5.3 Net income of non-farm unincorporated business, excluding net rental income

Concepts and definitions

5.28 Net income of non-farm unincorporated business, excluding net rental income, measures the net earnings of proprietors from their own businesses in all industries except agriculture. It includes the net income of private consultants, accountants, lawyers, doctors and other independent professionals.

Annual estimation methods and data sources

5.29 Estimates follow the Canadian System of National Accounts four year revision cycle. Annual benchmarks for the years t-4 and t-3 are provided by Industry Accounts Division (IAD) as part of the annual benchmarking program. These estimates are produced at the industry level. Reconciliation between the Input-Output Tables (IOT) and the Income and Expenditure Accounts (IEA) is done for the industries and aggregates shown in Table 5.9. The level of detail corresponds roughly to the highest level of aggregation in the Input-Output Tables.

5.30 As evident from Table 5.9, Canada Revenue Agency's (CRA) T1 individual income tax returns are the main source of information used to derive estimates of net income of unincorporated business, excluding net rental income by industry. In some cases, Canada Revenue Agency information is adjusted for the understatement of income on tax returns using other sources of information, so as to adjust for unreported activity.

5.31 Canada Revenue Agency's T1 individual income tax returns are used in combination with survey information to estimate net income of unincorporated business, excluding net rental income for a number of industries. In addition to Canada Revenue Agency data, estimates for the retail trade industry use data collected through the annual Retail Store Survey. Estimates for the architectural, engineering and related services industry are supplemented with information from the Annual Survey of Engineering Services and the Annual Survey of Architectural Services. The estimate for other professional, scientific and technical services incorporates information obtained from two surveys: the Annual Survey of Advertising and Related Services and the Annual Survey of Software Development and Computer Services. The accommodation services estimate makes use of survey data from the Annual Survey of Traveller Accommodation and the Annual Survey of Travel Arrangement Services. Finally, the food services and drinking places industry estimate uses data from the Annual Survey of Service Industries: Food Services and Drinking Places.

5.32 For a small number of industries, survey information is the single source of information used to establish the annual benchmark. This is the case for the following industries:

  • accounting, tax preparation, bookkeeping and payroll services;
  • dry cleaning and laundry services;
  • other personal services and funeral services; and
  • personal care services.

5.33 Finally, certain industries require a variety of data sources and methods to produce annual estimates. For the transportation and warehousing industry, Canada Revenue Agency (CRA) information is adjusted for the understatement of income for small operators in the urban transit industry. In addition, survey information taken from the annual Survey of the Taxi and Limousine Services Industry is adjusted for undeclared tips. In the real estate and rental and leasing industry, estimates of mixed income for real estate agents and brokers are based on Canada Revenue Agency information on gross income, and a historical ratio of net income to gross income. For the remainder of the industry, Canada Revenue Agency information is supplemented with Labour Force Survey data on self-employment. A similar approach is taken to derive annual estimates for the repair and maintenance industry. The automobile portion is based on Canada Revenue Agency information adjusted for the understatement of income on tax returns. The remaining portion of the industry mixed income is derived from gross income reported on Canada Revenue Agency's T1 individual income tax returns and a historical net income to gross income ratio.

5.34 Benchmark estimates for the private educational services industry are a projection of a historical benchmark using growth rates for that industry.

Table 5.9 Sources and methods of net income of non-farm unincorporated business, excluding rent for benchmark years, 2000. Opens in a new browser window.

Table 5.9
Sources and methods of net income of non-farm unincorporated business, excluding rent for benchmark years, 2000

5.35 Data sources and methods used for the non-benchmark years are dependent on the availability of benchmark data. Canada Revenue Agency's (CRA) T1, along with some survey information, is used in for estimating t-2. Sources of data that are used for the first three years of the revision cycle are not usually available to assist in preparing estimates for the year t-1. In this case, annual estimates are obtained by using the sum of the quarterly estimates (t-1) as a projector.

5.36 Table 5.10 presents the method of estimation used for the non-benchmark years, by industry. The t-2 estimates are an extension of the benchmark period. Most of the estimates are derived using net income from Canada Revenue Agency's (CRA) T1. For retail and wholesale trade industries, survey information is the sole source of information used to produce the t-2 estimates.

