text:
A&S
See accident and sickness insurance.
See adjusted cost basis.
Accelerated death benefit rider
Designed to pay out a portion of the benefits normally received on the death of the life insured, to insured persons during their lifetimes. Useful to cover increased expenses incurred by terminal illness, dread disease, or the need for long-term care.
Accident and sickness insurance
Offered by private (non-government) companies to cover expenses in excess of provincial coverage or those not covered in provincial plans such as prescription drugs and certain hospital benefits. Also known as A&S insurance.
A supplementary benefit rider designed to pay benefits in the event of death or the loss of a limb or sight caused by an unintended, unforeseen, and unexpected event. Also known as AD&D.
Accrual basis
A tax reporting requirement that interest income is declared when it is earned regardless of when it is actually received.
Accrued rate annuity
A non-registered annuity where tax is paid on the actual interest earned in the annuity each year. Interest values are high in early years and low in later years, complicating attempts to plan for the associated tax liability. Also know as normal annuities.
Accumulated income payment
Any distribution from an RESP, not including a refund of payments or a repayment of a CESG to the government. Funds received usually include earnings on contributions made to the plan, and may include earnings on the CESG. It can be rolled over into an RRSP if contribution room is available or withdrawn where it is treated as income for tax purposes, and also subject to an additional 20% withholding tax. Also know as AIP.
Actively-at-work provision
A group insurance eligibility requirement. Stipulates that if an employee is absent from work on the day coverage under the contract is due to begin, then coverage for that employee will not begin until the day he or she returns to work.
Basic functions of personal care such as eating, bathing, dressing, and continence. Mental or physical inability to perform these functions is a prerequisite for long-term care. Also known as ADLs.
A professionally trained person with expertise in statistics and mathematics responsible for the calculation of premiums, expenses, life expectancy, and associated costs and reserves for insurance.
See accidental death & dismemberment.
A situation where only one party sets out the terms of the contractual agreement. In insurance, the policyowner must essentially accept or reject the insurance policy in whole as presented by the insurer.
Adjustable whole life insurance
Permanent life insurance where future premium levels or face value of death benefits are not guaranteed. Premiums are typically changed every five years to reflect variations in interest rates or pricing factors such as mortality costs and insurer's expenses. In this way, the policyowner shares in the potential benefits and risks that arise when these factors change.
Adjusted cost basis
The cost of a life insurance policy from a tax perspective. Calculated as the sum of the premiums paid under the policy (less any dividends received) plus interest paid on a policy loan that was not deductible in computing income, plus amounts included in income from a non-exempt policy, minus the net cost of pure insurance. Also known as ACB.
See activities of daily living.
Administrative services only
For a group insurance plan, a company decides to take all responsibility for paying claims, and contracts only the administration of its plan to an insurance company or third-party administrator. Also known as ASO.
An individual provincially licensed to solicit and sell insurance, deliver policies, or collect premiums on behalf of an insurance company. Generally, one who is authorized to bring another party, for whom he or she acts, into contractual relations with third parties.
Agent's report
A section on an application that allows the agent to include additional information and observations not covered directly in the application that could impact an underwriting decision.
See accumulated income payment.
Aleatory contract
An agreement based on an uncertain event, where consideration given between parties is often unequal. An insurance company provides a conditional promise to pay benefits much larger than the premiums received from a policyowner.
Allowable capital loss
The percentage of an investor's total capital losses that can be included in a tax return, but only to offset taxable capital gains. Currently set at 50% by CCRA.
Federal assistance for a Canadian resident of at least ten years, aged 60-64, whose spouse is entitled to receive OAS and GIS.
Annuitant
One to whom an annuity is payable or a person upon whose life the continuance of further payment depends. Also, one who owns an RRSP.
Annuitization
Conversion of the cash surrender value of a policy into an annuity contract. When this option is exercised, death benefits and other policy benefits expire.
A series of income payments or receipts made at regular intervals such as yearly, or for just a specified period, during the lifetime of one or more persons.
Annuity contract
A formal agreement with a financial institution or life insurance company to provide the annuitant with an annuity.
Any occupation
A definition of total disability where benefits are paid provided the insured cannot work at any sort of employment to which he or she is suited based on education and experience.
See attending physician's statement.
See administrative services only
When a policyowner transfers ownership of all or part of an insurance policy to a third party.
See average tax rate.
Attained age
The age of the life insured used as a reference at the time of issue or renewal of a policy. It is based on the last, next, or nearest birthday.
Attending physician's statement
A requested report based on information contained in the submitted application and prepared by an applicant's physician, which provides information about the life to be insured. Also known as APS.
Attribution rule
If withdrawals are made from a spousal RRSP by the planholder in the year a contribution is made, or in the following two years, the funds are taxable, not in the hands of the planholder, but in the contributor's hands (the spouse or common-law partner) at his or her higher MTR.
Automatic premium loan
A non-forfeiture option used when a policyowner does not pay the premium when due or within the grace period. Instead of terminating the policy, the insurer borrows against the cash value of the policy and these proceeds pay the outstanding premium.
Average tax rate
The proportion of total income paid in income tax for a year, expressed as a percentage. Also known as ATR.
Basic RRSP
An RRSP that holds typically a single type of investment usually held in trust and managed by a financial institution.
The designated person who receives the remainder of an annuity if the annuitant dies, or the death benefit proceeds should the life insured die while the policy is in force. The person named in registered plans to receive the invested funds upon the death of the plan holder.
Benefit period
The maximum length of time over which money or a right to the insured will be given for any one accident or illness resulting in disability.
An investment product representing funds loaned from investors, promising regular interest payments and the return of the principal amount invested upon maturity. It is secured by specific assets and is issued by government bodies or corporations.
For investment products, the cost or purchase price of the investment plus any reinvested amounts, such as interest, dividends, or distributions. Redemptions or fluctuations in the market price do not affect it.
An independent businessperson who may solicit and service life insurance contracts issued by any number of insurance companies.
Business continuation insurance
Protection from a severe loss of value, or the dissolution of a company, when an important partner or employee dies or becomes disabled. The policy provides sufficient funds to pay off current debts, to hire replacement employees, or to buy out the interest of the dead or disabled individual.
Business overhead expense disability insurance
A form of key person disability insurance that provides a benefit, subject to certain limits, tied to the value of specific business expenses paid by the business during the period of disability. Expenses covered include heat and lighting bills, leases, and other ongoing business expenses.
The possibility that the issuers of financial instruments may not be able to meet their debt obligations, or the stock of a company will not be profitable.
Buy-sell agreement
A contractual arrangement between two or more people for the purchase and sale of a business interest on the occurrence of a future event, typically the death, disability, or retirement of one of the business partners. Generally, it provides for the mandatory purchase of the business interest at the time of the specified event.
Buy-sell life insurance
Insurance that is purchased on the life of the owner or a key employee of a business, specifically to provide guaranteed funding for a buy-sell agreement associated with that individual. Coverage is often provided through term insurance. Ideally, the amount of coverage matches the anticipated value of his or her interest in the business at the time of death.
A type of derivative that gives an investor the right to buy a set amount of the underlying security at a predetermined price for a specific time period.
Canada Customs and Revenue Agency
A federal agency that administers tax laws for the Government of Canada and for most provinces and territories; customs services; international trade legislation; and various social and economic benefit and incentive programs delivered through the tax system. Also known as CCRA.
A federal organization that insures (up to specified limits) savings held by banks, trust companies, or loan companies, in case of insolvency. Only certain investment products are covered. Mutual and segregated funds are not covered. Also known as CDIC.
Canada Education Savings Grant
A federally sponsored program whereby the government pays an amount equivalent to 20% of an RESP contribution, for the first $2000 contributed in a given year, for a total of $7200 in grants over the lifetime of the plan. If the beneficiary does not pursue post-secondary education, the accumulated grants must be returned to the government. Also known as CESG.
Canada Pension Plan
A federally sponsored retirement program designed to provide retirement benefits, disability benefits, survivor benefits and death benefits. Individuals usually purchase additional insurance to supplement these benefits. Also known as CPP.
Canada Savings Bond
A low-risk bond issued by the Government of Canada that does not trade in the secondary market and is therefore not subject to fluctuations in value. Interest is paid at regular intervals and redemption is possible on demand, triggering neither capital gains nor losses. Also know as CSB.
Canadian Investor Protection Fund
A private organization created by the investment industry that provides protection, within defined limits, to clients of member securities firms in cases where a member becomes insolvent. Coverage includes segregated funds. Also known as CIPF.
Canadian Life and Health Insurance Association
An association composed of Canadian life insurance companies, responsible for the formation of industry guidelines that are recognized in the Insurance Act and followed universally. Also known as the CHLIA.
Canadian Life and Health Insurance Compensation Corporation
A federally incorporated, not-for-profit, private company established and funded by the Canadian life insurance industry. Its mandate is to protect policy owners from losing their benefits, up to specified levels of coverage, if their insurance company becomes insolvent.
When the insurer may terminate an insurance policy at any time, by written notice to the policy owner.
Capital dividend account
A special account created in a corporation to retain the death benefits received when a shareholder dies and the corporation is the beneficiary under a life policy. It is a means to enable tax-free benefits, received by the corporation, to flow tax-free to remaining shareholders who wish to access these funds, thereby avoiding the unfavorable tax implications they would otherwise incur.
