Net mixed income;Canada; Unadjusted (v62295571); from Cube 36100103: Gross domestic product, income-based

Compensation of employees is defined as the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period

Series Attributes:

Unit and Multiplier:

Dollars, Millions

Frequency:

Quarterly

Seasonal Adjustment:

Not seasonally adjusted
A time series is said to be “not seasonally adjusted” when no adjustments have been made to it to remove predictable seasonal regularities due to normal variations in climate through the year, the schedule of religious, civic and other holidays, established social patterns such as the timing of the school year and other factors of this nature. Time series that have not been seasonally adjusted are also not adjusted for calendar effects, as for example when one month has more working days (Mondays to Fridays) than another. Time series that are not seasonally adjusted are typically more volatile than time series that are seasonally adjusted.

Methods:

Net Mixed Income:

Mixed income is broken into three main components: gross mixed farm income, gross mixed non-farm income, and gross mixed rental income (paid and imputed) in the Gross Domestic Product by Income and by Expenditure Accounts (IEA).

Mixed income refers to the net income of both farm and non-farm unincorporated businesses, representing income that is generated by these types of businesses in the production of goods and services. This income accrues to the capital factors of production, in the same way that operating surplus does for corporations and government business enterprises. However, unincorporated business income is described as mixed income because it contains remuneration for work undertaken by the owner(s) that cannot be separated from the return to the owner(s) as entrepreneur(s). Gross mixed income refers to net income plus the consumption of fixed capital.

Mixed income (sole proprietors' revenue) captures a class of income that is difficult to classify-essentially falling between labour income and business profits. It is the amount that independent owners who are in business for themselves, but who have not incorporated their businesses, earn. The amount that the owner of an unincorporated business earns in a year is typically considered as profit by the owner, yet a significant amount ends up as remuneration to the owner for his labour services.

Net imputed rent generated by owner-occupied dwellings is added to mixed income in the Canadian System of National Accounts (CSNA). The income generated by owner-occupiers in their capacity as producers of housing services is included in mixed income, as it represents all paid and imputed rent generated by unincorporated businesses and households.

Mixed farm income, excluding rental income

________________________________________

Mixed farm income relates only to unincorporated farms. The income of incorporated farms is included in the operating surplus of corporations.

Mixed farm income comprises gross proceeds from the sale of agricultural products, including payments made to unincorporated farmers under government programs, plus the imputed value of farm output consumed by unincorporated farming households, plus the value of investment in farm-held inventories, less farm operating expenses (excluding depreciation) plus the property income received by farmers, such as income earned on renting out land to other farmers. It also includes an adjustment to transform earnings arising out of grain transactions of the Canadian Wheat Board from a cash to an accrual basis. Cash payments made to farmers under government programs are also adjusted to an accrual basis.

Estimates of mixed farm income can be subject to large fluctuations from one period to another. A variation in one of the key components can have a significant effect on both the level and the period-to-period movements of mixed farm income. Cash receipts, which are closely tied to weather conditions and other unforeseeable factors, can experience large variations. In addition, investment in farm-held inventories, part of mixed farm income, is affected by rapid changes in supply and demand of agricultural products at the national and international levels, making it a relatively unstable component. Changes in farm operating expenses are generally more stable.

Annual estimates of mixed farm income from farm production for Canada and the provinces are derived from the sum of the quarterly estimates. The benchmark estimates of mixed farm income include all farm activity as described in the North American Industry Classification System (NAICS), meaning all industries related to crop production (111) and animal production (112), except animal aquaculture (1125), which is included in non-farm unincorporated business.

Quarterly estimation methods and data sources - Mixed farm income is calculated by taking farm production and subtracting the operating expenses. Farm production can be broken down into farm cash receipts and farm income-in-kind adjusted for a change in inventories. Farm cash receipts include income received from the sale of agricultural products, Canadian Wheat Board payments, and government payments made under farm support programs.

Farm cash receipts are estimated from both administrative and survey data. Data sources vary by province and by product. The main data sources are Statistics Canada’s Census of Agriculture, as well as administrative data from Agriculture and Agri-Food Canada, Canadian Wheat Board, marketing and regulatory boards, and government and private agencies.

Farm cash receipts cover all crops, livestock, livestock products, and direct payments made to producers from various programs, such as crop insurance, income stabilization payments and other one-time payments made by federal and provincial governments to compensate producers for losses due to extreme weather, disease or other factors. Some payments, such as property tax credits and fuel tax rebates, are deducted directly from expenses rather than being included on a gross basis in farm cash receipts.

