5.4 Net rental income of non-farm unincorporated business
Concepts and definitions
5.44 The rental portion of net income of non-farm unincorporated business includes all net rental income of individuals in their capacity as owners, including the implicit income that they generate by inhabiting a dwelling that they own. The latter component is included because, in national accounting, persons who own the dwellings in which they live are treated as owning unincorporated enterprises that produce housing services that are consumed by the households to which the owner belongs1. This imputation is made to ensure that the measure of production will not vary when shifts occur between owner-occupancy and the renting of residential dwellings.
5.46 The overall approach is to first estimate the residential rent that is paid to landlords, or imputed to owner- occupants2. Rent, paid and imputed, is published in personal expenditure. Next, the rent paid to corporations and governments is subtracted. Then, the expenses incurred by owners (repair costs, property and school taxes, insurance, mortgage interest, depreciation and miscellaneous expenses) are deducted to obtain the net income of non-farm unincorporated business from paid and imputed residential rent, to which Industry Accounts Division's net income of non-farm unincorporated business from non-residential rent is added3 (Table 5.14).
Rent, paid and imputed
Rent paid to landlords
5.47 The estimate of paid rent begins with the housing stock, as measured by the Census of Population. The housing stock is divided into single-family dwellings, multiple dwellings, mobile homes, cottages, garages and farms. The Census figures on these stocks are extrapolated annually by the Investment and Capital Stock Division, which uses the number of new dwellings completed, plus conversions4, less demolitions from the survey of the Canada Mortgage and Housing Corporation (CMHC) and the Building Permits Survey. The housing stock is also divided between rented or owned dwellings and occupied or vacant dwellings, using fixed ratios based on the census.
5.48 The average rent is defined as the average price paid by renters for the use of a dwelling (single-family dwellings, multiple dwellings and mobile homes). This average rent is estimated using data drawn from the sample of respondents to the Labour Force Survey. The housing component of the Consumer Price Index is also based on these same data.
5.49 The number of rented and occupied dwelling units (single-family dwellings, multiple dwellings and mobile homes) is multiplied by the average rent to obtain contract rent. The portion of contract rent that is not related to the dwelling space, that is, expenditures relating to facilities and services provided by landlords, is subtracted to obtain paid rent5. These expenditures include depreciation of furniture, stoves, refrigerators and washing machines as well as costs related to water, electricity, heating, parking and maintenance services. Since the average rent is not available for cottages and farms, stocks and estimates of rent for other types of dwellings are used in order to obtain an approximation6. For garages, the average rent comes from the Survey of Household Spending. Finally, an adjustment is made to remove the portion related to offices in the dwelling.
5.50 Several sources are used to estimate expenditures relating to facilities and services provided by landlords, including the Survey of Household Spending, personal expenditure data on furniture and household appliances and on energy, and the Survey of Employment, Payrolls and Hours for maintenance services.
5.51 Data provided by the Prices Division indicate that approximately 2% of workers use their dwelling as a workplace. The Income and Expenditure Accounts Division hypothesizes that 25% of rent should be attributed to the business portion. The calculation is as follows:
× Ratio of rent used for office space (25%)
× Ratio of individuals using their dwelling as a workplace (2%)
= Adjustment for offices in the dwelling
5.52 Paid rent is the starting point for estimating rent imputed to owner-occupants.
Rent imputed to owner-occupants
5.53 Dividing paid rent by the rented and occupied housing stock, results in an estimate of the average rent. This estimate is adjusted using a coefficient of quality, since a dwelling that is owned is generally larger and of better quality than a rented dwelling. This coefficient is based on the average number of rooms in owned dwellings compared to that of rented dwellings, according to the Census of Population. Imputed rent7 is obtained by multiplying the number of dwelling units owned and occupied (single-family dwellings, multiple dwellings and mobile homes) by the average rent paid adjusted by a quality coefficient. The calculation is as follows:
× Rented and occupied housing stock
= Average rent paid
× Coefficient of quality related to a dwelling that is owner-occupied
× Owned and occupied housing stock
= Imputed rent
5.54 To obtain imputed residential rent for garages, cottages and farms, the procedure is the same as for rented and occupied dwellings (see paragraph 5.49).
5.56 Imputed rent, like paid rent, is the starting point for estimating the net rental income of non-farm unincorporated businesses. It is published in personal expenditure as imputed rent8.
Net income of non-farm unincorporated business from rent
5.57 Table 5.12, Table 5.13, and Table 5.15 illustrate the calculation of net rental income of non-farm unincorporated business. The calculation is done in three parts: first, net residential rental income imputed to owner-occupants; then net residential rental income of unincorporated businesses; and lastly, net non-residential rental income of unincorporated businesses. Table 5.14 displays estimates for 2000.
Net residential rental income imputed to owner-occupants
5.58 As shown in Table 5.12, the calculation of net residential rental income imputed to owner-occupants begins with imputed rent. From this, owner-occupants' expenditures related to the dwelling are subtracted. These include repair costs, property and school taxes, insurance, mortgage interest, depreciation and miscellaneous expenditures.
