Low-income measure before tax (LIM-BT)

Part A - Short definition:

The Low-income measure before tax (LIM-BT) is a fixed percentage (50%) of median adjusted total income of households observed at the person level, where 'adjusted' indicates that a household's needs are taken into account.

Part B - Detailed definition:

In simple terms, the Low-income measure before tax (LIM-BT) is a fixed percentage (50%) of median adjusted total income of households observed at the person level, where 'adjusted' indicates that a household's needs are taken into account. Adjustment for household sizes reflects the fact that a household's needs increase as the number of members increase, although not necessarily by the same proportion per additional member.

The LIMs derivation begins by calculating the 'adjusted household income' for each household by dividing household income by the square root of the number of persons in the household, otherwise known as the 'equivalence scale.' This adjusted household income is assigned for each individual in the private household, and the median of the adjusted household income (where half of all individuals will be above it and half below) is determined over the population. The LIM for a household of one person is 50% of this median, and the LIMs for other sizes of households are equal to this value multiplied by their equivalence scale.

Unlike other low income lines, LIMs do not vary by size of area of residence.

Thresholds for specific household sizes are presented in Table 3.2 Low-income measures thresholds (LIM-AT, LIM-BT and LIM-MI) for households of Canada, 2010.

Reported in:

2011

Reported for:

Private households

Question number(s):

Derived variable

Responses:

Not applicable

Remarks:

Low-income measure before tax (LIM-BT) is one of a series of low-income lines used in the National Household Survey. See also Income status; Prevalence of low income; Low-income gap; Severity of low income and Adjusted total income of households.

Following the practice of many international organizations, Statistics Canada began to publish before- and after-tax low income measures (LIMs) in 1991. The LIM is intended as a reference for international comparisons.

After a comprehensive research of low income measures completed in 2008-2009, changes relating to the (1) accounting unit utilized, (2) unit of analysis and (3) equivalence scale were made.

(1) The household replaced the economic family as the accounting unit in which individuals pooled income to enjoy economies of scale. A household refers to a person or group of persons residing in a dwelling.

(2) The median began to be calculated over the population individuals, as opposed to over that of families or households. Resultantly, each person in the population is represented by its adjusted household income.

(3) In order to ensure international consistency, the equivalence scale was changed and adjusted household income was calculated by dividing household income by the square root of the number of members in the household.

The choice of using before- or after-tax low income measures depends upon the analysis undertaken. The after-tax low income measures will take into account the reduced spending power of households because of income taxes paid.

Since their initial publication, Statistics Canada has clearly and consistently emphasized that low income lines are not measures of poverty. Rather, low income lines reflect a consistent and well-defined methodology that identifies those who are substantially worse off than average. These measures have enabled Statistics Canada to report important trends, such as the changing composition of those below the low income lines over time.

For information on various low income concepts and adjusted household income see also 'Low income lines', Income Research Paper Series (Catalogue no. 75F0002M, 2012 – No. 002).