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Industry terms unplugged

The financial services industry is filled with its own unique language. This glossary will help you to unravel many of the commonly used words, phrases and acronyms used in our business.

Glossary 

Absolute Return Strategies

Are investment strategies with the specific aim of generating positive returns rather than following traditional benchmarks.

Age Pension age

The age at which you are entitled to receive the Centrelink and Department of Veteran Affairs (DVA) 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 Industrials Index

An index that measures the price of shares in sectors such as infrastructure and utilities, banking, chemicals, retail, transport, property, tourism and leisure listed on the Australian Stock Exchange.

All Ordinaries Index

An index that measures the movements in the major shares listed on the Australian Stock Exchange (ASX). The All Ordinaries is broken into a series of sub-indices including the All Industrials and All Resources Indices.

All Ordinaries Accumulation Index

An index that measures the movements in the major shares listed on the Australian Stock Exchange (ASX), taking into account the reinvestment of dividends.

All Resources Index

An index that measures the price of shares in sectors such as gold, other metals, diversified resources and energy listed on the Australian Stock Exchange.

All-in-one account

An all-in-one account is a home loan, savings and transaction account in one.

Allocated Pension

An Allocated Pension is a superannuation investment account which pays regular “pension” payments to the investor. The investments in the superannuation fund which are used to pay the pension have the potential to grow in value depending on the underlying investment mix (e.g. shares, property, interest-bearing investments, capital guaranteed investments). However, the regular pension payments – which can be annual, quarterly or monthly – reduce the value of the account over time.

The amount of each payment is flexible within certain limits depending on your age and the account balance. The investment earnings in the account accrue tax free. You pay tax only on the pension payments as you receive them, usually with the benefit of a 15% tax rebate and possibly a tax free component. Apart from the flexible pension payments, you can withdraw in cash (“commute”) any part of the remaining balance at any time.

Alternative Equities

Include infrastructure and venture capital types of investments. Infrastructure investments can include investments in roads, power generation and distributions and water sewerage treatment plants. Venture capital is the investment of funds to further develop a business.

Approved deposit fund (ADF)

A fund approved by the Australian Taxation Office to receive Eligible Termination Payments.

Annuity

An annuity is a contract with a life insurance company under which the life company pays a guaranteed income stream in return for an initial lump sum investment. An annuity can be for a fixed term (e.g. 10 years) or for life.

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.

Assessable income

Income for income tax purposes, including capital gains (i.e. your total income before deducting allowable deductions).

Asset allocation

The process by which you select how the amount of your investment is spread over each of the asset classes. The main asset classes are shares, property, bonds and cash In a managed investment, this task can be the responsibility of the fund manager.

Asset classes

Are terms used to describe different types of assets. Examples of asset classes include Australian Equities, Property, Cash etc.

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.

Average Weekly Ordinary Time Earnings (AWOTE)

AWOTE is a statistical series released by the Bureau of Statistics each quarter and measures the average wage paid in Australia (excluding overtime earnings). Changes in AWOTE are used to index a number of thresholds in superannuation regulations. Indexation by AWOTE is meant to help retain the “real value” of an amount (e.g. RBL thresholds).

Balanced fund

A balanced fund invests in a mix of different asset classes including shares, property, bonds and cash.

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.

Bonds

Bonds are issued by Governments and large corporations in return for cash. The bondholder receives interest for the fixed term of the bond, which can typically range from 2 to 20 years.

Burglary insurance

Burglary insurance covers you for the theft of stock or contents after forced and violent entry into your business premises.

Business Expenses Insurance

Business Expenses Insurance is available to certain self-employed persons who wish to cover their business expenses should they be unable to work because of illness or injury.

They are also available to companies in respect of income producing employees where those employees are unable to work because of illness or injury.

Payments are generally made on a monthly basis and can reimburse up to 100% of approved business expenses.  The payments are generally limited to 6 or 12 months.

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 allowance

A tax deduction for the annual write-off of the shell of a building used to produce assessable income. The rate at which a building can be written-off depends on when it was first built.

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 Enhanced

Includes cash deposits, term deposits, bonds and Commonwealth Securities.

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.

Cash Management Trust (CMT)

A managed investment that invests in high-yielding money market securities. CMTs tend to provide a flexible, better performing alternative to a bank account.