The excess of the proceeds from the sale of an asset owned for growth or income production, over its cost, less expenses incurred in connection with the sale.
The amount returned to the policy owner when a whole life insurance policy is cancelled. It is equal to the value of the policy reserve less any surrender charges imposed by the insurer. Also know as CSV.
See Canada Deposit Insurance Corporation.
CESG
See Canada Education Savings Grant.
A gift of property, including life insurance proceeds, transferred by will to a non-profit organization. The Income Tax Act permits death benefits to pass directly to the charity, avoiding the deceased's estate and therefore any probate fees or creditors' claims.
A rider that provides insurance on the life of a child of the principal life insured. It includes children born after the rider comes into effect when they reach 15 days of age.
CHLIA
See Canadian Life and Health Insurance Association.
The legal system of Quebec based on the French Civil Code. Disputes are settled by reference to an elaborate codified system of rules and principles that govern all areas of the law.
Claimant
One who submits a request or demand for payment of benefits for a suffered loss, according to the provisions of the insurance policy.
A request or demand on an insurer for payment of benefits according to the provisions of a policy. Subject to statutory provisions in A&S situations.
Closed-end fund
A mutual fund that issues only a set number of shares and then trades on the open market.
Co-insurance
When the cost of a claim is shared between the policy owner and the insurance company, this provision describes the portion, in excess of the deductible, that will be covered by the insurance company.
When one party uses or threatens physical force, or commits acts that makes a weaker party feel they have no alternative course of action. It is an extreme form of undue influence and, if present, is sufficient to have a contract declared void.
See cost of living adjustment.
Combined income & growth funds
Mutual funds of moderate risk designed to combine the relative stability of fixed income products with the long-term potential for capital growth of equity products.
The system of law that prevails in the nine common-law provinces and in the territories of Canada. It represents a system of law based on precedent, rather than a civil code. In any situation, a previously decided case is recognized as the major source of law for arriving at a decision. Over time, these judgments handed down by higher courts evolve to form a body of precedent from which future judicial decisions involving similar situations are based.
Common share
A security representing ownership interest in the equity of a public or private corporation, enjoying voting privileges, and sharing in both its successes and failures. It must be sold to convert to cash, with returns in the form of capital gains or dividends.
Commutation of benefits
The payment in one lump sum of the present value, at a point in time, of all remaining annuity payments. Frequently an option exercised by the beneficiary of an annuity with a guaranteed minimum term.
CompCorp
See The Canadian Life and Health Insurance Compensation Corporation.
Compounding returns
Concurrent disability
When disability results from more than one injury or sickness, benefits will be paid for only one cause of disability at any one time. Benefits on one disability will be paid until the end of either the disability or the benefit period, and will then commence on another.
Conditional delivery
An insurer accepts an applicant for insurance but issues the policy with requirements for the policy owner to fulfill before the policy will be put in force. Common conditions include payment of premiums and signatures on various documents.
The exchange of money and/or promises to perform services in the formation of a contract. With an insurance contract, the policy owner exchanges premiums in return for the insurer's conditional promise to pay benefits should an event occur in the future.
Contingent beneficiary
A secondary beneficiary who receives the policy proceeds, upon the death of the insured, if the primary beneficiary dies before the insured. This prevents the proceeds from passing to the estate of the primary beneficiary.
The date on which an investor makes a first deposit to a segregated fund through an IVIC.
Contribution room
The amount you may deposit in an RRSP in a tax year. The sum of the lesser of 18% of the previous year's earned income, or the maximum limit as prescribed in the Income Tax Act, plus any unused portions from previous years.
Contributory plan
A group insurance policy where the employee pays part, or all, of the plan premiums.
Conversion privilege
A group insurance policy provision where, upon leaving employment with the group policy owner, the group member can switch from group coverage to an individual policy with the same insurer, without providing evidence of insurability.
Convertible term insurance
Gives the policy owner the option to convert term insurance to a form of permanent insurance, generally whole life insurance, without providing evidence of insurability.
When a claim can be covered under two plans, CLHIA guidelines prevent the total payment from both plans exceeding total eligible expenses. One insurer becomes first payer to the limit of its coverage and the other becomes second payer to pay the remaining eligible portion.
Cost of living adjustment
A disability insurance rider where the insurer adjusts the monthly benefit paid, usually annually, to keep pace with inflation. Insurers usually use an indicator such as the Consumer Price Index (CPI) when determining how the payment should be modified. Also know as a COLA rider.
Coupon rate
The nominal rate of interest paid to a bondholder, expressed as an annual percentage of the face amount, usually paid semi-annually.
See Canada Pension Plan.
A policy that pays a tax-free lump sum benefit if the insured is diagnosed with a specific disease or condition such as a heart attack or cancer. It is designed to help individuals meet their financial needs while recovering from a life-altering illness.
Cross-purchase arrangement
A buy-sell arrangement whereby each owner of a business holds insurance policies on the lives of each of the other owners. Upon the death of one owner, the surviving owners must purchase the interest of the deceased. The policy coverage equals the value of the interest to be purchased.
See Canada Savings Bond.
See cash surrender value.
The chance that a variation in foreign exchange rates will affect the value of an investment product.
Current yield
A measure of the annual return provided by a fixed income investment, calculated by dividing the annual interest payment by the current market price.
Monetary compensation awarded by a court, in the event of a tort or breach of contract, with the intent to restore the injured party to the position in which he or she would have been, had the tort or contract breach not occurred. The preferred type of remedy chosen by courts.
The sum payable to the beneficiary as the result of the death of the life insured.
Death benefit guarantee
Under an IVIC, the assurance that a policy's beneficiary will receive death benefits if the annuitant dies before the maturity date. Usually valued as the higher of the market value of the segregated fund or a percentage (usually 75% or 100%) of the principal investment.
An investment product representing funds loaned from investors, promising regular interest payments and the return of the principal amount invested upon maturity. It is issued by government bodies or corporations and secured by their general level of credit.
Decreasing term life insurance
A form of term insurance in which the death benefit payable declines over the period of coverage while premiums remain constant. Used to keep premiums lower than they would be if they had to cover the high mortality costs in later years.
In group insurance, the amount an employee must pay before the insurance company starts paying towards the cost of services, such as prescription drugs or dental bills. Generally, the higher the deductible, the lower the premiums under the plan. In taxes, permission to reduce taxable income by a certain amount.
Deemed disposition
A sale, exchange, or redemption of property where, although the investor receives no actual proceeds from the transaction, for tax purposes, it is assumed those proceeds were received and are therefore taxable. Examples include cash surrender, assignment, death of policy owner, maturity, policy loan, and funds becoming non-exempt.
Deferred annuity
An annuity where payments do not commence until some date at least one year in the future. Meanwhile, capital paid accumulates with investment income.
Deferred profit sharing plan
A retirement benefit plan whereby an employer sets aside a portion of the company's profits for the benefit of certain key employees. The plan may hold the same investments as RRSP and which, after two years in the plan, are under the full control of the employee. Also known as DPSP.
Deferred sales charges
Redemption charges paid on mutual and segregated funds, paid as a percentage of either the original purchase price or market value, that decline the longer the funds are held.
Defined benefit pension plan
An employer-sponsored retirement benefit plan where the benefits paid at retirement are known and usually based on an employee's earnings and the number of years of service.
Defined contribution plan
A retirement benefit plan to which an employer contributes a fixed percentage of an employee's salary. The employee usually contributes a matching percentage and although contributions are known, eventual retirement benefits depend on the investment returns within the portfolio. Contributions are tax-deductible for both parties and growth is tax-sheltered. Also known as money purchase plan.
Demutualization
The process by which a mutual life insurance company converts to a stock insurance company. Each policy owner becomes a shareholder and receives common shares.
Dependent life insurance
A form of term insurance in group plans that covers a policy owner's spouse and each unmarried child as defined by the policy. To qualify the spouse and/or child must require support and maintenance from the policy owner and must not have regular full-time employment.
An investment product for which value and return depend on the value of an underlying security, commodity, or financial instrument. Examples include options, futures, rights, and warrants.
An individual or group insurance policy that provides monthly benefits if the insured is unable to work due to accident, sickness, or mental illness and, consequently, suffers a loss of earned income.
A transfer of a mutual fund's income and/or capital gains to its unit holders in whose hands it is taxed. As trusts, most mutual funds are required to transfer all net income and net realized capital gains to unit holders.
Spreading of risk by investing in more than one company and investment product over a variety of investment categories, according to objectives and risk tolerance.
In Insurance, a partial refund of premiums in a participating whole life insurance policy calculated as the excess of the actual return on the policy reserve over the guaranteed rate. It means the insurer paid out less in death benefits and operating costs, and received higher investment returns than expected. In investment, a discretionary payment by a corporation to its shareholders out of retained earnings, in proportion to the number of shares owned.
Dividend tax credit
A tax credit applied at both the federal and provincial levels, to a taxable dividend that has been grossed up by 25%. The increased amount is designed to represent the taxpayer's portion of the total before-tax income that the corporation is presumed to have earned.
See deferred profit sharing plan.
Dread disease benefit
See critical illness insurance.
