Introduction
Statistical units are businesses, government entities, households or other entities about which statistics are compiled. They are defined in a consistent way to enable users of ABS statistics to make valid comparisons of information compiled from different statistical sources and to enable composite pictures of the economy to be drawn.
The basic statistical unit that is classified by sector is the institutional unit. An institutional unit is one that is able to:
- own or exchange goods and assets in its own right;
- make economic decisions and engage in economic activities for which it is held directly responsible and accountable at law;
- enter into contracts and incur liabilities on its own behalf; and
- compile a complete set of accounts, including a statement of financial position.
In some instances it is statistically advantageous to recognise as separate institutional units some entities which do not meet the above criteria. Although these units do not exist as separate institutional units from their owners, and therefore are not institutional units in their own right, where they operate autonomously and keep a full set of accounts, notional institutional units are created to enable their separate collection.
Institutional units can be originated either formally or informally. They can be created formally, either individually, as in the case of some government authorities through an Act of Parliament; or as a specific type of unit, as in the case of corporations through the Corporations Act 2001. The law establishes the existence of such entities as separate from their owners or members. Institutional units can also be created informally, such as a household formed by individual members sharing a dwelling.
The ABS statistical unit is considered an approximation to the institutional unit as defined by 2008 SNA. There are, however, some differences between the institutional unit and the practices adopted for the ABS Business Register as outlined in the ABS Economic Units Model Appendix.
Types of institutional units
There are four types of institutional units:
- Corporations;
- Government units;
- Non-profit institutions; and
- Households.
The institutional sector classification of the institutional units is presented in the suite of sectorial classifications.
Corporations
A corporation is 'a legal entity, created for the purpose of producing goods and services for the market, that may be a source of profit or other financial gain to its owner(s); it is collectively owned by shareholders who have the authority to appoint directors responsible for its general management' (2008 SNA, paragraph 4.39).
Corporations are typically:
- created by processes of law that establish their existence as independent from their shareholders, including other institutional units (i.e. other corporations, household unincorporated enterprises, government units and NPIs) that may own shares or other equity in the corporations;
- created for the purpose of market production;
- owned by shareholders who receive a distribution of profits in proportion to their shareholdings; and
- fully accountable at law for their actions, obligations and contracts and are liable to pay taxes (i.e. they are a legal entity).
The company structure of corporations enables profits to be distributed to their shareholders.
Examples of corporations are proprietary companies, limited liability companies and no liability companies.
Some incorporated entities are prohibited from distributing profits to their shareholders or members. Most companies limited by guarantee and all incorporated associations fall into this category. These types of institutional units are Non-Profit Institutions (NPIs) and are discussed later in this chapter.
As noted earlier, to qualify as a corporation a unit must be a recognised legal entity. The exception to this rule is where notional institutional units are created for 'foreign branches', or unincorporated enterprises owned by non-resident units (see 'Key concepts' for further detail on the concept of residence). To qualify as a notional institutional unit, a foreign branch must:
- have the same relationship to its owners as a corporation has to its shareholders;
- have a full set of accounts, including a statement of financial position; and
- be a market producer.
Artificial subsidiaries and holding corporations whose activities are confined to owning the controlling level of equity in the group are not recognised as separate institutional units. For statistical purposes these are merged with the parent unit.
Government units
Government units are 'legal entities established by political processes that have legislative, judicial or executive authority over other institutional units within a given area'. (2008 SNA, paragraph 4.117).
The principal functions of government units are:
- to provide goods and services to individuals or the community at large;
- to redistribute income and wealth; and
- to engage in non-market production.
The majority of government units are readily identifiable as their operations are mainly financed from taxation and they redistribute income by means of transfers (e.g. subsidies, grants, welfare payments) or engage in other forms of non-market production, such as the provision of government services (e.g. defence, education, health services, economic advice) free of charge or at nominal prices.
To qualify as a separate legal entity, a government unit must:
- have funds of its own, raised by taxing other institutional units or received as transfers from other government units;
- have authority to disburse some, or all, of such funds in the pursuit of its policy objectives; and
- have authority to borrow funds on its own account.