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.

A Collateralised Debt Obligation (CDO)

Investment is a highly geared portfolio of corporate fixed interest securities, i.e. bills and bonds. Typically the spread between the interest rates received and paid is relatively small, but attractive returns on capital can be generated due to the level of borrowing used to finance the majority of the portfolio.

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.

Compound interest

A method of interest calculation where, in each period, interest is calculated on both the principal and the interest previously accrued.

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).

Consumer Price Index (CPI)

The CPI is a measure of inflation taken each quarter. It measures the price of a basket of typical household goods and services.

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.

Defensive Assets

Include cash, fixed interest, bonds and debentures. These types of assets tend to achieve long term rates of return but usually have less risk of loss of investment associated with them.

Depreciation

For tax purposes, a deduction on the cost of income producing assets. (e.g. office partitions, hotel decor, canopies).

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).

‘Disposal’ of an asset

This term relates to capital gains tax and refers to the sale or transfer in ownership of an asset.

Diversification

Spreading investment funds across a number of different asset classes and within asset classes.

Dividend

Distribution of part of a company’s profits to shareholders expressed as a number of cents per share. A dividend yield is the dividend expressed as a percentage of the last sale price for the share. Companies typically pay dividends twice yearly -an ‘interim’ dividend and a ‘final’ dividend.

Dividend imputation or imputation credit

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)

An Eligible Termination Payment (ETP) is a lump sum received by a person from a superannuation fund, other roll-over fund or certain payments from an employer. An ETP is concessionally taxed and may consist of a number of “components”, which are taxed at different rates. If an ETP is taken as cash it will be taxed immediately. If it is “rolled over”, some or all tax will be deferred until it is ultimately withdrawn.

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 (ETP) 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.

Fee Disclosure Statement

(FDS)
Financial advisers must provide a Fee Disclosure Statement on an annual basis to certain new and existing clients who enter into or have an ongoing fee arrangement

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 Guide

(FSG)
A Financial Services Guide is an important document.  It is designed to assist you in deciding whether to use the financial services offered by a financial or life insurance adviser.

First Home Owner Grant (FHOG)

The First Home Owner Grant scheme was introduced on 1 July 2000.  Under the scheme, a one off grant is payable to first home owners that satisfy all the eligibility criteria.  The scheme is administered under each territory or states own legislation.  http://www.firsthome.gov.au/

Fixed Income/Interest

Investments such as bonds and debentures pay a fixed level of income at nominated dates in the future. Bonds are loans made to government bodies and debentures are loans made to companies. Fixed Income investments normally offer a moderate level of risk and return 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.

Franked dividends

Dividends paid by a company out of profits on which the company has already paid Australian tax, and which entitles shareholders to a tax credit.

Gearing

Borrowing to invest. “Negative gearing” is when interest payable exceeds assessable income from the geared investment, resulting a deduction against other assessable income.

Growth Assets

Include shares and property. These types of assets tend to provide higher returns in the longer-term but with a higher level of risk 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.

Hedging

Refers to the process of protecting investment capital, by using another type of investment to cover all or part of the original investment from potential adverse movements in the market. For example, one could use options, futures, swaps or other hedge instruments to protect the A$ value of a portfolio of US shares, against possible depreciation of the US$ relative to the A$. Under such circumstances, hedging activity is a legitimate aspect of prudent financial and investment management. Undertaken on its own, use of such instruments would more correctly be considered to be speculation in derivatives. Some investment policies permit hedging but do not allow speculation.

Immediate Annuity

An annuity which commences payment immediately (as distinct from a deferred annuity). Immediate annuities may be purchased with either ETPs or with ordinary money. Many options are available, for example: Fixed payment period, e.g. 10 years; Lifetime payment; Indexed to CPI or a fixed amount, e.g. 5%; Frequency of payment – monthly, quarterly, yearly etc; Residual capital value – 0% to 100%; Reversion to surviving spouse at an agreed level, e.g. 85%.

Imputation credits

Taxation credits shareholders may be entitled to when they receive franked dividends.

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 Protection Insurance

In the event of permanent or temporary disablement resulting from either sickness or accident, a benefit percentage of your income (usually 75%) will be received as an income stream for the period you are out of work.

