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A B C D E F G H I J K L M N
O P Q R S T U V W
X Y Z
Age Pension age
The age at which you are entitled to receive
the Centrelink and Department of Veteran Affairs benefits. The current Age Pension age is 65 years for males and 63
years for females (for the DVA
they are 5 years less, respectively).
Agreement for sale and purchase
A legal agreement containing rights and
obligations, including the seller's obligation to sell, and the
purchaser's obligation to purchase a property for an agreed price.
Alimony
Money payable by a person to their spouse
(including de facto spouse) or former spouse after they are
separated or divorced.
All-in-one account
An all-in-one account is a home loan, savings
and transaction account in one.
Approved deposit fund (ADF)
A fund approved by the Australian Taxation
Office to receive Eligible Termination Payments.
Approved early retirement scheme payment
A payment received by employees terminated as
part of the reorganisation of the employer's operations under a
scheme approved by the Commissioner of Taxation as an approved early
retirement scheme.
Assets test
The test on your assets to determine if you are
eligible for Centrelink entitlements. Under this test you can have a
certain amount of assets before your full entitlement to Centrelink
is reduced or cuts out. The level at which your pension begins to be
reduced varies depending on whether you are single or married and
whether you own your own home.
Asset-test exempt income streams
Some lifetime and term annuities and pensions
that meet certain payments standards will not be included in the
assets test for social security purposes under new rules introduced
in September 1998.
Asset class
A broadly defined category of financial assets.
The most commonly referred to asset classes are cash, fixed
interest, shares and property.
Baby bonus
The Baby Bonus is a refundable tax offset, not
a cash payment, payable if your child was born after 1 July 2001 and
before 1 July 2004.
Basic variable rate home loan
A 'no frills'
variable-rate home loan with
either no additional features, or very few.
Before tax annual income
Before tax annual income is assumed to be:
for salaried employees with no ownership
interest, this will be your current total annual salary package
for salaried employees with an ownership
interest, this will be your current annual salary package plus or
minus your share of the business' latest financial year profit or
loss (before tax and after expenses)
for partners in a partnership, this will be
your drawings plus or minus your share of the partnership's latest
financial year profit or loss (before tax and after expenses)
for sole proprietors this will be the gross
business income, less the cost of goods sold and less all tax
deductible business expenses
Beneficiary
The person or company you choose to receive
your money after death.
Bona fide redundancy payment
A payment made by an employer to compensate for
the loss of a job as a result of that position no longer existing.
All or some of this payment may be tax-free.
Burglary insurance
Burglary insurance covers you for the theft of
stock or contents after forced and violent entry into your business
premises.
Buy/sell arrangements
Covers you if you wish to sell your business
should you suffer illness or death - where you are able to identify
a buyer in advance (eg. another partner in the business).
Capital Gains Tax
The tax paid on the profit after the sale of an
asset.
CGT, as it is commonly known, applies to assets
(with some exceptions, notably your principal place of residence)
acquired after 19 September 1985. CGT is generally payable on
profits made at the time of sale. Generally 50% of such profits will
be exempt from tax where the asset has been held for at least 12
months. Working out the CGT implications of your investments is a
complicated process. Each time you acquire, sell or transfer all or
part of an investment, you must keep careful records.
Capital guarantee
Guarantees the return of your capital and may
also guarantee interest once credited to your account.
Capital secure or capital stable
Refers to a fund where the underlying
investments are usually a low risk.
Cash management
A unit trust or
investment trust where money from many investors is pooled to
purchase a range of short term money market investments.
Choice of fund
Where you are an employee under a federal
award, from 1 July 2005, you will be able to choose the fund you
wish your Superannuation
Guarantee Contribution (SGC) to be paid into. Your employer must
provide you with a form that allows you to choose your fund. If you
do not complete this form, then your SGC will continue to be paid into a fund chosen by
your employer.
Co-contribution
An amount the Government contributes to your
superannuation fund if you are an employee and you make personal
after-tax superannuation contributions. The amount the Government
co-contributes is dependant on your level of income and the amount
you personally contribute after-tax. A Government con-contribution
is only available if your income is less than $58,000.
Commutation
The process by which an income stream or
portion of an income stream is converted back to a lump sum. To
‘commute’ an allocated pension means to withdraw a lump sum.
Complying annuity or pension
An annuity or pension which meets certain
prescribed payment standards which could qualify the recipient to
receive a higher
reasonable benefit limit (RBL).
Deeming
To qualify for a social security pension or
allowance, a person's assets and income are means tested. Under the
income test, income from all financial investments is assessed under
one simple set of rules, known as deeming. "Deeming" assumes that
financial investments (such as bank deposits, unit trusts and
shares) are earning a certain rate of income, regardless of what
they are actually earning.