A process of investigation into the details of a potential investment or product to verify all material facts. Part of the fiduciary duty owed to clients when making recommendations.
A legal device, to determine the extent of negligence, that requires an individual to avoid conduct characterized by unreasonable risk or harm to other people. Relevant individuals include those who are so closely and directly affected by an individual's actions that he or she should reasonably assume they will be so affected and should have them in mind, when considering those actions.
E&O
See errors and omissions insurance.
See education assistance payment. See employee assistance program.
Generally, gross salary and monetary compensation from all sources, before deductions, such as income tax, EI, and CPP contributions.
Education assistance payment
A distribution to a beneficiary, under certain conditions, of amounts in an RESP. These amounts include the RESP's accumulated income, Canada Education Savings Grant (CESG), and income on the grant. The payment is to assist with the costs of post-secondary education. Payments can be used towards any cost related to education including tuition, books, accommodation, or general living expenses. Also known as EAP.
See Employment Insurance.
Elimination period
The length of time the insured must be disabled before disability benefits are payable. The intention is that the insured bears some of the loss. The longer this period, the lower the premium charged.
A range of medical and non-medical services offered by an employer that is designed to help an employee resolve personal issues.
A government program that provides short-term benefits for individuals whose income has been decreased by 40% or more because they cannot work due to sickness, accident, or quarantine. The maximum payment period is 15 weeks or until the end of the disability, whichever comes first. Also known as EI.
Enrolment period
In group insurance, a length of time commencing after the waiting period, in which an employee may enroll in the plan. Generally the period is 31 days and to avoid anti-selection, failure to enroll during this time precludes joining in the future. Also known as the eligibility period.
Equity-based financial instruments
Investments that represent a direct ownership interest in the issuing company, offering the attraction of potential capital appreciation rather than a fixed income stream. Examples include common shares or financial derivatives.
Group coverage provided to life insurance agents to protect them from the costs of lawsuits brought due the agent's error or negligence. It reimburses the injured party, usually the applicant or policy owner, for financial losses incurred as a direct result of the actions or inaction of the life insurance agent. Also known as E&O.
Estate equalization
The use of insurance to assist the division of a deceased's estate into equal portions for distribution to beneficiaries under the will. Useful when an individual wants equal distribution but the estate consists of non-liquid assets.
Exempt investments
Investments held in the investment account of a universal life policy whose produced income or returns are not taxed.
Exempt policy
A life insurance policy that emphasizes benefits at death rather than the sheltering of investment income. Its cash values fall within prescribed limits and therefore, the policy remains exempt from the current taxation of any gain accruing in the policy.
Exemption from probate
A feature of IVICs where, provided a beneficiary has been named, segregated funds are excluded from probate fees on the death of the annuitant. Generally, this is not a feature of assets invested in GICs or mutual funds.
Extended elimination period amendment
An addition to a disability policy that lengthens the period of time the insured must be disabled before benefits are payable, if the disability arises from a specified pre-existing condition.
Extended health plan
A typical group extended health care (EHC) plan or extended health benefit (EHB) plan covers services that are not covered under a provincial health care plan, or supplements the cost of those that are. Actual services and degree of coverage under the plan vary significantly between insurance companies.
Extended term insurance
A non-forfeiture benefit in permanent life insurance. Upon non-payment of premiums, the reserve fund can be used to buy a single premium term policy that will insure the full original face amount for a specified number of years and days, depending how much is in the reserve fund. Payment of the face amount is only guaranteed if death occurs within this period.
The amount stipulated in the insurance contract when initially applied for, to be paid out upon the death of the life insured. Also known as face amount or initial face amount.
Facultative Reinsurance Shopping
A process by which a direct insurer submits to reinsurers, the underwriting evidence on an applicant to whom coverage has initially been declined. From them, the most suitable offer is chosen and the substandard risk insured, or the applicant is declined.
Family coverage rider
An addition to a term life policy to provide life insurance for a dependent of the principal life insured under the policy. The policy owner is usually the beneficiary, but if the policy owner does not survive the dependent's death, death benefits are paid to the dependent's estate. It allows those who want to cover dependents' lives to do so at the lowest possible cost and under a single policy. Family coverage is not available through group insurance.
A situation involving a high standard of trust, where one person has scope for the exercise of some discretion of power, can act on this power unilaterally, and the other person is in a weak or vulnerable position. The duty of care is set at a high standard whereby the agent must act in the best interests of the client and not for personal gain, must avoid conflicts of interest and duties, must provide honest, informed advice in good faith, and must preserve high levels of confidentiality and discretion.
Field underwriting
The process by which an agent compiles personal information about the applicant for the application form including details about income and lifestyle, personal and family medical history, and any hazardous activities.
Final expenses
Costs incurred during a last illness, funeral and burial costs, legal fees, any debts, any probate fees, and any other taxes or obligations that must be paid to settle the estate of a recently deceased.
An annuity, either term or life, indexed or non-indexed, with the amounts of payments based on a specific interest rate determined at the time of purchase.
Fixed income investment
A financial instrument for which the rate of return does not vary over the life of the investment, paying a constant coupon rate and guaranteeing repayment of principal upon maturity. Examples are treasury bills, bonds, and debentures.
Foreign content rule
The amount, as stipulated by the Income Tax Act, that one may hold in foreign investments as a portion of an RRSP. Currently held at 30% of the book value of total assets held.
Making a false document (including a signature), knowing it to be false, with the intent that it should be considered genuine and acted upon.
Fraternal benefit society
An organization, run on a not-for-profit basis, without capital stock, that provides benefits for individuals and their families having a common link such as occupation, charitable purpose, or religion.
The false representation of fact, made with knowledge of its falsehood, with the intention that it should be acted upon. If proven, it is a grounds for declaring a policy void even within the incontestability period.
Fund expenses
Costs associated with mutual funds and segregated funds composed of commissions, brokerage fees, audit and legal fees, safekeeping charges, investment management fees, transfer fees, and taxes.
Futures contract
A derivative product, where one agrees to buy or sell a set amount of the underlying security for delivery at a specified price and point in the future.
See guaranteed insurability benefit.
See guaranteed investment certificate.
Grace period
A window during which a policy will remain in force even though the periodic premium has not been paid when due. 30 days is mandatory, but many policies offer a longer period.
Group accident & sickness insurance
A form of group insurance. It provides personal coverage for health services, either not covered by provincial health insurance plans, or that enhance existing provincial plans. Coverage is for each group member but premiums are priced on an aggregate basis for all group members.
Group creditor insurance
A contract between an insurance company and a financial-lending institution that provides coverage for the lives of clients who borrow money from the lending institution. Coverage is an amount equal to the outstanding balance on the loan, and the lender is named as the policy beneficiary.
A form of group insurance that provides regular income replacement payments to an insured member of the group in the event of an eligible disability resulting from illness or injury. Coverage is generally short-term disability (STD) or long-term disability (LTD).
Personal insurance (life, disability, or A&S) that covers the lives of a group of persons and their dependents who have some common association, such as employees of the same company or profession. Premiums are often lower than individual policies because risk is spread over the group.
Personal life insurance coverage available to group members under a policy issued to the policy owner or the group. Basic coverage is usually available without a medical examination and the premiums charged are based on the average age and sex of all members of the group.
Group RRSP
A collection of individual RRSPs (basic or self-directed) grouped together for administrative purposes. They are sponsored typically by an employer, union, or professional association, and managed by a financial institution, securities dealer, or insurance company on behalf of a specific group, usually employees.
Group term life
A form of group life insurance where the benefits, usually a multiple of the employee's salary, are guaranteed for only one year, renewable each year. Unlike straight term insurance, the premium rate is not determined in advance but upon renewal, based upon the average age and gender of the group.
Growth funds
Mutual funds that invest completely in stocks or other equity-based investments, and provide the possibility of long-term growth. Suitable for those investors with a high tolerance for risk and/or a long time-horizon.
Guaranteed income supplement
Federal assistance, in addition to OAS, for low-income seniors.
Guaranteed insurability benefit
A rider that gives the policy owner the right to purchase additional life or disability insurance, up to a specified amount, without evidence of insurability. The frequency and timing of exercising this right may be limited. It guarantees the price of future coverage even if the health of the life insured has deteriorated since the policy started. Also known as a GIB rider.
Guaranteed investment
An investment product backed by its issuer, that promises to repay at least the full amount of capital invested and/or a guaranteed rate of interest or rate of return upon maturity. Examples include GICs, term deposits, and Canada Savings Bonds (CSBs).
Guaranteed investment certificate
A registered or non-registered interest bearing loan to a bank or trust company for a specified but renewable term of 1 to 5 years. Interest accrues at a specified rate based on the prevailing market rate and is fixed for the term, as are rules for redemption. Also known as GIC.
Guaranteed minimum term
A clause in many life annuity policies providing for payments over a specified period of time, even if the annuitant dies before the end of the term.
Guaranteed non-cancelable
A type of insurance policy where an insurer may neither terminate the contract (except due to non-payment of premiums), nor change any of the policy provisions, definitions, coverage, or premiums during the policy term. The insured may request cancellation at any time.
Guaranteed renewable
Similar to guaranteed non-cancelable insurance policies with the exception that although premiums charged may not change on an individual basis, the insurer may change the amount payable for an entire class of insured people.
