Equivalized household disposable income quintiles

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The household disposable income concept is unique to the SNA and is not measured directly in the SFS. While the estimates of wealth are not equivalized, the breakdown by income quintile is based on an equivalized income concept to reflect differences in household size and composition. In order to assign SFS households to disposable income quintiles, equivalized household disposable income must first be estimated for each household as follows:

• The SNA household disposable income aggregate is broken down into components (for example compensation of employees, transfers to and from other sectors, etc.) for which corresponding variables or proxies can be found on the SFS. The SFS income data is obtained from T1 income tax returns from the Canada Revenue Agency (CRA) for the year prior to the survey year. When this data is not detailed enough to correspond to SNA household disposable income components, additional information is obtained from other tax files such as the Annual Income Estimates for Census Families and Individuals, commonly called the T1 Family File (T1FF), and the T4A Supplementary file.
• For each income component, the SNA aggregate value is distributed over SFS households according to the value of the corresponding SFS variable or proxy. Survey weights are taken into account when calculating each household’s share of the component.
• For each household, the distributed components are added up to calculate the household’s estimated disposable income.
• A final adjustment is done in order to “equivalize” the household disposable income. It consists of dividing the household disposable income by the number of consumption units for each household. This adjustment is based on the OECD-modified equivalence scale, which assigns a value of 1 to the first adult, 0.5 to each additional person aged 14 and over, and 0.3 for all children under 14.

The result is a new income variable for each SFS household, more closely aligned with the SNA concept of household disposable income than the available measure of after-tax income. Household equivalized disposable income is nevertheless highly correlated with equivalized after-tax income excluding capital gains, with a coefficient of correlation of 91.0% in 2012 and in 2016, 92.9% in 2019, and 70.5% in 2023.

Once each SFS household has been assigned an equivalized household disposable income value, the households are grouped into equivalized household disposable income quintiles, which again are calculated taking into account the SFS survey weights.