Farm income-in-kind consists of the estimated value of food and forestry products produced and consumed on farms for personal use. Home-consumed products are valued at prevailing market prices at the farm level. It excludes net rent imputed for dwellings on farms, which is included in mixed rental income. The composition of the farm income-in kind consists mainly of forestry and livestock products. The data are compiled from surveys, the Census of Agriculture and administrative data. Monthly data are distributed using ratios derived from a variety of data sources.

For crops, investment in farm inventories is estimated for each grain type, using quantities valued at the market prices prevailing in the reference period. Withdrawals from inventories (which consist of sales, food for livestock, seed and grain waste) are deducted from production that has been placed into inventories, to arrive at an estimate of the value of inventory changes. The same approach is applied to potato, tobacco crops and other agricultural crops. For livestock, the value of inventory change is calculated directly from the physical quantity changes and market prices.

Operating expenses and depreciation represent the costs incurred by farm operators for goods and services used in the production of agriculture commodities. There is a wide range of expenses related to farm production. To arrive at net operating expenses, direct payments (rebates), made to producers to reduce the costs of inputs, are deducted.

An adjustment of Canadian Wheat Board profits and government program payments is necessary because gross domestic product measures income arising from current production and not current receipts. Consequently, profits arising out of the operations of the Canadian Wheat Board are allocated to farm operators when they are earned, regardless of when they are actually paid to farmers. As well, an inventory valuation adjustment is calculated to eliminate any holding gains or losses from the initial Canadian Wheat Board earnings reported.

Similarly, government program payments to farmers are adjusted from a cash basis to an accrual basis to reflect current agricultural production. Following the second quarter of 2013 this adjustment is no longer necessary.

Estimates of consumption of fixed capital reflect economic depreciation, or the loss in fair market value of the capital assets. Estimates cover farm buildings (including the farm business share of houses) and farm machinery (including the farm business share of automobiles or trucks).

Mixed non-farm income, excluding rental income
________________________________________

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

The compilation of gross mixed income involves the following steps. The first step is to calculate the net income of unincorporated businesses by industry, from taxation statistics. The second step involves adjusting the book value depreciation used in this net income calculation for the macroeconomic accounting concept of consumption of fixed capital on a replacement cost basis. The next step is to add in the property income of unincorporated businesses. Property income includes any interest or dividends the businesses earned over the course of the accounting period.

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. Unincorporated businesses are required to report their net income (revenue less expenses) as per Canadian tax regulations.

In some cases, to account for unreported activity, CRA information is adjusted using other sources of information.

For the transportation and warehousing industry, CRA information is adjusted for the understatement of income for small operators in the urban transit industry. In the real estate and rental and leasing industry, estimates of mixed income for real estate agents and brokers are based on CRA information on gross income (since they are not required to report on a net of expenses basis), and a historical ratio of net income to gross income. For the remainder of the industry, CRA 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 CRA information adjusted for the understatement of income on tax returns. The remaining portion of the repair and maintenance industry’s mixed income is derived from gross income reported on CRA’s T1 individual income tax returns and a historical net income to gross income ratio.

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

With the exception of physicians, dentists and the “other health” industry, 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 medical care and household expenditures on medical and dental services are used respectively as the projectors. Finally, mixed 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.

There is no direct quarterly information on the net income of non-farm unincorporated businesses by industry. 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.

Current quarterly estimates of nine industries are obtained using industry-related household 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.

In six other cases, quarterly projectors are derived using a combination of industry estimates (gross domestic product, and gross output by industry) and industry related household expenditure on consumer goods and services price index. These industries are: utilities; legal services; accounting, tax preparation, book keeping and payroll services; architectural, engineering and related services; other professional, scientific and technical services; and administration and support, waste management and remediation services.

For a third group of industries, quarterly estimates are derived using labour related projectors. They consist of labour income estimates originating 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.

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 Statistics Canada’s 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 medical care, combined with household expenditures on medical, dental and child care.

The quarterly estimates of consumption of fixed capital at replacement cost are subsequently added to the aggregate of net income of unincorporated businesses.

The quarterly non-banking estimates of property income is estimated using the current spot rate on various investments (such as the currently quoted interest rates) and the stock of financial assets held by unincorporated businesses. Interest expenses on bank loans and leases of unincorporated businesses are derived from administrative data.

Mixed rental income

________________________________________________

The rental portion of mixed income includes all mixed 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, households who own the dwellings in which they live are treated as owning unincorporated businesses that produce housing services that are consumed by the households to which the owner belongs. 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.