Guaranteed whole life insurance
See guaranteed non-cancelable.
See Home Buyers' Plan.
The use of derivatives by investors in an attempt to protect themselves from adverse movements in the underlying investments.
Home Buyers' Plan
A federal initiative that allows a taxpayer to borrow funds from his or her RRSP for the purpose of purchasing a home, subject to limits and conditions under the Income Tax Act. The taxpayer does not include the funds as income for tax purposes, nor does the RRSP provider apply a withholding tax. Also known as HBP.
Identical properties
Investment products, that are the same in all material respects, such that a prospective buyer would not have a preference for one as opposed to another. Examples include shares in a corporation or units in mutual or segregated funds.
Immediate annuity
An annuity contract where the first payment starts at the end of the first payment interval after purchase. The payment interval can be monthly, quarterly, or annually but is usually monthly.
Impaired annuity
A life annuity that pays a higher income than a standard life annuity, based on evidence that the annuitant has a significantly worse than average life expectancy than other individuals in the same class.
Income funds
Mutual funds that provide a regular stream of income to the investor, either received in cash or reinvested in the fund. Funds in this category invest in fixed income securities like bonds and mortgages. Generally considered less risky than growth funds. Suitable for investors who require a steady stream of income or who have a moderate tolerance for risk.
Income-splitting
A strategy to reduce a tax burden, whereby an individual who is currently in a higher tax bracket contributes to a spousal RRSP. In doing so, he or she claims the tax deduction but allocates the retirement savings to a spouse or common-law partner in a lower tax bracket. Under a progressive tax system, this reduces their combined taxable income when funds are withdrawn at retirement.
Incontestability
A statutory provision for insurance where, after the expiry of a two-year period since its issue, the insurer cannot void a policy if a policy owner withheld or misrepresented a material fact, intentionally or by accident. The policy can only be rendered void if the policy owner committed fraud.
Increasing term life insurance
A form of term life insurance that automatically increases the benefit each year by a pre-determined percentage. Often used to ensure coverage keeps pace with changes in the cost of living. Premium amounts increase periodically to accommodate higher death benefits.
A statistical indicator providing a representation of the value of the securities which constitute it. It often serves as a barometer for a given market or industry, and as a benchmark against which financial or economic performance is measured.
A mutual fund that attempts to match its portfolio to a specific financial market index. Returns on the fund then fluctuate in tandem with the chosen benchmark index.
Index-linked GIC
A guaranteed investment certificate that links its returns to the cumulative market returns of a specified stock index or equity mutual fund. Return of principal is guaranteed but instead of earning a specific rate of interest, returns are equal to that of its benchmark index.
Indexed annuity
An annuity that provides for increasing payments over time, to keep pace with the cost of living. The increase can be a fixed percentage each year or it may be tied to an indicator like the Consumer Price Index (CPI).
Individual variable insurance contract
A deferred annuity contract between a policy owner and a life insurance company whereby the policy owner makes deposits and the insurance company invests them in segregated funds. Returns and benefits are not guaranteed. The value of the contract is tied to the value of the segregated fund portfolio. Also know as an IVIC.
Inflation risk
The chance that the real purchasing power of money invested will be reduced by a rise in the general level of prices.
An equitable remedy that orders one party to perform some act or to refrain from some action harmful to the party who seeks relief.
The inability of an insurance company to meet its financial obligations as they come due in the ordinary course of business. Policy owners are offered some protection from its effects through CompCorp.
A supplement to a submitted application, based on an interview with the client, that attempts to corroborate financial information provided on the application, to help ensure the coverage applied for is justified.
Insurability
An element in the underwriting process. An assessment as to whether the applicant is an acceptable risk based on factors such as health status and participation in hazardous activities.
Insurable interest
The requirement that an applicant has a reasonable expectation of benefiting from the continuation of another's life or of suffering an economic loss if the life insured dies. It verifies the reason for the application is legitimate and not simply a wager on someone's life. One may have an insurable interest in oneself.
Insurance Companies Act
Federal legislation that governs federally-registered insurance companies and all foreign insurance providers operating in Canada. Concerned mainly with regular submission of financial statements, regulating investment activities, and the protection of
policy owners.
The individual or group covered by the contract of insurance.
Insurer
The company that issues the insurance policy and assumes the risks associated with the insured.
Inter vivos trust
A trust created to take effect during the lifetime of the grantor (the person who transfers property to the trustee). Examples include mutual funds and segregated funds. For taxation purposes, income flows directly from the fund to the policy owner and taxed in his or her hands. Also known as a living trust.
The chance that interest rate levels will affect the value of certain investment products, such as fixed income investments.
One who dies leaving no will. The condition of dying without a will. If this occurs, disposition of property progresses according to provincial legislation and according to a predetermined formula.
Irrevocable beneficiary
A provision where a policy owner relinquishes the ability to exercise certain rights unilaterally like changing the beneficiary, surrendering the policy for its cash value, or assigning the policy to a third party. Such changes require the beneficiary's permission. A common provision in separation and divorce proceedings.
IVIC
See individual variable insurance contract.
Joint and last survivor annuity
An annuity paid for as long as the annuitant lives, and continued in whole or in part after his or her death, for the lifetime of a named survivor or contingent annuitant.
Joint and last to die policy
A contract that covers two or more lives and pays death benefits only when the last of the lives insured dies. Useful for mitigating the tax incurred when a remaining spouse's estate is taxed.
Joint annuity
See multiple life annuity.
Joint insurance
A contract that covers two or more lives and provides for the payment of death benefits among the lives insured when the first of them dies, at which point the policy automatically terminates.
Protection from significant loss of revenue or services to a business, resulting from the death or disability of an employee whose services are critical to the success or survival of the business.
Know Your Client
The responsibility for providers of financial services to gather all the information necessary to serve a client's best interests. Elements include (but are not limited to) age, annual income and net worth, occupation, risk tolerance, investment knowledge and experience, and investment objectives.
See Know Your Client.
Necessary for formation of a legal insurance contact. Parties must be of legal age in the jurisdiction where the contract is executed. The parties must also have the mental capacity to understand and carry out the terms and conditions of the contract. Neither party can be under the influence of drugs or alcohol such that the person's judgment is impaired at the time of contract formation.
Level cost of insurance
In a universal life policy, the deductions from the investment account to cover mortality costs remain the same if based on term-100. The policy owner can keep the policy alive by making regular payments equal to the mortality costs. Also know as Level COI.
Level term life insurance
Death benefits and premiums remain the same over the term specified. A disproportionately high percentage of mortality costs are paid in the early years of the policy, while in later years, the policy owner underpays and is not burdened with the full cost of mortality.
Leveraging
When an individual obtains funds by borrowing from a bank, using a universal life policy as collateral. Potentially more tax advantageous than an early withdrawal. Interest on the loan accrues against the cash surrender value of the policy and the loan is not repaid until the policy is cancelled or the life insured dies.
See life income fund.
A series of regular and periodic payments to the annuitant for his or her lifetime, regardless of length, but with no provision for payment after death.
Life income fund
A RRIF that receives funds from a locked-in retirement account, and that provides for a life income by restricting, according to the annuitant's age, both the minimum and maximum withdrawals from the plan. A life annuity must be purchased with the remainder before age 80. Also known as LIF.
Provides coverage where the risk insured against is the death of a particular person (the life insured). Upon the death of the life insured, while the policy is in force, the insurance company (the insurer) will pay the death benefit to the beneficiary named in the insurance policy.
Life insured
The person upon whose death the benefit of the life insurance becomes payable.
A rider that extends the benefit period for total disability to the claimant's lifetime, whereas standard disability benefits end at age 65.
Limited payment amendment
An addition to a disability policy that restricts benefits if the disability results from specified pre-existing conditions. Generally limited to two or five years.
The ability of an investment to be readily converted into cash.
The chance that an investment will not be readily convertible to cash due to specific selling restrictions or a shortage of potential buyers.
See locked-in retirement account.
Locked-in retirement account
An option when a member of either a defined benefit or a defined contribution plan leaves an employer. If chosen, a lump sum, equivalent to the commuted value of vested pension benefits, transfers to a plan that has all the investment rules of an RRSP. However, according to provincial and federal pension legislation, the individual must use the funds to provide a retirement income. Also known as LIRA. Formerly known as a locked-in RRSP.
Locked-in Retirement Income Fund
A registered retirement plan available to members of pension plans that are regulated by pension legislation in Ontario, Alberta, Saskatchewan, and Manitoba. It is subject to minimum and maximum withdrawal rules to ensure a life income. Maximum withdrawals are based on the plan's investment earnings. The annuitant is not required, but has the option, to convert to a life annuity.
Locked-in RRSP
Coverage for care needed when a policy owner suffers a debilitating illness or injury that renders the individual unable to perform activities of daily living (ADLs). Created in response to the high health care costs for the aged and a useful complement to accumulated retirement funds. Commonly structured like a guaranteed renewable disability policy with 5-year level premiums.
Long-term care rider
Pays a benefit if the life insured requires care at home or at a facility such as a nursing home provided he or she is unable to perform at least two activities of daily living (ADLs) or requires continual supervision due to deteriorated mental abilities.