5.37 With the exception of the physicians, dentists and the other health industry, t-1 estimates by industry are obtained by using the corresponding industry's sum of its quarterly estimates as a projector. For offices of physicians and dentists, provincial government expenditures on medicare and personal expenditures on medical and dental services are used respectively as the projectors. Finally, net income of the other health industry is projected using earnings information from the Survey of Employment, Payrolls and Hours on health care and social assistance.

Table 5.10 Sources and methods of net income of non-farm unincorporated business, excluding rent for projection years. Opens in a new browser window.

Table 5.10
Sources and methods of net income of non-farm unincorporated business, excluding rent for projection years

Quarterly estimation methods and data sources

5.38 There is no direct quarterly information on the net income of non-farm unincorporated business excluding net rental income. As a result, related indicators are used to extrapolate the annual estimates. These indicators are based on a combination of survey and administrative data. The sub-annual indicator is also used to derive the quarterly pattern of the time series in question, including the benchmark years. This is done using the Denton-Cholette quadratic minimization method.1 This method adjusts sub-annual estimates to the annual benchmark in such a way as to preserve, as much as possible, the movement of the sub-annual estimates. Table 5.11 provides a summary of the quarterly methodology.

5.39 Current quarterly estimates of nine industries are obtained using industry related personal expenditure data as a projector. These industries are:

  • support activities for agriculture;
  • educational services;
  • arts, entertainment and recreation;
  • accommodation services;
  • food services and drinking places;
  • repair and maintenance;
  • dry cleaning and laundry services;
  • other personal services and funeral services; and
  • personal care services.

5.40 In six other cases, quarterly projectors are derived using a combination of real industry estimates (gross domestic product, and gross output by industry) produced by the Industry Accounts Division and an industry related personal expenditure on consumer goods and services. These industries are:

  • utilities;
  • legal services;
  • accounting, tax preparation, bookkeeping and payroll services;
  • architectural, engineering and related services;
  • other professional, scientific and technical services; and
  • administration and support, waste management and remediation services.

5.41 For a third group of industries quarterly estimates are derived using labour related projectors. They consist of labour income estimates prepared as part of the Income and Expenditure Accounts (IEA), payroll information from the Survey of Employment, Payrolls and Hours (SEPH) and data from the Labour Force Survey (LFS) on self-employment. For finance, insurance, real estate and rental and leasing, labour data is combined with real estate commissions to produce a projector. The industries using labour related projectors are:

  • forestry, logging and support activities for forestry;
  • fishing, hunting and trapping;
  • mining and oil and gas extraction;
  • transportation and warehousing;
  • information and culture; and
  • finance, insurance, real estate and rental and leasing.
Table 5.11 Sources and methods of net income of non-farm unincorporated business, excluding rent for quarterly estimates. Opens in a new browser window.

Table 5.11
Sources and methods of net income of non-farm unincorporated business, excluding rent for quarterly estimates

5.42 The remaining industries use a variety of sources to establish quarterly estimates. The construction industry estimate employs data on gross capital formation excluding machinery and equipment as its projector. Manufacturing, wholesale and retail trade industries use their respective monthly survey information as projectors. For the health care and social assistance industry, no sub-industry detail is estimated on a quarterly basis. It is projected using the movement of provincial government expenditures on medicare, combined with personal expenditures on medical, dental and child care.

Provincial and territorial estimation methods and data sources

5.43 Generally, provincial and territorial estimates are prepared in the same method as the Canada annual estimates, using provincial and territorial versions of the source data. There are, however, a few exceptions. For the most current year, the fishing, hunting and trapping industry is projected using the Department of Fisheries and Oceans' data on value of commercial landings. In addition, estimates of net income for legal services and the accounting, tax preparation, bookkeeping and payroll services industries are derived using labour related information as opposed to real industry estimates (gross domestic product, and gross output by industry).

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Notes

1. This procedure is sometimes called the Denton-Cholette Method. For more detail about the method, see Cholette, P.A. (1984): Adjusting sub-annual series to yearly benchmarks. Survey Methodology, 10, 35-49.