Financial investments up to $37,200 (for a
single person) and $62,000 (for a married couple) are deemed to earn
3.0%pa, with the balance over these thresholds deemed to earn
5.0%pa.
Default fund
Under the ‘Choice of Fund’ legislation, the
default fund is where your superannuation contributions will go if
you do not make an active choice. It will be the current employer
fund given under the award. If there is no award, your employer must
select a default fund.
Direct investment
Investments bought by an investor directly from
a seller, either personally or through a broker, adviser or agent
(for example: shares bought through a stockbroker, property through
a real estate agent).
Diversification
Spreading investment funds across a number of
different asset classes and within asset classes.
Dividend imputation
Dividend paid out of profits on which
Australian company tax has been paid are known as franked dividends,
which carry imputation credits
under the dividend imputation system. Imputation credits represent
the tax already paid by the company and can be used by investors to
offset tax payable on other income.
Dollar cost averaging
Investing a set amount of money regularly means
you will buy more units when prices are low, and less units when
prices are high. As a result, the actual dollar cost of the total
investment will average out over time.
Eligible
Termination Payment (ETP)
A payment received on retirement, resignation
or retrenchment or from a superannuation fund that is given special
tax benefits.
Enduring power of attorney
A power of attorney is a legal document that
allows another person to act on your behalf. An enduring power of
attorney is one that remains effective after you have lost mental
capacity. It will remain in force until death.
Estate
The net value of all your assets and
liabilities.
Estate Planning
Estate planning is a process to ensure that
when you die, the right funds and assets are passed on to the right
people at the right time- via your will or due to the way you have
set up ownership of your assets. Estate planning requires the
involvement of skilled legal and financial specialists.
Excessive component
The Excessive component of an
Eligible Termination Payment is the amount of the
ETP that is in excess of the member's Reasonable
Benefit Limit (RBL). The Excessive component, when received as a
lump sum, is taxed at the highest marginal tax rate.
Executor
The person named in a will to handle the
property and affairs of someone who has died. The executor must
collect and manage the property, pay debts and taxes, and then
distribute what's left as specified in the will.
Financial plan
A financial plan is developed by a financial
planner in accordance with your requirements. It sets out your
current financial situation and your financial goals, taking into
account your priorities and attitude to risk. It then sets out
investment, wealth preservation and protection strategies that can
help you meet your goals. It may also include estate planning
strategies. A financial plan should be reviewed regularly and
updated to take account of your changing circumstances.
Financial Services Licensee
A company that holds a licence granted by the
Australian Securities and Investments Commission which authorises
the company to carry on a securities business or to operate a
managed investment scheme or both.
First Home Owner Grant (FHOG)
The First Home Owner Grant is a joint
Commonwealth and State Government initiative introduced on 1 July
2000. It gives eligible first home buyers or builders a one-off
$7,000 payment. This grant is not means tested either by income,
assets or the value of the property.
Fixed interest investments
Normally for terms of one year or more, fixed
interest investments (sometimes referred to as 'securities') include
government and semi-government bonds, debentures, mortgage trusts
and fixed terms deposits. They generally provide a regular fixed
income with capital repaid at the end of a fixed term.
Guaranteed
annuity
A retirement investment that provides you with
a guaranteed fixed income stream when you invest a lump sum. You
choose upfront whether you want to receive this for a fixed term, or
for the rest of your life. You can also choose how often you want to
receive the income payments and whether you want the payments to
increase each year with inflation.
GST
GST is a broad-based tax of 10 per cent on most
supplies of goods and services.
HECS
The Higher Education Contribution Scheme was
introduced by the Commonwealth Government in 1989 and is a scheme
whereby students contribute towards the cost of their higher
education.
For most students there are two options available for the payment of
the charge. Students may pay the fee "up-front" and receive a 25%
discount for the payment or "defer" payment, in which case their
liability is discharged through the taxation system when their
income reaches certain predetermined levels. If the student defers
the payment until they are in the workforce, the amount owed
increases in line with the Consumer Price Index (CPI).
By planning, funds can be available to pay HECS upfront, and receive
the 25% discount, rather than repay a debt that is linked to the CPI.
Immediate
annuity
An annuity where periodic payments to the
annuitant begin straight away once it is bought. This differs to a
deferred annuity, where the payments begin at a future specified
date.
Imputation
credits
Taxation credits shareholders may be entitled
to when they receive franked dividends. (See
Dividend Imputation)
Income continuation insurance
Insurance which pays you up to 75% of your
income if you are unable to work due to accidents or illness for an
extended period of time. Sometimes referred to as 'income protection
insurance'.
Income splitting
A simple strategy for couples where investments
are put in the name of the partner (husband, wife, de facto) who has
the lower income and lower tax bracket. This helps both partners pay
lower marginal tax rates.