Long-term disability insurance
Typically provides coverage for 2 years, 5 years, or to the claimant's age 65. Often pays a lower level of benefits than short-term disability coverage (STD). Benefits usually commence when STD benefits end, according to total disability as defined in the policy. Also known as LTD insurance.
Loss of income policy
A pre-condition for payment of disability benefits. Defines total disability as a loss of at least 80% of earned income due to accident or sickness.
See long-term care insurance.
Management expense ratio
A standardized measure that expresses the costs of a fund as a percentage of its average net asset value during the fiscal year. An indication of what percentage of each dollar of fund assets pays for management services. Also known as MER.
The amount a mutual fund pays for administration of the fund and supervision of the portfolio. The investor does not pay the fee directly but feels its effects because rate of return is reported net of this amount.
The tax rate, expressed as a percentage, one pays on the next dollar of taxable income earned. In a progressive tax system this rate will be equal to or higher than the average tax rate (ATR) paid on the person's entire income, since the tax rate is lower for the first dollars of income than for subsequent dollars. Also known as MTR.
Market risk
The chance that variations in the stock market caused by economic, political, or social factors will affect the value of an investment product.
Market value adjustment
For IVICs invested in term deposits, a modification to the agreement when a contract owner makes an early withdrawal in excess of the yearly allowable 10% of fair market value. The interest rate paid on deposit is changed to reflect more accurately the return an investor is entitled to, based on the length of time funds are left on deposit.
Material fact
Vital information that by its inclusion or omission, would affect any part of an underwriting decision such as insurability, premium rate, benefits, exclusions, or limitations.
Material misrepresentation
Information that is omitted or included incorrectly that would have influenced the insurability of an applicant. Detection of such information within a two-year period since contract formation gives the insurer the right to void the policy or deny a claim.
Maturity date
The date on which a debt becomes due for payment. In an IVIC, the date generally ten years from the initial investment date or the reset date. Also known as the deposit maturity date.
Maturity guarantee
A promise from the insurance company that when an IVIC matures after at least ten years, the investor will receive the higher of the market value of the segregated fund or the statutory 75% of the principal investment. It makes no promise for amounts withdrawn prior to the maturity date or that the investment will appreciate in value.
Medical Information Bureau
A non-profit trade association that provides a means for member insurance companies to share medical and other information about an applicant that may be pertinent to an underwriting decision. This pooling of information makes it more difficult for applicants to defraud insurers. Also known as MIB.
See management expense ratio.
See Medical Information Bureau.
Misstatement of age
Providing an incorrect age of the life insured in a life insurance policy. The death benefit is adjusted to reflect the amount of insurance the premiums paid would have purchased had the policy been issued using the correct age of the life insured. Under the Insurance Act, the contract is not void.
Misstatement of sex
Providing the incorrect gender of the life insured in a life insurance policy. The death benefit is adjusted to reflect the amount of insurance the premiums paid would have purchased had the policy been issued using the correct gender of the life insured. Under the Insurance Act, the contract is not void.
Morbidity rate
The expected incidence of illness or disability of individuals in a given class.
Mortality cost
The actual cost to the insurance company of the risk that the life insured might die during a given policy year. The cost of life insurance net of administration costs.
The expected incidence of death of individuals in a given class.
Mortality tables
A listing of the mortality experience of individuals by sex and age.
See marginal tax rate.
Multiple life annuity
An annuity that is payable to more than one person during their joint lifetimes. Payments either cease when either of them dies (joint annuity), or continue until the last remaining annuitant dies (joint and last survivor annuity).
A financial product that pools investor deposits and invests in a diversified portfolio of securities run by a professional manager. Units are issued, whose value fluctuates with the experience of its portfolio.
Mutual life insurance company
An insurance company that has no capital stock or stockholders. It is owned by its policy owners who choose a governing board of directors. Each policy owner shares in surplus earnings after operating costs in the form of dividends or a reduction in premiums.
NAVPS
See net asset value per share.
Conduct that falls below the standard required, in particular circumstances, to protect others against unreasonable risk of harm. It is based on an objective standard where it is not what the party at fault intended, but whether he or she exercised reasonable care.
Net asset value per share
A value that represents the price at which segregated fund and mutual fund units are bought and sold on any particular day. An assessment of all the fund's assets minus liabilities, divided by the number of units outstanding. Also known as NAVPS.
Net investment return
The increase in value of an investment, expressed as a percentage per year, that remains when one accounts for items such as inflation and taxes.
Nominal return
The increase in value of an investment, expressed as a percentage per year, that ignores items such as inflation or taxes.
Non-cancelable
The policy cannot be terminated by the insurer, except for non-payment of premiums beyond the grace period.
Non-contributory plan
In group insurance, a policy where the group policy owner (usually an employer) pays 100% of the premiums, with no contributions from the group members. Common for group medical plans because of favorable tax implications for all parties.
Non-exempt policy
A universal policy where more is held in the accumulating fund than that permitted for exempt status. The intent is more to shelter investment income than to provide death benefits, so CCRA dictates that any gain is reportable whenever the policy is in a gain position, whether or not it has been realized.
Non-forfeiture benefits
In permanent life insurance policies, those values that the policy owner does not forfeit even for nonpayment of premiums. Typically non-forfeiture benefits include cash surrender value, automatic premium loan, reduced paid-up insurance, and extended term insurance. Not available in term insurance.
Non-indexed annuity
An annuity that does not provide for a periodic increase in payments as either a fixed percentage or related to a leading indicator such as the Consumer Price Index (CPI).
Non-participating policies
Life insurance policies where policy owners do not assume any risk for an insurer's shortfall if collected premiums and returns on investment are insufficient to meet mortality costs and expenses. Nor do policy owners share in the surpluses from favorable experience in these areas by receiving dividends. In exchange, the death benefits, cash values, and premiums are guaranteed for the life of the contract.
Non-qualified investments
Those types of investments, that are not outlined in the Income Tax Act, and so many not be included in RRSPs.
Non-refundable tax credit
A tax credit that one can only receive if taxable income is sufficiently high to be offset by the credit.
Non-registered funds
Amounts held outside, and receiving different tax treatment than, registered plans. See Registered funds.
A type of savings plan that is not registered with Canada Customs and Revenue Agency (CCRA) and therefore not subject to any restrictions on type of investment, duration, or contribution amount. Funds are not sheltered from the tax that must be paid on investment income as it is earned.
Non-renewable
Term insurance that cannot be continued after the term of the contract has expired. Instead, the policy expires without value. Should the insured wish to seek further coverage, he or she would be required to prove insurability based on his or her attained age.
Normal annuity
See accrued rate annuity.
A summary of a taxpayer's tax return, provided by CCRA, among whose items include an estimate of available RRSP contribution room.
See Old Age Security program.
OAS claw back
The process by which, above a specified income threshold, high-income earners are taxed a percentage of OAS benefits received that year. The amount is pro-rated up to the maximum possible OAS benefits.
Occupational risk
A factor in underwriting for disability insurance. Includes not only physical risks or inherent danger in a form of employment, but also the risk that illness or injury would have lasting effect on claimant's ability to work.
Office of the Superintendent of Financial Institutions
A federal institution whose mandate is to assist in the development and interpretation of legislation relating to financial institutions. Responsible for assessing the solvency of insurance companies and for using its authority to protect policy owner interests.
Old Age Security program
A federal public assistance program that provides a monthly benefit to individuals 65 years of age and older. Also known as OAS.
A type of mutual fund bought and sold directly through the fund company, whose total number of outstanding units changes frequently due to investors' ability to buy and sell units on demand. The majority of mutual funds are open-end funds.
The cost of passing up the next best choice when making a decision. If an asset is used for one purpose, the benefit foregone is the value of the next best purpose for which the asset could have been used.
Optional group life
Insurance available to an employee to supplement the basic life insurance provided under a group plan. The extent of additional coverage, usually in multiples of a base unit, is up to the individual. The group member is subject to a medical questionnaire and pays all the additional premiums.
Optional sales charges
Commissions paid on mutual and segregated funds either when funds are purchased or redeemed, at the choice of the unit holder, based on the unit holder's time horizon for the investment.
Ordinary life insurance
See whole life insurance.
OSFI
See Office of the Superintendent of Financial Institutions.
Over-insurance
When an individual collects benefits from one or more policies in excess of earned income. Prohibited by the Insurance Act. In A&S insurance, all plans preclude overpayment by stipulating that claims will be paid less all amounts received under a government health plan or any other health plan or insurance policy.
Own occupation
A definition of total disability where benefits will be paid if the claimant is unable to perform the important duties of his or her original employment. A claimant can pursue a new occupation and continue to collect benefits.
See pension adjustment.
Paid-up additions rider
An addition to whole life insurance policies that permits the policy owner to purchase additional coverage proportional to the amount of extra premiums deposited. Purchases can be made on a periodic basis but the option terminates if not used regularly.
A benefit that, if included in disability insurance policies, pays a reduced monthly income if the insured suddenly cannot work full time or is prevented from performing one or more important daily duties of his or her occupation. Claimant need not be totally disabled for a period of time before collecting partial benefits.
Participating policies
Life insurance policies where, in cases of a favorable experience with investment returns, mortality costs, and expenses, the insurer shares those surpluses with policy owners in the form of dividends.
