4 Entrepreneurial income: Operating surplus

Printable version (PDF) of Chapter 4 (June 30, 2008)

Introduction

Basic concepts

4.1 Operating surplus represents the income of corporations and government business enterprises accruing to the capital factor of production from the production of goods and services. The international System of National Accounts (SNA 1993) labels operating surplus, often referred to as capital income, as a component of entrepreneurial income. In Canada, operating surplus is the largest component of entrepreneurial income, with the income generated from production by unincorporated businesses making up the balance. However, unincorporated business income is described as mixed income1 because it contains remuneration for work done by the owner(s), which cannot be separated from the return to the owner as entrepreneur (see Chapter 5).

4.2 In the Canadian System of National Accounts (CSNA), estimates of operating surplus by industry are shown explicitly in the Input-Output Tables (IOT). However, the aggregate operating surplus generated in the Canadian economy is decomposed into the five components in the National Income and Expenditure Accounts (NIEA) and in the provincial and territorial economic accounts. The income-based estimates of GDP2 present the five components of gross operating surplus separately:

  • Corporation profits before taxes
  • Government business enterprises profits before taxes
  • Interest and miscellaneous investment income
  • Inventory valuation adjustment
  • Capital consumption allowances

4.3 The integration of the Input-Output Tables and the Income and Expenditure Accounts (IEA), accomplished through an annual reconciliation exercise referred to as benchmarking, results in a single unambiguous measure of operating surplus.3 This measure is published in the Input-Output Tables, but only its components are published in the IEA.

4.4 This chapter will be completed at a later date. It will first discuss operating surplus followed by a discussion of its components, as they are presented in the IEA.

Statistical details and presentation of operating surplus

4.5 The SNA 1993 generation of income account shows the sectors or industries in which the primary incomes originate, as distinct from the sectors destined to receive such income, hence reflecting earnings before transfers have a redistributive effect. The operating surplus or deficit is derived as the balancing item in the generation of income account as follows:

Value added at basic prices
- Compensation of employees payable
- Taxes on production payable
+ Subsidies on production receivable

4.6 In Canada, interest and miscellaneous investment income (the majority of SNA 1993 property income) is included in operating surplus. The link between the generation of income account (within the SNA 1993 structure) and the CSNA income-based GDP is presented in Table 4.1 for Canada. To arrive at GDP at market prices, taxes less subsidies on products must be added to the sum of value added at basic prices.

Table 4.1 The Income and Expenditure Accounts' income-based Gross Domestic Product and generation of Income Account in 2000 . Opens in a new browser window.

Table 4.1
The Income and Expenditure Accounts' income-based Gross Domestic Product and generation of Income Account, 2000

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Notes

1. The income generated by owner-occupiers in their capacity as producers of housing services is included with the mixed income component in the Canadian SNA as it represents all income generated by unincorporated businesses. That income is included with operating surplus in the generation of income account presented in the SNA 1993.

2. For the provincial and territorial economic accounts, the government business enterprises profits before taxes are&nbsp included with the interest and miscellaneous investment income component.

3. The statistical discrepancy shown in the derivation of income-based GDP has to be added to the sum of the five components to equal the operating surplus in the Input-Output Tables.

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