Income stream
One of the most tax-effective ways to provide
for your retirement, income stream products act like a salary after
retirement, providing you with the security of a regular income.
Types of income streams include guaranteed term annuities, allocated
annuities and lifetime annuities - also known as private pensions.
Income test
The test on your income to determine if you are
eligible for Centrelink entitlements. Under this test you can earn a
certain amount of income before your full entitlement to Centrelink
is reduced or cuts out. The level at which your pension begins to be
reduced varies depending on whether you are single or married.
Investment trust
An investment trust pools the funds from
individual investors. By purchasing units in an investment trust,
you harness the buying power of pooled funds and take advantage of
professional investment expertise. It sometimes called a ‘unit
trust’.
Investment trust objective
Each investment trust has a clear investment
objective so you can determine its suitability for your investment
goals.
Key
features statement
A printed document describing the features of a
superannuation product.
Key person insurance
Insurance on the life of the key person in a
business, so that in the event of disablement or death, the business
receives sufficient funds to tie it over until a replacement is
found.
Land tax
Land tax is levied where the unimproved value
of land exceeds a certain figure.
Liabilities
Debts owed to a person or company. For example,
the amount you owe on your credit card, to friends or to the bank.
Life insurance
Life insurance provides a lump sum payment on
the death or terminal illness of the insured person. If it has an
investment component, a lump sum may also be paid on surrender or
maturity of the policy.
Limited power of attorney
A power of attorney is a legal document that
allows another person to act on your behalf. Limited power of
attorney means the power is limited by time, for example, or limited
to a specific act. It will generally cease to be effective if you
lose mental capacity.
Line of credit
A revolving line of credit accessed by cheque
book that you can use again and again, up to the credit limit, for
any worthwhile purpose.
Lump sum disability insurance
Provides a lump sum payment of money if the
insured person becomes permanently disabled and totally unable to
work.
Lump sum ETP
tax
If you take your super as a lump sum (rather
than rolling it over) you may have to pay lump sum tax.
Margin call
If you have a margin loan and the value of the
investment decreases below the value of the security you provided,
you’ll be required to:
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Lodge further assets as security for the loan,
and/or
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Invest further cash or other funds to reduce
the loan, and/or
-
Sell assets, using the net proceeds to reduce
the loan.
This is known as a margin call.
Margin lending
Margin lending is borrowing money to invest in
shares or managed funds, using your existing investments as security
for the loan.
Managed investment
Investors’ funds are pooled together to
purchase a range of assets for a particular fund or trust. By
pooling together small amounts they can be invested across a range
of assets in the same asset class, or various asset classes,
reducing the overall risk of market fluctuations. The fund is
managed by an investment manager and management fees and charges are
usually payable. Income earned is credited to the fund or trust.
PAYG tax
Pay as you go (PAYG) is a system for paying
instalments in advance on what you expect to earn from business and
investment income. Your actual tax liability is established when the
tax office assesses your annual income tax return. If there’s a
shortfall, you will have to pay in; if you paid too much you’ll
receive a refund
PAYE tax
Pay as you earn (PAYE) is a system whereby your
employer acts on behalf of the government by deducting the correct
amount of tax from your salary before paying you.
Payroll tax
Payroll tax is a state tax payable when an
employer’s wage bill exceeds a certain amount. The tax is based on
the total wages paid to all employees.
Pension
Bonus Scheme
The Pension Bonus Scheme rewards people who
continue working past the Age Pension age and defer claiming the
pension.
Prenuptial
agreement
A prenuptial agreement is a legal arrangement
outlining what happens to each partners’ assets if the marriage
breaks down.
Preservation age
The age at which a person may acquire access
upon retirement to accumulated preserved superannuation benefits.
Preserved amount
The portion of an
Eligible Termination
Payment that cannot usually be accessed until retiring after
reaching preservation age.
Probate
The court process to obtain a certificate which
authorises the executor, under a deceased person's valid will, to
handle the deceased person's assets and affairs following the
person's death.
Product Disclosure Statement (PDS)
An offer document for a financial product.
Broadly speaking, it contains information that a person would
reasonably require for the purpose of making a decision whether to
acquire a financial product. This includes information about the
product features, fees that apply, any adviser commission, benefits
and risks of investing and what to do if you have a complaint.
Property
In addition to residential property, this asset
class includes industrial, commercial, retail and rural property.
The investment can be made directly or through a managed fund.
Property is usually viewed as a longer term growth investment.
Purchasing power
The extent to which a sum of money or benefit
retains its ability to purchase goods or services over a period of
time. Investors generally aim to improve or at least preserve the
purchasing power of their money or assets against increases in the
inflation rate over time.
Reasonable Benefit
Limit (RBL)
The maximum amount of concessionally taxed
eligible termination benefits a person can receive.