Pension adjustment
A reduction to RRSP contribution room, required by the Income Tax Act, to account for any contributions made to other retirement pension plans or DPSPs in a tax year. It is the equivalent to the present value of the retirement benefits those contributions purchased in the year. Also known as PA.
A policy that provides coverage for the entire life insured rather than for a specific term. Requires payment of premiums in excess of actual mortality costs in early years and the accumulation of a policy reserve. Types include whole life, term-100, and universal life.
The written agreement between insurer and policy owner containing the schedule of benefits, contract specifications, a premium schedule, provisions describing benefits and procedures in various circumstances, limitations and exclusions, and amendments or riders.
Policy limitations
Contractual restrictions upon the rights and benefits of the policy owner, such as exceptions to coverage or the maximum amount of a benefit payable for a given situation or occurrence. A means to reduce premiums by restricting the risks covered by the policy.
Policy loan
An amount an insurer lends to a policy owner, assigning the policy's cash surrender value (CSV) as collateral, up to a specified percentage. Upon termination of the policy or death of the life insured, the CSV or death benefit is reduced by the outstanding amount, plus accrued interest charges.
Policy provisions
Promises and contractual obligations, either mandatory or optional, of both the insurer and policyowner contained in the insurance agreement.
Policy reserve fund
In permanent life insurance, a fund created by the policy owner's premiums that accumulates over the policy's life to cover the insurer's mortality costs and expenses. Premiums exceed these costs in the early years to allow sufficient accumulation for meeting higher costs in later years. Also know as an accumulating fund in the Income Tax Act.
The person who enters into a contract with the insurer and who may exercise all rights in the insurance policy. In a life insurance contract, he or she may or may not be the life insured. Also known as the policyholder.
Responsible for the investment decisions in a mutual or segregated fund including purchasing and selling securities and determining the asset mix. Decisions are guided by the objectives of the particular fund and his or her related expertise.
Pre-disability monthly earnings
An individual's income prior to incurring a disability. Used to determine the proportionate loss of income for calculating proportionate residual disability benefits. Also known as PDME.
Pre-existing condition
An injury, sickness, or physical condition that exists prior to the insured applying for disability or A&S coverage. The condition may be excluded from the coverage or a limitation added to the policy relating specifically to it.
Preferred beneficiary clause
Applies to pre-1962 policies. If the named beneficiary is a close family member of the policy owner, a trust is automatically deemed to exist for the benefit of the beneficiary. The benefits of this trust can not be taken away by the policy owner or his creditors. Exercise of the normal rights associated with an insurance policy is conditional on the beneficiary's permission.
Preferred share
Capital stock providing a fixed, non-fluctuating dividend that is paid before any dividend is paid on common shares, and which subordinates common shares in cases of insolvency. It represents partial ownership in a company, but does not contain the same voting rights as common shares.
The periodic payment that is required to keep an insurance policy in force. The cost of an insurance policy to a policy owner is the sum of these amounts over the years.
Premium offset policy
A participating policy designed so that after a certain number of years the policy dividend paid is sufficient to offset the payment due from the policy owner to keep the policy in force. From that point onwards, the policy owner need no longer make this payment. Also known as a vanishing premium policy.
Premium taxes
Taxes levied by the provinces as a percentage of deposits to life and disability insurance policies (typically 2%), collected and remitted by the insurance company. Deposits to annuities are not similarly taxed.
Prescribed rate annuity
A non-registered annuity where taxes are paid on an equal interest amount each year. By reducing the amount of tax paid in earlier years it offers both a tax-deferral mechanism and a more level source of after-tax income. It must satisfy certain requirements to qualify for special consideration under the Income Tax Act.
Presumptive total disability provision
Provides that the insured will be assumed totally disabled if he or she suffers a specified loss, even if he or she continues to work. These losses often include permanent loss of sight, loss of hands and feet, or loss of speech.
Primary beneficiary
The person who receives the benefits of an insurance contract if still alive when the insured dies, and the policy is still in force. See contingent beneficiary.
One for whom an agent acts. The money due under a policy. A sum lent or employed as a fund or investment, as distinguished from its income or profits. The original amount (as of a loan) of the total due and payable at a certain date.
Awareness of any circumstance that could result in a claim on an agent's E&O insurance, no matter how remote the risk. It will also be deemed to exist if the agent should have known about the circumstance.
Probate fees
Court fees levied by each province, excluding Quebec, as part of the process of validating the will of the deceased.
Probationary period
In group insurance, the length of time a new employee must wait before becoming eligible for coverage. Often matches the period an employer waits before conferring permanent status on an employee. Also known as the waiting period.
Progressive tax system
Canada's method of taxation whereby the higher an individual's taxable income, the higher the percentage of that income paid in tax.
A type of derivative that gives an investor the right to sell a set amount of the underlying security at a predetermined price for a specific period of time.
Qualification period
The number of days of total disability that must elapse during a benefit period before a claimant can receive partial or residual disability benefits. Designed to prevent claims being made, in the absence of a partial disability clause, on the basis of deteriorating health.
Qualified investments
Those types of investments, as outlined in the Income Tax Act, that one may include in RRSPs.
Rated policy
Insurance issued to a person who is a substandard risk at a premium rate that is higher than that charged for a standard risk. Can be changed to a standard policy if the condition that gave rise to a substandard risk has changed favorably.
The increase in value of an investment, expressed as a percentage per year, adjusted for changes in inflation.
Recurrent disability
A disability resulting from the same or related cause of a prior disability that reappears within a specified period of time. If provision is made in a policy, disability payments resume without the claimant satisfying a new elimination period.
Reduced paid-up insurance
A non-forfeiture clause in a permanent life insurance policy where the policy owner elects to buy a policy for 5% to 80% of the original face value with the cash surrender value (CSV), depending on how long the policy has existed, and pays no more premiums. This guarantees a future death benefit, albeit for a proportionately smaller amount.
Refundable tax credit
A tax credit that one receives regardless of taxable income. It is therefore possible to receive a tax refund even if taxable income is zero.
Registered education savings plan
A registered plan to which a subscriber makes contributions (up to a specified limit and duration) for the purpose of funding a beneficiary's future post-secondary education. A portion of contributions is entitled to a federal grant (CESG). The combined funds enjoy tax-sheltered growth until they are withdrawn either as educational assistance payments (EAP) or accumulated income payments (AIP). Contributions are not tax-deductible. Also known as RESP.
Registered funds
Amounts invested in federally-sponsored plans up to specified limits and subject to certain conditions to qualify for favorable treatment under the Income Tax Act.
Registered plan
A type of savings plan, as defined in the Income Tax Act, and registered with Canada Customs and Revenue Agency (CCRA). It allows an investor to save for retirement without paying tax on the contents until the funds are withdrawn, subject to restrictions on the type of investments, the duration, and the contribution amount.
Registered retired income plan
A registered plan designed to distribute assets in the form of retirement income. No contributions are allowed but amounts are transferred from other registered plans. It can hold types of investment similar to those in a self-directed RRSP, and enjoys tax-sheltered growth. A minimum amount must be withdrawn each year, according to an age-based formula, and included as income for tax purposes.
Registered retirement savings plan
A registered plan to which an investor makes tax-deductible contributions (up to specified limits), that invest in various financial instruments, subject to statutory limitations. The funds grow tax-sheltered until they are withdrawn, typically at maturity when the investor is retired. Also known as RRSP.
Regular occupation
A definition of total disability where benefits will be paid if the claimant is unable to perform the important duties of another occupation to which he or she is reasonably suited by education or training.
A policy provision under which a policy owner may put a lapsed policy back in force after at least the statutorily required two years, subject to evidence of continued insurability, and payment with interest, of all past unpaid premiums.
The sharing or spreading of risks too large for one insurer, among other insurers. This avoids the heavy losses incurred if policy owners make excessively large claims.
A form of term insurance giving the policy owner the right to continue a policy at the end of one term for some predetermined period of time without providing evidence of insurability, usually at a higher premium rate corresponding to the new attained age.
Reset option
A right under some IVIC to establish a new base value for death benefits and maturity guarantees, thereby locking in a higher guaranteed maturity value at a new maturity date, usually ten years in the future.
Residual disability
A period of partial disability that immediately follows a period of total disability where the insured is able to return to work in a reduced capacity. Provision in a policy that pays benefits proportionate to pre-disability income loss up to specified limits.
See registered education savings plan.
Retiring allowance
Any amount received by a taxpayer (or his estate or beneficiary) at retirement, in recognition of long service with an employer, or after termination of employment as a severance settlement. Subject to limitations, it may be rolled over into an RRSP, in addition to normal RRSP contribution limits.
A supplemental agreement attached to an insurance policy that either adds or limits coverage and conditions.
In Insurance, the applicant has a specified period of time, after receipt of the policy, to examine the premium and coverage provisions, and confirm the policy is accurate and correct. The applicant may return the policy during this preview for a full refund of premiums, regardless of the reason. Not available to investors in a segregated fund under an IVIC. See Ten (10) day free look provision. With mutual funds, the ability to cancel an order within 48 hours (business days) of receiving the trade confirmation. Also the right with mutual funds to repudiate the agreement should a prospectus contain any incorrect information or misrepresentation.