Units that do not meet all of these criteria are treated as part of a larger government unit, i.e. the collective legal entity comprising all government units included in the public accounts. Included in this collective legal entity are departments and agencies operating from the public accounts of the parent government.
The exception to this rule is where notional institutional units are created from entities which are part of the public accounts. These are usually government entities that do not exist as separate legal entities from the collective parent government unit, but that operate autonomously in the market. To be recognised as a notional institutional unit of government, a unit must:
- have the same relationship to its owners as a corporation has to its shareholders;
- have a full set of accounts, including a statement of financial position; and
- be a market producer.
In practice, notional institutional units of government will only be created where they engage in significant market activity.
Statutory authorities and companies created by legislation or regulation which operate outside the public accounts, along with local government authorities, qualify individually as government units.
A Statutory Authority is a public sector agency set up by an Act of Parliament, more or less independent of day-to-day ministerial control, usually not bound by public service procedures to the same extent as ordinary departments, and which is responsible finally to Parliament.
In the event of dissolution of units under government control, the assets are returned to the government. As a result, units under government control do not meet the non-distribution criteria set out for NPIs detailed below.
Non-Profit Institutions (NPIs)
Non-Profit Institutions (NPIs) are defined as 'legal or social entities created for the purpose of producing goods and services whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them'. (2008 SNA, paragraph 4.83).
NPIs must have an enabling instrument which includes a clause that prohibits the NPI from distributing income, profit or other financial gain to its establishing, controlling or financing unit. This includes benefitting from the sale of assets in the event of the dissolution of the unit.
The productive activities of NPIs may generate either surpluses or deficits but any surpluses they make cannot be appropriated by the establishing, controlling or financing institutional unit. For this reason, they are frequently exempted from various kinds of taxes.
The main characteristics of NPIs are they:
- are created by processes of law that establish the NPI's separate existence from the units that establish, finance, control or manage them;
- have purpose statements set out in articles of association;
- are associations with members who have equal voting rights and limited liability with respect to the NPI's operations;
- cannot distribute profits to members (the term 'non-profit institution' reflects the embargo on distribution of financial gains and is not intended to imply that NPIs cannot make a profit); and
- are self-governing, with their direction usually vested in a group of officers, an executive committee or a similar body elected by a majority of members.
Self governing units "dissolves themselves by their own authority". A unit that is ‘self-governing’ retains full responsibility for the economic risks and rewards entailed by its operations, and its governing body has the authority to dissolve the unit and legally dispose of its assets. (Satellite Account on Non-profit and Related Institutions and Volunteer Work 2018, paragraph 3.64).
Households
A household is 'a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food' (2008 SNA, paragraph 4.149).
Individual members of households are not treated as institutional units because many assets are owned (and liabilities incurred) jointly by two or more members of a household. Income can be pooled, and expenditure decisions are often made for the household as a whole. As a result, the household as a whole, including all individual members, is considered to be an institutional unit.
Where an unincorporated enterprise is entirely owned by a household, it is treated as an integral part of that household.
Some members of households engage in market production through unincorporated enterprises such as sole proprietorships, partnerships and trusts.
Partnerships can be comprised of partners belonging to different households.
The liability of the owners of unincorporated businesses is unlimited. As a result, these businesses are treated as household units since all the assets of the household, including the dwelling itself, are at risk if the enterprise goes bankrupt. The institutional unit of each household involved in the partnership therefore represents the individual members of the household as well as the share of the unincorporated partnership owned by each household.
The exception to this rule is where notional institutional units are created from unincorporated enterprises within household units. These are usually unincorporated enterprises that do not exist as separate legal entities from the household institutional unit, but:
- have the same relationship to their owners as a corporation has to its shareholders;
- have a full set of accounts, including a statement of financial position;
- are market producers; and
- are assessable for income tax purposes as companies.
Examples of the types of unincorporated enterprises recognised as notional institutional units include unincorporated financial enterprises (except for financial auxiliaries); unincorporated partnerships of companies and trading trusts; and all other unincorporated enterprises assessable for income tax purposes as companies.