenditure-based GDP tables. In this category, interest, dividends and direct receipts and interest on public debt are not found directly in the GDP measure. Thus, to reconcile them with the income-based GDP aggregate interest and miscellaneous investment income, information must be drawn from all sectors (see Appendix 2B). Current government expenditure on goods and services is obtained by calculating the difference between current expenditure on goods and services (gross) and the proceeds of sales of goods and services by governments. Similarly, the sum of the aggregates taxes less subsidies, on factors of production and on products, is obtained by differentiating taxes on production and products from current transfers to business (subsidies).

2.91 Because of the role played by government in income distribution, transfers occupy an important place in government income and outlay accounts. Transfers that appear on the outlay side are dealt with in the section on persons and unincorporated businesses (refer to paragraphs 2.81 to 2.83) and the section on non-residents (refer to paragraph 2.95).

2.92 Taxes on income from persons include income taxes and wealth transfer taxes that are paid to the federal and provincial governments. Taxes on incomes from corporations include direct taxes from corporations and government business enterprises paid to the federal government and provincial governments. Added to this are provincial taxes on mining and forestry. Lastly, taxes on incomes from non-residents are entirely allocated to the federal government.

2.93 Contributions to social insurance plans include:

• contributions of employers and employees to employment insurance (federal government);
• contributions of employers to workers' compensation funds (provincial governments);
• employer and employee contributions to industrial employees' vacations (provincial governments); and
• contributions of employers and employees to the Canada and Quebec pension plans.

2.94 Other current transfers from persons include various transfers to the federal government and local governments. These transfers are larger for provincial governments. They include motor vehicle licences and driver's licences as well as health insurance premiums and other miscellaneous transfers.

The income and outlay account for non-residents

2.95 Table 2.10 shows the income and outlay account for the non-resident sector. Production-related aggregates link to the income-based and expenditure-based GDP tables. In this category, interest, dividends and direct receipts is not found directly in the GDP measure. Thus, to reconcile these items with the interest and miscellaneous investment income aggregate of income-based GDP, information must be drawn from all sectors (see Appendix 2B).

2.96 Current transfers from persons include payments by Canadian residents (in particular by religious or charitable organizations) to non-residents and withholding tax paid abroad.

2.97 Current transfers from government include official contributions from Canada to non-residents and pensions paid abroad.

2.98 Current transfers from businesses include pensions paid by businesses abroad.

Saving: the balancing item in the current accounts

2.99 In the income and outlay account of the institutional sectors, saving is the share of income generated during the current period which is not spent in the current period, but which becomes available in subsequent periods' consumption. Saving is a source of funds for investment in the current period. As such, saving is carried down as a resource to the capital account of the institutional sectors.

The capital account

2.100 There is a capital account for each institutional sector and sub-sector. This account presents resources and the uses to which they are put. The resources are gross saving and capital transfers. The uses consist of acquisitions of non-financial capital. Net lending (or borrowing) is the balancing item for this account. It records the difference between sources of funds internal to a sector and expenditures on non-financial capital. A positive difference is lent to other institutional sectors via financial transactions. Conversely, a negative difference indicates that the sector must borrow funds from other sectors through financial transactions.

2.101 For the economy as a whole (the sum of all institutional sectors), gross saving and capital transfers is equal to acquisitions of non-financial capital. Net lending for the economy as a whole is therefore zero.

Gross saving and capital transfers

2.102 The gross saving and capital transfers aggregate includes all resources available for the acquisition of non-financial assets. It includes, firstly, the saving made available by each sector—that is, the share of income generated during the current period which is not spent in the current period. Saving is derived from the preceding IEA account, namely the income and outlay accounts of each of the different institutional sectors. Added to this item are capital consumption allowances (CCA). The latter are a cost reflecting the reduction in the value of fixed assets used up in production during the period (i.e., depreciation). Even so, they constitute available resources, since in practice, CCA is merely an accounting entry. CCA also includes miscellaneous valuation adjustments, of which the most significant is the claim portion of business and residential insurance. And lastly, net capital transfers are also considered to be available resources.

2.103 Capital transfers consist of either a transfer of funds from one unit to another (cash transfer for the purposes of acquiring an asset); or, a transfer of ownership of a good or non-cash asset, the cancellation of a liability by mutual agreement, or the provision of a service without a counter part transaction. In all cases, this amounts to a transfer of wealth from one sector to another. Net capital transfers between the non-resident sector and the persons and unincorporated business sector consist mainly of net amounts paid or received abroad on migrants' estates and capital. Other capital transfers could be a gift of land to developers as an incentive to create a business or undertake construction, or debt forgiveness of parent governments towards their government business enterprises.

Non-financial capital acquisition

2.104 Acquisitions of non-financial capital may take three forms: acquisition of fixed capital; investment in inventory; and, acquisition of existing assets. Acquisition of fixed capital corresponds to new gross fixed capital formation in the GDP by expenditure tables and are included in final domestic demand. Investment in inventory also appears in the tables on expenditure-based GDP. These two components were defined in the section on measuring GDP (refer to paragraphs 2.72 and 2.73).

2.105 In order to fully reflect the acquisition of fixed capital by any institutional sector, expenditures on both new and existing capital as well as on both produced and non-produced assets in a period must be taken into account. Net acquisition of existing assets corresponds to purchases and sales among institutional sectors of existing residential and non-residential structures, machinery and equipment and/or land. Expenditures on existing capital assets or land are not included in that period's macro-economic activity, or GDP.

2.106 The acquisition of non-financial capital applies only to domestic institutional sectors. By definition, the non-resident sector makes only financial investments, since non-residents do not have a centre of economic interest within the country's economic territory.