With mutual funds, the investor's ability to repudiate an agreement to buy within two business days of receiving the prospectus, and to receive the full purchase price paid and any sales commissions or fees paid. Not available to investors in a segregated fund under an IVIC.
An offer to investors, who already hold common shares of a company, to buy subsequent issues at a discount from the market price. This variety of derivative usually expires after a few weeks or months.
A direct transfer from one registered plan to another without inclusion of the funds in current income for tax purposes.
Secondary beneficiary
See contingent beneficiary.
Segregated fund
Deposits paid by and held in trust for the benefit of individual investors, pooled and held in an investment portfolio separate from an insurance company's other assets. Returns are based on the market value of the securities held within the fund. Features include maturity and death benefit guarantees, creditor protection, reset options, and exemption or exclusion from probate. As it is an insurance product, investments are made indirectly, through an Individual Variable Insurance Contract (IVIC).
Self-directed RRSP
An RRSP that may hold a wide variety of financial instruments, as outlined in the Income Tax Act. The investor makes all investment and management decisions for the portfolio, and therefore assumes all responsibility for investment performance.
Share redemption arrangement
A buy-sell arrangement whereby, in a corporation, if a shareholder dies, the business purchases the deceased's shares with the death benefits from an insurance policy on that person. The corporation then retires those shares, thereby increasing the ownership interest of all remaining shareholders.
Benefits paid to claimants who are disabled for a term between six months and two years, after a short elimination period. Designed to provide a disabled person with time to recuperate or train for another occupation, rather than as a permanent income replacement plan.
Single life annuity
An annuity that terminates payments upon the later of the death of a single beneficiary and the end of any guaranteed term.
Specific performance
A court order that compels a person to do something previously promised according to a contractual obligation. Considered a secondary remedy, available only where monetary compensation is unavailable or inadequate.
Spousal RRSP
A type of RRSP where the annuitant is the owner of the plan, but the contributions are made by his or her spouse or common-law partner.
Standard risk
A person who meets the parameters of insurability for an average individual in a given class, and therefore is entitled to insurance protection without extra rating or special restrictions.
Stock company
An insurance provider that raises capital on the open market and is owned by its shareholders who share in its profits and losses, and elect a managing board of directors in conjunction with policy owners of participating policies. Most Canadian insurance companies.
An instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its assets and profits. Most provide voting rights, giving shareholders voting power in certain corporate decisions proportionate to the amount held. Examples include common shares and preferred shares.
Straight life insurance
A court-awarded annuity in cases of personal injury where the defendant responsible for making award payments gives a lump sum to an insurance company that in turn, guarantees a series of payments to the injured party. No part of these payments is considered taxable income.
Substandard risk
A person's higher than average possibility of illness, disability, or death for a given class of individuals. The accepted applicant receives a rated policy and pays higher premiums to compensate the insurer for assuming greater than normal risk.
Suicide clause
A provision that stipulates how an insurance company will address a situation where the life insured ends his or her life. The Insurance Act allows the contract to be honoured, but contract provisions usually require the policy to be in force for a minimum period following issue or reinstatement. This provision does not exist in an IVIC where death benefits are paid regardless of how or when the contract owner dies.
Summary fact statement
A required disclosure document included with the Summary Information Folder that provides a brief summary of a segregated fund's historical performance, the investment philosophy of the fund and a list of its three largest assets or holdings.
Summary Information Folder
A required disclosure document that describes the features of an IVIC, including the underlying investments, the process for making deposits, and the process for switches and withdrawals.
Superficial loss
A reported capital loss that is disallowed by CCRA because an investment is repurchased within 30 days of the disposition that triggered the capital loss.
Supplementary benefit
See rider.
Surrender charge
A back-end levy on the redemption of segregated fund units as a percentage of the amount redeemed. Large in the early years of a policy but usually declining over time. Often waived if units are switching from one fund to another within the same policy.
Survivor income benefit
A provision in group life insurance where upon the death of the employee, the policy pays a fixed percentage of his or her income to the spouse and children on a monthly basis subject to a maximum limit and time period.
T-bill
See treasury bill.
A reduction to taxable income. The amount of the reduction is a fixed percentage of the allowable expense so it is the same regardless of the taxpayer's marginal tax rate.
Reductions to taxable income. One multiplies the allowable expense by the taxpayer's marginal tax rate to calculate the reduction to taxable income. The value of the deduction increases with the level of taxable income.
Tax deferral plan
An investment strategy to postpone paying tax, whereby an individual contributes funds to a registered plan and takes the applicable tax deduction at a period when personal MTR is relatively high. The funds enjoy tax-sheltered growth until they are withdrawn at a time, such as retirement, when personal MTR is relatively low.
Tax switches
An investment strategy where an individual sells an item currently valued below its ACB to trigger a capital loss (useful for offsetting any capital gains), but then buys the same item, or one with similar attributes, in the belief it will increase in value.
Tax-loss selling
The act of selling items currently valued below their ACB, to trigger deliberately a capital loss. This loss is used to offset other realized capital gains, thereby reducing an investor's tax liability.
Tax-sheltered growth
Within a registered plan, any received income payments or realized capital gains that remain in, and are reinvested in the plan, are not treated as taxable income. They continue to add to the growth of the investment until they are withdrawn (when they are taxed at 100% of MTR), or the plan reaches maturity.
Taxable gain
The proceeds from the disposition of a life insurance policy, calculated as the excess of the cash surrender value over the ACB. Taxed at 100% of an investor's MTR. A loss may not be used to offset a taxable gain.
Total earnings from all sources of income, less all allowable deductions, less further exemptions. The amount on which one pays federal income taxes.
Temporary insurance agreement
A separate contract that provides coverage for the applicant while an insurance company completes the underwriting process. Coverage is for a maximum of 90 days and subject to specified limits. The applicant must qualify medically as a standard risk and pay an initial premium. Also known as conditional insurance or a TIA.
Ten (10) day free look provision
A right of rescission most insurers opt to include, permitting a policyowner to read the policy and decide to either accept it, or return it for any reason for a full refund of all premiums paid.
Term annuity
A contract providing payment for a definite and specified period of time with payment going to a designated beneficiary if the annuitant dies. Also known as a term certain annuity.
A registered or non-registered interest bearing loan to a bank or trust company for a specified but renewable term of less than one year. Interest accrues at a specified rate based on the prevailing market rate and is fixed for the term, as are rules for redemption.
Term insurance rider
Additional coverage for the life insured, a spouse, or children, for a specified period of time on either existing term or permanent policies. Often less expensive to arrange than creating a new stand-alone policy.
Protection against financial loss resulting from the death of the life insured for a specific length of time, that expires without value if the life insured survives the stated period. Also known as temporary insurance because it is suited to cover risks that have an identifiable duration.
Term-100 insurance
A form of permanent life insurance providing no cash surrender value and few, if any, non-forfeiture benefits, with level premium payments for the life of the policyowner or until age 100. Suitable for permanent needs where the amount of insurance required is not likely to change.
Terminal illness benefit
A supplementary benefit that provides periodic payments to the life insured during his or her lifetime if death is expected within 12 months due to terminal illness. The insurer deducts the amount advanced, plus interest, from the eventual death benefit. This living benefit can only be paid if the insured's estate is the beneficiary of the policy.
Testator
A male individual who makes a will.
Testatrix
A female individual who makes a will.
See temporary insurance agreement.
The concept that a dollar today is worth more than a dollar tomorrow, because a dollar invested today has the potential to grow to more than one dollar at some future date. The opportunity cost of not investing is the return that is forfeited.
Time-weighted allocation
The process by which segregated funds retain the income earned in the fund, reinvest it, and adjust the unit value to reflect the additional income. This income is taxable in the hands of the contract owner according to the number of units held, but unlike mutual funds, is prorated for the length of time the units have been owned.
An injury suffered other than by breach of contract, for which recovery of damages is permitted by law.
Total disability
The level of physical or mental impairment caused by an accident or illness, as defined in a disability insurance policy, that must exist before benefits are paid. Elements include loss of income and inability to perform the important duties of one's own occupation, any occupation, or an occupation to which one is reasonably suited by education, training, or experience.
Treasury bill
A short-term debt instrument issued by the federal or provincial government. Because these issuers have the highest credit rating, their debt is the most secure and correspondingly, offers the lowest level of returns. Also known as a T-bill.
A formal arrangement in which one party, the trustee, holds legal title to property on behalf of another party, the beneficiary, subject to terms set out in the agreement.
One who holds the legal title of property for the benefit of another, and must act in that person's best interests. With segregated funds, the insurance company holds deposits in trust for a policyowner.
Unconditional delivery
An insurer accepts an applicant for insurance, issues and applies the policy, and requires nothing more from the new policyowner to put the policy in force.
The process, by which an insurance company examines an application, decides whether to accept the risk according to insurability criteria and if so, what premium to charge under the policy.
Undue influence
Pressure, where one party holds a dominant position over the other party, depriving the individual of making an independent decision. Its existence depends on the nature of the specific relationship under examination. In some cases, it is presumed, requiring the dominant party to prove otherwise. In other cases, it depends on the circumstances, intent, and degree of pressure used and must be proven by the weaker party. The courts can decide that a contract entered into in such circumstances is void.
Uniform Life Insurance Act
A uniformity of law, not a statute, that governs the life insurance activities of the nine common law provinces.