Benefits are paid on an ongoing basis once the prescribed waiting period has been served, and continues to be paid on a regular basis whilst disabled (as defined in the policy) until such time as the maximum benefit period has expired. In some situations a lesser benefit may be payable if you are only partially disabled, for example, you can return to work but only for a limited time each week.

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.

Infrastructure Investments

Typically are placed in existing facilities such as toll roads, airports, ports, and electricity/gas distribution systems, although sometimes the investment relates to the development of new assets. They generally deliver regular income streams that represent high cash yields over long durations. Infrastructure investment returns are generally low in volatility and are well insulated from inflation, as they usually have monopoly pricing characteristics and enjoy relatively well-established levels of public patronage.

Investment bond

A type of managed investment, which provide investors with access to a range of underlying assets.

Investment Objectives

Are the outcomes or results the Trustee wishes to achieve with regards to its investments within a given period 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 Options

The numerous investment portfolios offered by a Fund to its Members.

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.

Licensed Securities Dealer

A person who holds a licence granted by the Australian Securities and Investments Commission which authorises the person to carry on a securities business or to operate a managed investment scheme or both.

Life insurance

Term Life Insurance provides a lump sum payment to the policy owner or nominated beneficiaries in the event that the life insured dies (or is diagnosed with a terminal illness) while the policy is in force. As a guide, in the event of death of either partner, you require sufficient funds to repay any debts and commitments and a capital amount from which to generate an income to meet your needs. Total and Permanent Disablement (TPD) and Trauma cover are often bundled with Term Life cover, as optional extensions or ‘riders’.

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.

Liquidity

The capacity of an investment to be readily converted into cash. Shares, for example, are relatively liquid because they can be easily sold on the market.

Listed company

A company whose shares are listed on the stock exchange and which are available to be bought and sold.

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.

Managed investment

A managed investment (or ‘managed fund’) is the collective term given to investments that pool your money with the money of other investors to form a fund which is then invested into assets based on set investment objectives. A ‘specific sector’ fund invests in only one asset class (e.g. global shares) while a ‘multi-sector’ (or ‘diversified’) fund invest in a number of asset classes.

Management expense ratio (MER)

The MER is the total annual fees and expenses of a fund divided by its average net assets.

Margin call

In a margin loan the lender is prepared to lend up to a maximum limit (expressed as a ratio of equity versus borrowings). When you exceed this limit, you will be required to make a ‘margin call’ which means you must either repay part of your loan or increase your loan limit by providing further security.

Margin lending

A means of borrowing money in order to increase your investment into growth assets such as shares. The geared asset (e.g. the shares) becomes the security for the loan.

Marginal tax rate

The stepped rate of tax that you pay on your ‘taxable’ income.

Market value

The price you would get if you sold your asset. The market value of a share would be the last price at which the share traded on the stock exchange.

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.

Portfolio

A ‘basket’ of investments. A managed investment contains a portfolio of investments, which is managed by a portfolio manager.

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.

Private & Development Equity

Private equity is the investment of money in unlisted companies. Long term returns generally are higher than from investments in listed companies, as the latter can be traded quite readily on the stock exchanges, whereas there is no ready or formal market for private equity. The additional returns compensates the investor for this “liquidity risk”, which is quite manageable for a Fund. Development equity is similar, but primarily focuses on investment in property development activities.

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.

Property Investments

Include investments in office buildings and shopping centres. Returns can be generated from rental income and movements in the value of the property. The returns are normally more variable than cash or fixed income and is regarded as a moderate to high risk 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.

Property securities

Property securities, which include shares in listed property companies or units in property trusts, are an alternative to investing in property directly because of greater liquidity and diversification.

Prospectus

A document that describes the investment being offered (hence the general term ‘offer document’). Prospectuses must be registered with ASIC. You must complete an application form attached to a current offer document in order to invest in shares, and managed investments.

Real rate of return

The return from an investment after taking account of inflation. For example, if your investment pays 5% and inflation is 4%, your real rate of return is 1%.

Reasonable Benefit Limit (RBL)

A person’s RBL is the amount of concessionally taxed superannuation and roll-over benefits that the person can receive. Most Eligible Termination Payments count towards a person’s RBL. Amounts received over the RBL limit are called “excess benefits” and are taxed harshly. The standard lump sum RBL is $529,372 for 2001/2001. The Pension RBL is $1,058,742 for 2001/2002. Some people have higher RBL’s called transitional RBL’s. The pension RBL is available if at least half of the lesser of benefit or the pension RBL is taken in the form of a “complying pension/annuity”.

