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Adjustments applied to capital expenditure estimates to achieve gross fixed capital formation Latest Developments in the Canadian Economic Accounts
Adjustments applied to capital expenditure estimates to achieve gross fixed capital formation

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The Capital and repair expenditure survey (CAPEX) program releases estimates of capital expenditure on non-residential buildings and engineering and machinery and equipment. The Canadian system of macroeconomic accounts (CSMA) produces estimates of gross fixed capital formation (GFCF) on those assets as well. Although the two concepts are very similar and each is an important indicator that provides different perspectives, the concept of GFCF is broader in scope with a larger asset boundary. This note will provide the adjustments applied to the CAPEX estimate to achieve an estimate of GFCF.

Adjustments applied to capital expenditure to produce the CSMA concept of GFCF

• Capital items charged to operating expense: a positive adjustment related to items that businesses treat as current expenditure, yet, according to SNA 2008^Note 1, must be capitalized;
• Vehicle coherence: coherence analysis specifically for cars, trucks and aircrafts between production, trade, inventories and investment;
• Vehicles to personal expenditures lease: a deduction to remove the value of vehicles leased for personal use;
• Business use of personal purchase and personal use of business purchase: adjustment to correctly capture which sector utilizes the purchase, business use is an addition, personal use is a subtraction;
• Government sector adjustment: is usually a positive adjustment and represents the difference between the government estimates of investment from CAPEX versus the CSMA estimates derived using government finance statistics;
• Used motor vehicles, aircraft, and scrap and salvage: a negative adjustment to account for dis-investment and for the fact that used machinery and equipment were already included in GDP when first produced;
• Balancing, sectoring: balancing relates to secondary data sources that are used to ensure coherence between supply and use, and with other accounts within the CSMA; sectoring is related to survey data that are reclassified to business, government or non-profit institutions serving households sectors based on CSMA definitions;
• Transfer costs: an addition to include costs associated with the purchase of existing fixed assets.

The following table includes the adjustments, by province and territory. The adjustments are split between those applied to machinery and equipment and those applied to non-residential construction. The starting point is the capital expenditure estimate from the CAPEX program, and the end point is the resulting GFCF estimate within the CSMA.

For more information on the concepts of capital expenditure and gross fixed capital formation, please see Reconciliation of capital expenditure and gross fixed capital formation.