Redraw facility
This allows you to withdraw money (from
additional payments you have made) from your home loan.
Residual capital value
A lump sum payment made from an annuity or
pension at the end of the plan term or following the death of the
last annuitant or pensioner.
Return
The total earned from an investment including
capital growth, or loss, and income.
Rolling over
Transfer of an eligible termination payment to
an ADF, superannuation fund, immediate annuity or allocated
pension/annuity.
Salary sacrifice
This is when your employer makes contributions
into your super fund from your salary before deducting PAYE tax.
Your contribution is maximised by using pre-tax dollars and the fund
is taxed at only 15%, instead of your marginal rate of up to 47%
plus 1.5% Medicare levy.
Split home loan
A combination of variable loan and fixed
interest loan.
Spouse
contributions
If you are an Australian taxpayer, you can make
superannuation contributions on behalf of your spouse (including de
facto) if they are either:
Standard variable rate home loan
You usually pay a higher interest rate than the
basic variable rate but generally it has other features (such as
allowing extra repayments).
Statement of Advice
When an adviser produces a financial plan for
you, by law they must produce a written Statement of Advice. This
outlines the advice you have been given and why it is suitable for
you.
Superannuation
A long-term savings vehicle primarily used to
save for retirement. Under current superannuation and taxation laws,
superannuation is one of the most tax effective ways to save for
retirement.
Superannuation contributions
Amounts invested into your superannuation
account. Depending on your circumstances, these contributions may be
made regularly or at intervals.
Superannuation Guarantee Charge
The Superannuation Guarantee Charge (SGC)
is a mechanism to ensure that employers contribute at least a
prescribed minimum amount to a superannuation fund or Retirement
Savings Account (RSA) for the benefit of their employees.
SGC
commenced 1 July 1992. The amount is currently 9% of an employee’s
salary.
Superannuation surcharge tax
A tax (up to a maximum of 15%) payable on
certain super contributions if your adjusted taxable income exceeds
the specified threshold for the relevant year. This was abolished on
1 July 2005.
Term
allocated pensions
A retirement investment purchased with
superannuation money that provides you with a regular income for a
fixed term based on your life expectancy. The income payment amount
is calculated annually according a formula set by the Government and
may fluctuate with movements in the value of your account balance.
Term allocated pensions are also known as market-linked income
streams.
Term life insurance
Insurance that provides a lump sum payment on
death or terminal illness of the insured person. It has no surrender
or cancellation value. Premiums generally increase with age.
Testamentary trust
A testamentary trust is simply a trust
established by someone's will. Rather than all the deceased's assets
being distributed by the executor upon death, some or all of the
assets remain in the trust for the benefit of a specific group of
beneficiaries named in the will. Trust income distributed to
children, of any age, will be taxed at normal marginal rates, rather
than the penalty rates that normally apply to minors' unearned
income.
Note: the trustee can have full discretion as
to who receives trust income and capital or restrictions can be
provided.
Testamentary Trusts are of benefit:
Total and permanent disability
A person is generally considered totally and
permanently disabled if they have suffered a disabling injury or
illness, which is regarded as total and permanent either because:
-
the illness or injury prevents them from ever
carrying out work for which they are reasonably suited by education,
training or experience (or, in some cases, their own occupation) and
they are under the regular care and attention of a doctor; or
-
they have suffered permanent loss of certain
limbs or eyes or a combination of them.
Trauma insurance
Trauma insurance provides a lump sum payment on
death or terminal illness of the insured person. It has no surrender
or cancellation value. Premiums generally increase with age.
Undeducted contributions
Undeducted contributions are contributions made
to a super fund for which no tax deduction is claimed. These
contributions do not attract contributions or surcharge taxes, and
earnings are taxed at a maximum rate of 15%. When undeducted
contributions are withdrawn, no tax is payable on the contributions
themselves (though tax may be payable on any earnings) and they are
not counted towards
Reasonable Benefit Limits.
Undeducted purchase price (UPP)
The undeducted purchase price is an amount used
to calculate the tax free payments of an annuity. It is generally
equal to the total of all undeducted contributions.
Unearned income
Sources of unearned income include interest,
dividends, pensions, rentals, royalties and annuities etc.
Unit trust
A unit trust is an investment fund where the
money of a number of investors is pooled and invested in either one
asset class or a variety of asset classes (depending on the fund
chosen). Your interest in the trust is represented by the number of
units you hold.
Unrestricted non-preserved amounts
The portion of an
Eligible Termination
Payment that is not subject to preservation requirements and is
accessible.
A variable rate home loan means the interest
rate moves up and down with the market.
Volatility
A measure of the variability of returns - their
ups and downs. It is often used in the context of investment risk.
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