The financial account (the financing of economic activity)

2.107 The sector accounts of the National Income and Expenditure Accounts extend the capital account with a picture of financial activity, thus producing a capital and financial account for each sector–a sources and uses of funds statement. These two accounts, sometimes referred to as accumulation accounts, comprise the transaction-driven changes to sector net worth. This section describes the financial account.

2.108 The two measures of GDP, as well as the underlying detail in both the income and outlay account and the capital account of the institutional sectors, describe economic activity in terms of transactions on goods and services. It is also possible to track the economy by observing the financial transactions associated with economic activity. The financial account of the institutional sectors provides this perspective.

2.109 From a financial standpoint, the difference between transactions in financial assets and liabilities for any sector is the amount that sector puts at the disposal of other institutional sectors (lending) or the amount that it requires from other institutional sectors (borrowing). This is the same concept as the net lending-borrowing described with respect to the capital account, but in this case it is applied to the financial aspect of the economy. To distinguish it from net lending, this balancing item in the financial account is referred to as net financial investment.

2.110 The financial account of the different institutional sectors are a condensed version of the Financial Flow Accounts, which record the financial transactions of the economy (in conjunction with capital transactions) in great asset-liability and sector detail. The information on this account and on the resulting wealth positions can be found in the publication Guide to the Financial Flow and Balance Sheet Accounts. The paragraphs that follow provide a brief description of asset and liability categories in the financial account.

Types of transactions on financial assets and liabilities

2.111 The financial accounts of the institutional sectors, presented in tables 5, 6, 7, 8, 9 and 14 and Supplementary Table 1 of the publication National Income and Expenditure Accounts include several categories of financial assets and liabilities. These items are briefly described in the following paragraphs.⁷

2.112 Official reserves cover a number of different components. Official holdings of gold and foreign exchange, includes gold, U.S. dollar, sterling and other foreign convertible currency denominated deposits and securities held as assets by the monetary authorities. The International Monetary Fund (IMF) general account, encompasses loans by Canada to the IMF. Special drawing rights (SDRs) include both the allocation of new SDRs and the movement of existing rights between Canada and the rest of the world.

2.113 Currency and deposits includes three main sub-components: Canadian currency and deposits in chartered banks, deposits in other institutions and foreign currency and deposits. Checking and saving accounts of different types and terms are included in deposits.

2.114 Consumer credit includes personal loans, for the purposes of acquiring consumer goods and services, made by chartered banks and near-banks. Also included are policy loans advanced by life insurance companies, as well as loans to persons advanced by sales finance and consumer loan companies. Loans for other purposes cover bank and other loans and include negotiated loans, advances and overdrafts booked in Canada by Canadian chartered banks and other lending institutions. Mortgage loans include loans and agreements of sale secured by real property, mostly residential buildings.

2.115 Life insurance and pensions is a broad category that covers the liability of life insurance companies to its policy-holders as well as the liabilities of employer-sponsored pension schemes towards members of the plan.

2.116 Debt instruments comprise short-term paper and bonds. Bonds cover federal, provincial and municipal bonds, as well as corporate bonds and debentures (including guaranteed bonds of government business enterprises), and other bonds (e.g., non-profit institutions) as well as asset-backed securities. Bonds are typically marketable, with an original term to maturity in excess of one year. Money market instruments include federal short-term paper and other marketable short-term notes issued by a variety of financial and non-financial corporations and sectors. Short-term paper can be described as negotiable bearer promissory notes with an original term to maturity of less than one year, issued at a discount without coupons.

2.117 Shares include marketable and non-marketable common and preferred shares, plus investment fund units. Foreign investments are defined as all marketable financial instruments that are liabilities of non-resident entities.

2.118 Trade accounts (payables/receivables) include short-term credit granted or received in the ordinary course of business by suppliers or purchasers of goods and services. Other financial assets/liabilities comprise a variety of items not included in the other components of financial flows.

The Balance Sheet Account (the result of economic activity and gains/losses)

2.119 The opening and closing positions in the CSNA sequence of accounts are articulated (by institutional sector and for the economy as a whole) in the National Balance Sheet Account (NBSA). The NBSA is the final  component of the CSNA sequence of accounts. Unlike the accounts described previously, which measure the flow of activities over a given period, the balance sheet account measures the impact of those activities on the stock of assets and liabilities and net worth at the end of a given period. It provides a snapshot of the state of the nation's economic-financial position. The balance sheet account evolves as the result of capital and financial transactions on the one hand, and capital gains/losses on assets-liabilities on the other.

2.120 In the balance sheet account, sector estimates of net worth are calculated as the value of financial and non-financial assets minus liabilities. The NBSA also provides an important aggregate: the nation's wealth, or national net worth. National wealth is the sum of the nation's non-financial assets (both produced and non-produced). National net worth is equal to national wealth adjusted for the nation's net international investment position (if one exists), alternatively, national net worth can be derived as the sum of resident sector net worth.

2.121 The NBSA has the same overall structure and sector detail as the Financial Flow Accounts.

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• 2.3 Other aspects to the Income and Expenditure Accounts data

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• 2.1 Production and aggregate economic activity
• 2 Concepts and definitions

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Notes

1. Satellite Account of Nonprofit Institutions and Volunteering, catalogue no. 13-015.

2. In fact, the National Income and Expenditure Accounts presents a combined Capital and Financial Account.

3. This covers public corporations not consolidated within the government sector, which are referred to as government business enterprises.

4. This includes collective investment schemes.

5. Land is included in non-financial assets.

6. The productive portion is found in the personal expenditure series: financial intermediaries, implicit loan charges and credit unions, implicit loan charges.

7. The following definitions are a condensed version of those that appear in the Guide to the Financial Flow and National Balance Sheet Accounts – Definitions, Concepts, Sources, Methods, catalogue no. 13-585.