Redraw facility

This allows you to withdraw money (from additional payments you have made) from your home loan.

Reinvestment

The process by which investors entitled to receive dividends from shares or distributions from managed investments automatically reinvest the amount to purchase additional shares or units

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

Is the amount of money or interest received from an investment or changes in the market value of that investment. It is usually expressed as a percentage.

Risk

Is the variability of returns. Investments such as cash have a low risk because the return will vary within a small range, whilst investments such as shares have a greater risk due to the large degree of variability in returns.

Risk-averse

Someone who adopts a conservative approach with their money is considered ‘risk-averse’.

Roll-over

Investment of an ETP into a roll-over fund. Instead of making a cash withdrawal,an ETP can be rolled over (subject to certain restrictions) to a roll-over fund. Taxon the ETP will then be deferred until final withdrawal from the roll-over fund.

Roll-over Fund

A roll-over fund is a concessionally taxed investment vehicle. By rolling over, lump sum tax payable on an ETP is deferred and the earnings on the ETP in the roll-over fund are taxed at the concessional rate of 15%. Types of roll-over funds include: – Approved Deposit Funds; – Deferred Annuities; – Rollover (or ETP) Annuities; – Superannuation Funds.

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.

Shares

Which are also known as equities, represent ownership of part of a company. Returns from shares are generated through dividends and the potential for profit or loss through changes in the share price in the share market. Shares generally provide a higher return than cash, fixed interest and property, over the long-term, but also involve a higher risk and greater fluctuation of returns on a yearly basis.

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:

  • under age 65, or
  • between the ages of 65 and 70 and gainfully employed for at least 10 hours per week.

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 (SOA)

A document that sets out the advice given to a consumer by their adviser or financial planner. It must include the basis on which the advice is given, details of the providing entity, and information on any payments or benefits the adviser or licensee will receive

Stock

Another term for shares.

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.

Target Return Portfolio

This is the collective name for a group of investments and includes Infrastructure Investments, Property, Private & Development Equity, Absolute Return Strategies, Timberland Investments and Collateralised Debt Obligations.

Taxable income

Your total income (assessable income less deductions) that is subject to marginal tax, and the Medicare Levy.

Tax deduction

An amount that is deducted from your assessable income before tax is calculated. You can claim deductions in your annual tax return or, if your total deduction is significant, you can apply to the Tax Office for a variation of PAYG tax (section 221D) of the Income Tax Assessment Act.

Tax-effective

The term given to a strategy or investment that provides a return that may lead to a tax benefit, such as a tax deduction or tax rebate.

Tax rebate or tax offset

An amount deducted off the actual tax you have to pay. You can claim a tax rebate in your annual tax return.

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 deposit

An account that pays a fixed rate of interest over a fixed term, usually from one to three years. Funds are not ‘at call’ and a penalty can apply if the term is broken.

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:

  • for families with small children
  • where extra income would be needed to support the surviving family members should a parent die
  • where minimising tax is important.

Timberland Investments

provide returns from the harvesting of trees for pulp, woodchips and saw logs/timber, and from capital appreciation in the value of land.
A superannuationTRUSTEE is responsible for looking after a superannuation fund for the benefit of the Members. The trustee is legally responsible for managing the fund in accordance with the Fund’s Trust Deed.

TPD

Total and Permanent Disability Insurance

Trauma insurance

Trauma (also known as Recovery or Crisis) Insurance is designed to provide a cash lump sum payment on diagnosis of certain specified medical conditions (eg. serious heart attack, stroke, cancers, etc.) or injuries, including such things as major head trauma, quadriplegia, and paraplegia.

Conditions covered under a Trauma policy vary between each insurance provider so advice will be required in determining the best product for each individual.

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.

Variable rate home loan

A variable rate home loan means the interest rate moves up and down with the market.

Vesting age

Age at which ownership of an investment bond transfers under a “child’s advancement policy.”

Volatility

A measure of the variability of returns – their ups and downs. It is often used in the context of investment risk.