5.59 Repair costs are derived from two sources, the Survey of Household Spending and the Homeowner Repair and Renovation Survey (HRRS)9. The total of the expenditures from these two surveys is divided between renters and owners, according to the proportions for the benchmark years, which, again, are based on the Homeowner Repair and Renovation Survey.
5.60 Property and school taxes are derived from the financial documents of provincial and local governments. These are compiled by the Public Institutions Division. The residential portion of property and school taxes is provided by the Industry Accounts Division.
5.61 Insurance expenditures are derived from the reports of the Office of the Superintendent of Financial Institutions Canada.
5.62 Mortgage interest, the largest expenditure item, is calculated from quarterly documents of the financial institutions involved in mortgage lending. This group includes chartered banks, trust companies, mortgage lending companies, caisses populaires and credit unions, life insurance companies, pension funds and other financial institutions. The total of residential mortgage interest is then distributed between owners and renters by using the proportions of paid and imputed rent.
5.63 Depreciation is calculated quarterly on a replacement cost basis, by dwelling type, by the Investment and Capital Stock Division. Depreciation is distributed between owners and renters using data on rented and owned dwelling units.
5.64 In the case of owner-occupied dwellings, miscellaneous expenditures include only wages and expenditures related to legal costs. The benchmark data are projected using the growth rate for residential rent imputed to owner-occupants.
Net residential rental income of unincorporated businesses
5.65 With one exception, estimates of net residential rental income of unincorporated businesses are based on the same methods and information sources as for net residential rental income imputed to owner-occupants (see paragraph 5.58). The exception is due to the fact that rents are paid not only to unincorporated businesses, but also to incorporated businesses and governments.
5.66 Table 5.13 shows how net residential rental income of unincorporated businesses is calculated. The starting point is residential rent paid to landlords from which rent paid to governments and incorporated businesses is subtracted. The share attributable to corporations is derived from the Annual Survey of Service Industries: Real Estate Rental and Leasing and Property Management. The share attributable to governments is no longer available from surveys. The current value is derived using the growth rate for residential paid rent. Expenses are then removed to arrive at net residential rental income of unincorporated businesses.
Net non-residential rental income of unincorporated businesses
5.67 Until 1997, non-residential rent paid to unincorporated businesses came directly from the personal income tax returns. However, the level reported became erratic due to changes in methodologies and treatment of the data. The current approach is to use the growth rate of Canada Revenue Agency's T1, linking it to the 1997 level. As seen in Table 5.14, this item accounts for only a very small part of the total.
Quarterly estimation methods and data sources
5.68 The quarterly methodology is the same as the annual methodology (see the section, Annual estimation methods and data sources). However, some steps must be modified when the data sources are available only annually.
5.69 The stocks of single-family and multiple dwellings are available quarterly from the Investment and Capital Stock Division. The quarterly distribution of the stock of single-family dwellings is applied to the stock of mobile homes and cottages.
5.70 The average rent (see paragraph 5.48) is available monthly.
5.71 Except for maintenance services, expenditures related to facilities and services provided by owners are distributed and projected quarterly using personal consumer expenditure series. For maintenance services, wages paid to janitors from the monthly Survey of Employment, Payrolls and Hours (SEPH) are used.
5.72 Repair costs are estimated using quarterly data on repairs and renovations, produced for purposes of estimating investment in residential construction.
5.73 Property and school taxes (see paragraph 5.60) are estimated using quarterly series on property taxes collected by provincial and local governments as estimated by the Public Institutions Division.
5.75 In the absence of quarterly information, a technique for quadratic minimization of differences is used to obtain a quarterly distribution of the annual values of insurance and miscellaneous expenditures. This technique is also used for net non-residential rent.
5.76 All quarterly series are seasonally adjusted using the X-11 ARIMA method.
Provincial and territorial estimation methods and data sources
5.77 The calculations that yield estimates of paid and imputed residential rent are done quarterly by province and territory. The Canada total is the sum of these. However, to go from paid and imputed rent to net rental income, the calculations are first done quarterly for Canada, then the estimates are distributed annually by province. When there are no relevant indicators for a component, rent by province and territory is used to make the distribution.
5.78 Provincial and territorial data from the Homeowner Repair and Renovation Survey are used to distribute repair costs.
5.79 Property and school taxes (see paragraph 5.60) are available by province and territory. The residential portion by province comes from the Industry Accounts Division.
5.80 Property insurance premiums paid by province and territory, compiled by the Office of the Superintendent of Financial Institutions Canada, are used to distribute insurance expenditures.
5.81 For mortgage interest, there is no provincial or territorial indicator. The Canada growth rate is applied to each province and territory.
5.82 Depreciation (see paragraph 5.63), which is supplied by the Investment and Capital Stock Division, is available quarterly by province and territory.
- 5.3 Net income of non-farm unincorporated business, excluding net rental income
- 5 Entrepreneurial income: Mixed income
8. National Income and Expenditure Accounts, catalogue no. 13-001, Table 16, line 10.
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