The overall approach is to first estimate the residential rent that is paid to landlords, or imputed to owner-occupants. (Rent, paid and imputed, is also published in household expenditure.) Next, the rent paid to corporations and governments is subtracted. Then, the expenses incurred by owners (repair costs, property and school taxes, insurance, and miscellaneous expenses) are deducted to obtain the net income from paid and imputed residential rent. Mortgage interest paid on owner-occupied housing is then added back as it represents both an expense incurred by the owners as well as income received by that same owner. Net income from non-residential rent is then added. Finally, consumption of fixed capital on a replacement cost basis is added to move from a net to gross basis. Each of these calculations are explained in more detail below.

Rent paid to landlords - 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 Statistics Canada’s capital stock program, which uses the number of new dwellings completed, plus conversions, less demolitions from the survey of the Canada Mortgage and Housing Corporation (CMHC) and Statistics Canada’s 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.

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 a sample of respondents to the Labour Force Survey. The housing component of the Consumer Price Index is also based on these same data.

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 rent. 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 approximation. 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.

Several sources are used to estimate expenditures related to facilities and services provided by landlords, including the Survey of Household Spending, household expenditure data on furniture and household appliances and on energy, and the Survey of Employment, Payrolls and Hours for maintenance services.

Data provided by the Consumer Prices program indicate that approximately 2% of workers use their dwelling as a workplace. It is assumed that 25% of rent should be attributed to the business portion. The calculation is as follows: paid rent x ratio of rent used for office space (25%) x ratio of individuals using their dwelling as a workplace (2%) = adjustment for offices in the dwelling.

Paid rent is the starting point for estimating rent imputed to owner-occupants.

Rent imputed to owner-occupants - 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 rent 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:

Paid rent ÷ rented and occupied housing stock = average rent paid x coefficient of quality related to a dwelling that is owner-occupied x owned and occupied housing stock = Imputed rent.

To obtain imputed residential rent for garages, cottages and farms, the procedure is the same as for rented and occupied dwellings.

An adjustment is made for offices in the dwelling in the same way as in rented and occupied dwellings. Imputed rent, like paid rent, is the starting point for estimating the net rental income of non-farm unincorporated businesses. It is published in household expenditure as imputed rent.

The calculation of mixed rental income of non-farm unincorporated business is done in three parts: first, residential rental income imputed to owner-occupants; then residential rental income of unincorporated businesses; and lastly, non-residential rental income of unincorporated businesses.

Mixed residential rental income imputed to owner-occupants - The calculation of mixed 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 and miscellaneous expenditures.

Repair costs are derived from the Survey of Household Spending with the total repair expenditures allocated between renters and owners.

Property and school taxes are derived from the financial documents of provincial and local governments. These are compiled by the Government Finance Statistics program. The residential portion of property and school taxes is provided by the Industry Accounts program.

Insurance expenditures are derived from the reports of the Office of the Superintendent of Financial Institutions Canada.

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.

Consumption of fixed capital is calculated quarterly on a replacement cost basis, by dwelling type, in Statistics Canada’s capital stock program. Consumption of fixed capital is distributed between owners and renters using data on rented and owned dwelling units.

Mixed residential rental income of unincorporated businesses - With one exception, estimates of mixed residential rental income of unincorporated businesses are based on the same methods and information sources as for mixed residential rental income imputed to owner-occupants. The exception is due to the fact that rents are paid not only to unincorporated businesses, but also to incorporated businesses and governments.

The starting point to calculate mixed residential rental income 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 mixed residential rental income of unincorporated businesses. Consumption of fixed capital is then added to arrive at gross mixed residential rental income of non-farm unincorporated businesses.

Mixed non-residential rental income of unincorporated businesses - 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 CRA’s T1, linking it to the 1997 level.

The quarterly methodology is the same as the annual methodology noted above. However, some steps must be modified when the data sources are only available annually.

Rent - The stocks of single-family and multiple dwellings are available quarterly from the capital stock program. The quarterly distribution of the stock of single-family dwellings is applied to the stock of mobile homes and cottages. The average rent is available monthly. Except for maintenance services, expenditures related to facilities and services provided by owners are distributed and projected quarterly using household consumer expenditure series. For maintenance services, wages paid to janitors from the monthly Survey of Employment, Payrolls and Hours (SEPH) are used.

Net rent - Repair costs are estimated using quarterly data on repairs and renovations, produced for purposes of estimating investment in residential construction. Property and school taxes are estimated using quarterly series on property taxes collected by provincial and local governments as estimated by the Government Finance Statistics Program. 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.

Additional Information: