Q1 Corporate Income Down $46.5 Billion

June 10, 2020

Canadian corporations reported net income before taxes of $74.4 billion in the first quarter, on a seasonally adjusted basis, down $46.5 billion from the fourth quarter of 2019.

Physical distancing measures and provincial shutdowns were announced in Canada during the last two weeks of March. COVID-19 had little impact on first quarter results since data collected only includes information until the end of March; however, these data will provide a valuable benchmark on how COVID-19 has affected the financial health of all areas of the economy, ranging from the banking sector and the housing market, to manufacturing and retail trade.

Changes to the Quarterly Survey of Financial Statements

Starting with the first quarter of 2020, the Quarterly Survey of Financial Statements (QSFS) underwent a planned content update to better align it with International Financial Reporting Standards (IFRS), which were adopted by Canadian enterprises starting in 2011.

In addition, the QSFS migrated its operations to a new processing system. This migration required an update to the survey’s methodology to make operations more efficient and standardized.

The variable used by the QSFS to measure an enterprise’s financial performance changed from operating profit to net income before taxes (see note to readers).

These changes may impact the comparability of the first quarter 2020 estimates with those for previous quarters. Efforts will be made to back-cast these data to the first quarter of 2010, to allow for historical comparisons. However, more than one cycle of collection under the new content and methodology is required before starting this exercise and as such, it is expected that back-casted data will be available at the end of 2021.

Data users should therefore exercise caution when making historical comparisons.

A seasonally adjusted series was created for net income before taxes only for analytical purposes, and the estimates for this variable may change once a formal back-casting exercise is undertaken.

Net income for Canadian corporations declines

Canadian corporate net income before taxes decreased by $46.5 billion (-38.4%) from the fourth quarter of 2019 to $74.4 billion in the first quarter, mainly driven by the non-financial sector. 

Compared with the same quarter a year earlier, net income before taxes for Canadian corporations decreased 28.0%.

Net income before taxes in the non-financial sector decreases

Net income before taxes in the non-financial sector fell by $35.3 billion from the fourth quarter of 2019 to $49.4 billion in the first quarter. 

Oil and gas extraction and support activities led the decline, reporting a net loss before taxes of $17.2 billion, down $17.9 billion from the fourth quarter on lower oil prices. 
Pharmaceutical and medicine manufacturing, and soap, agricultural chemicals, paint and other chemical product manufacturing reported $1.2 billion of net income before taxes, down $16.3 billion from the previous quarter. The decline was due to a large foreign exchange gain reported in the fourth quarter of 2019.

Petroleum and coal products manufacturing reported a decrease of $5.3 billion in net income before taxes when compared with the fourth quarter, mainly on lower oil prices.

Financial sector sees lower net income before taxes

Net income before taxes for the financial sector decreased $11.2 billion in the first quarter of 2020 to $24.9 billion.

Life, health and medical insurance carriers’ net income before taxes declined by $2.0 billion from the fourth quarter, mainly due to losses from foreign exchange.

Net income before taxes for banking and other depository credit intermediation decreased by $1.4 billion to $9.7 billion due to labour-related expenses.

In terms of contribution to total net income before taxes, the non-financial sector accounted for two-thirds (66.5%) of the total net income before taxes in the Canadian corporate sector, while the financial sector accounted for one-third (33.5%) of the total.

Source: Statistics Canada, www150.statcan.gc.ca/n1/daily-quotidien/200609/dq200609b-eng.htm