Part B - Residence
Identifying the residence of an institutional unit is important for determining the coverage of the GFS system. Paragraph 2.7 of the IMF GFSM 2014 defines the residence of an institutional unit as the economic territory with which it has the strongest connection (i.e. its centre of predominant economic interest) rather than the legal or political territory.
Paragraph 2.8 of the IMF GFSM 2014 defines economic territory as any geographical area or jurisdiction for which statistics are required. However, the most commonly used concept of economic territory is the area under the effective economic control of a single government. Paragraph 2.9 of the IMF GFSM 2014 states that economic territory includes:
- The land area;
- Territorial waters, including areas over which jurisdiction is exercised over fishing rights and rights to fuels or minerals;
- In a maritime territory, islands that belong to the territory; and
- Territorial enclaves in the rest of the world (such as embassies, consulates, military bases, scientific stations, information or immigration offices, aid agencies, central bank representative offices with diplomatic status).
The concept of the economic territory of a country includes territorial enclaves in the rest of the world. The SESCA defines these as clearly demarcated areas of land that are physically located in other countries, but which are used by the government for diplomatic, military, scientific or other purposes. Therefore, the coverage of the Australian GFS system includes the overseas operations of Australia’s embassies, consulates, trade offices, etc.
Further, paragraph 2.10 of the IMF GFSM 2014 specifies that the economic territory of a country does not include the territorial enclaves that belong to foreign governments or international organisations that are physically located within the boundaries of that country, but which are not subject to the laws of the host country. Therefore the operations of foreign embassies, consulates, trade offices, military bases, etc., within the physical boundaries of Australia are excluded from the coverage of the Australian GFS system.
Centre of predominant economic interest
In GFS, a unit's economic activity can only be attributed to one country based on residence. Therefore, every institutional unit must have a centre of predominant economic interest within an economic territory. Paragraph 2.12 of the IMF GFSM 2014 defines a centre of predominant economic interest to be a location, dwelling, place of production or other premises from which a unit engages (and intends to continue to engage) in economic activities and transactions on a significant scale indefinitely, or over a finite but long period of time. The location itself need not be fixed in the one place, so long as it remains within the economic territory of the country.
The IMF consider all general government units to be residents in their own country regardless of their physical location, however, public corporations are considered to be residents of the economies in which they operate. The SESCA specifies that unincorporated enterprises other than notional resident institutional units, are not separate from their owners, and therefore have the same residence as their owners. Notional resident institutional units are further discussed in paragraphs 2.20 and 2.21 of this chapter.
Australia's economic territory
The SESCA defines Australia's economic territory as the area under the effective control of the Australian government, specifically:
- Geographic Australia which includes Cocos (Keeling) Islands and Christmas Island;
- Norfolk Island;
- Australian Antarctic Territory;
- Heard Island and McDonald Islands;
- Territory of Ashmore Reef and Cartier Island;
- Coral Sea Islands; and
- Australia's territorial enclaves overseas.
Paragraph 2.12 of the IMF GFSM 2014 states that if a unit operates (or intends to operate) in an economic territory for one year or more, it is considered to have a centre of economic interest in that economic territory (unless the unit forms part of the territorial enclave of another country). The criterion of actual or intended location for one year or more is used as an operational definition, and is adopted in GFS to avoid uncertainty and facilitate international consistency. The SESCA indicates that ownership of land and structures within the economic territory of Australia is deemed sufficient justification to record a centre of economic interest in Australia on the grounds that the property can be used for production.
Notional resident institutional units
The SESCA states that where a non-resident owner does not have any economic interest within the economic territory of Australia other than ownership of land and structures, the ownership of the land and structures are treated as having been transferred to a notional resident institutional unit in Australia.
A notional resident unit is defined in paragraph 2.13 of the IMF GFSM 2014 as being created when the legal owner of immovable assets within an economic territory is a non-resident. Immovable assets in this context refers to assets such as land, other natural resources, buildings and structures, which are usually treated as being owned by resident units. For GFS purposes, a notional resident unit is created to reflect the receipt of the rent or rentals that accrue on those asset/s. In this situation, paragraph 2.13 of the IMF GFSM 2014 specifies that the legal owner is deemed to hold equivalent equity in the notional resident unit, and receives income from the notional resident unit in the form of property income paid abroad.
The SESCA states that international organisations such as the United Nations (and its agencies) and the International Monetary Fund (IMF), are not considered to be residents of any economy, including those in which they are located or where they conduct their affairs. They are treated as non-residents by all economies. However, persons working for these organisations are treated as residents of the economies in which they live.