Unilateral contract
A formal agreement where only one party is bound to the outlined terms and conditions. Under an insurance contract, there is no recourse available to the insurer should the policyowner neglect to pay premiums; the policy will simply lapse.
A permanent life insurance policy allowing flexibility in face amount; number and identity of lives insured; amount, frequency, and timing of deposits; and investment decisions for the policy reserve fund, provided there are sufficient funds to pay mortality and administration costs. Offers tax-deferred savings and favourable tax treatment for beneficiaries.
Unregistered annuity
An annuity purchased with non-registered funds. Since funds used for this purchase have already been taxed, only the interest portion, and not the principal repayment, is taxable.
Valuation date
The date upon which the investments held under a segregated fund's deferred annuity policy are valued for purposes of the death benefit and maturity guarantees.
Vanishing premium policy
See premium offset policy.
Variable annuity
An annuity, either term or life, indexed or non-indexed, with the amounts of payments based upon the returns of an investment portfolio. Often funded by segregated funds.
The process by which the beneficiary of a pension plan obtains, or becomes entitled to the inalienable right to either transfer or withdraw that lump sum to another plan or RRSP or to receive, in the future, a deferred life annuity.
Void contract
An agreement that fails to meet one of the basic principles of contract formation from the outset and therefore cannot be legally enforced. It is as if the agreement never existed and it cannot be fixed and made valid.
Voidable contract
An agreement that satisfies all the principles of contract formation yet contains a flaw giving the insurer the option to avoid its obligations altogether, adjust the policy to reflect the flaw, or ignore the flaw and treat the contract as enforceable.
Waiver of premium
A supplementary benefit in most disability and A&S policies that allows a policyowner to cease payment of premiums upon proof of total disability, subject to a three-month elimination period, the continuation of total disability, and provided the disability was not self-inflicted.
A form of derivative issued by a company, entitling investors to buy common shares directly from that company at a discount from the market price. Usually issued at the time shares are issued and having a life span of one to several years.
See Workers' Compensation Board.
A form of permanent life insurance providing coverage for the whole of the insured's life, with a fixed premium rate payable for that lifetime established at issue and paid periodically or as a lump sum. Premiums create a policy reserve fund with a cash surrender value (CSV). Also known as straight life insurance or ordinary life insurance.
Withdrawal Limits for HBP
A taxpayer can withdraw up to $20,000 from his RRSP under the Home Buyer's Plan. He can make more than one withdrawal, as long as the total of all withdrawals is not more than $20,000. If he buys the qualifying home together with his spouse, common-law partner, or other individuals, each individual can withdraw up to $20,000.
A tax applied by an RRSP provider when an investor withdraws funds from the plan before maturity. The size of the tax depends on the amount withdrawn, as outlined in the Income Tax Act. According to personal financial situation, an individual may or may not be eligible to receive a refund of a portion or all of this tax.
Provincial entities funded by employer premiums, established to monitor workplace safety and to compensate workers who develop a work-related sickness or injury on the job. Benefits correspond to a table of benefits and are tax-free. Also known as WCB, the Workers' Safety & Insurance Board, or WSIB.
YBE
See year's basic exemption.
Year's basic exemption
The minimum level of income above which one must start making CPP contributions, and below which, one is exempt. Also known as YBE.
Yearly renewable term
Term insurance renewable on a yearly basis without subsequent proof of insurability but based on attained age. It is the basis for calculating mortality cost deduction from the investment account in some universal life insurance policies.
Yield to maturity
A measure of the return provided by a fixed income investment that would be realized if the bond was held until the maturity date. It is greater than the current yield if the bond is selling at a discount and less than the current yield if the bond is selling at a premium.
YRT
See yearly renewable term.
an amount that has been accrued (i.e., that has been earned and reported for tax purposes, even though it has not yet been received in cash or kind).
Accrual method of accounting
a method of accounting whereby the taxpayer reports income in the fiscal period earned, regardless of when the income was received in cash; and deducts expenses in the fiscal period incurred, whether paid in that period or not.
Accrued interest
Interest that has been earned but not received.
Accumulated income payments (AIPs)
payments to the subscriber of the RESP's investment earnings, including earnings on the Canada Education Savings Grant (ITA 146.1(1), "accumulated income payments").
Accumulation annuity
an annuity whereby a single premium, annual premiums or other varying premiums are accumulated for the purpose of providing a lump sum at some point in the future. The policyholder then has the option of rolling the lump sum into an annuity, or receiving the cash surrender value.
Accumulation plan
An arrangement that enables an investor to purchase mutual fund shares regularly in large or small amounts.
Accumulation planning
the process of setting specific financial goals and determining how to reach those goals, transforming vague statements and wishful thinking into workable action plans.
Act of bankruptcy
assigning your assets to a trustee, in a manner that is not satisfactory to your creditors, fraudulently transferring your assets to a third party in anticipation of bankruptcy, with the intention of withholding those assets from distribution to your creditors, paying off one creditor in preference to the outstanding claims of other creditors (referred to as fraudulent preference), failing to give up goods that are to be seized from you under an execution order, trying to depart secretly and suddenly, with the intention of defrauding your creditors, and failing to meet your liabilities as they come due.
Active business
any business carried on by a corporation, other than a specified investment business or a personal services business. It includes an adventure in the nature of trade (ITA 248(1)).
Active business income
any income pertaining to or incident to an active business, but not including income from property (ITA 248 (1)).
Actuarial assumptions
assumptions made by an actuary regarding future trends in factors that may affect the cost and value of future pension benefits, such as mortality, interest, wage increases, etc.
Actuarial equivalent
the pension paid following early retirement, based on an actuarial reduction of what the pension would have been if it had commenced at normal retirement age.
Actuarial reduction
Most pension plans will permit members to retire early, up to 10 years before the normal retirement age, and still collect a retirement pension. However, the benefit entitlement will be reduced to account for the fact that contributions were not made until normal retirement age (i.e., less pension credits will have been earned by the plan member), resulting in a smaller pension.
Additional savings required
the present value at retirement of the shortfalls in projected retirement income based upon known sources of income and current savings.
Adjusted cost base (ACB)
the original cost of purchasing a capital or depreciable property plus the cost of additions less certain adjustments for specific types of income tax relief, such as the deduction for an RRSP contribution, but not for others, such as CCA.
Adjusted purchase price
the price of an annuity, adjusted to be the equivalent of an immediate annuity purchased with cash.
Adjusted taxable income
in the alternative minimum tax calculation, this amount is the sum of the net additions to taxable income plus taxable income.
includes a legal adoption and an adoption in fact.
Advance tax ruling (ATR)
an official interpretation issued by CCRA at the request of a specific taxpayer who wants confirmation of the tax implications of a contemplated transaction. CCRA will assess the transaction, interpret the provisions of the Income Tax Act, the Excise Tax Act, and related statutes, and establish its interpretation in the form of an advance tax ruling.
a client who is both confident and impetuous. Entrepreneurial in nature, willing to go out on a limb in career choices or money management strategies. Although the adventurer is willing to assume a high level of risk in return for high potential gains, an adventurer is always confident that the right decision has been made. An adventurer places confidence in fate.
Affairs of the corporation
the internal arrangements among those responsible for running the corporation and its main beneficiaries, the shareholders.
Affiliated persons
in the context of applying the superficial loss rules, persons affiliated with each other generally include the following (ITA 251.1):
" the taxpayer and his spouse or common-law partner
" a corporation and any person or affiliated group of people who control that corporation
" two corporations if each corporation is controlled by an affiliated person
" a partnership and a majority interest partner
" two partnerships if there is an affiliation between the majority-interest partners of each partnership
" and a partnership and a corporation if there is an affiliation between a majority-interest partner and a person who controls the corporation
After-tax rate of return
the nominal rate of return adjusted for taxes, calculated as (i × (1 – MTR)), where i is the nominal interest rate and MTR is the marginal tax rate.
Age amount
an amount for a non-refundable tax credit for those aged 65 or older on December 31st of the tax year.
Age credit
a federal tax credit for taxpayers who are at least 65 years of age by December 31 of a taxation year.
Age pyramid
a graphic depicting the relative proportion of the population in each age group; in a stable population (where the birth and death rates are constant from year to year) the graph would resemble a pyramid, being broad at the base and tapering to a peak as a result of mortality.
Alimony and maintenance payments
periodic payments made under a court order or written agreement; to the taxpayer or to someone else on the taxpayer's behalf, to maintain the taxpayer, his children, or both.
Allowable business investment loss (ABIL)
a type of allowable capital loss that is calculated as 50% of a business investment loss (ITA 38(c)), and that is deductible from any other source of income for the year of the loss.
that portion of a capital loss that can be deducted from taxable capital gains, based on an inclusion rate of 50% for dispositions after October 17, 2000.
(a) an income-tested benefit for a pensioner's spouse or common-law partner, widow or widower aged 60 to 64 who has resided in Canada for at least 10 years since reaching 18 years of age, and who qualifies under the net income test, is eligible for a monthly allowance.
(b) Income supplement for the spouse or common-law partner of a low income senior.
an alternative tax calculation that was introduced in 1986 as a political solution to the perception that many high-income taxpayers were avoiding taxes though the use of tax shelters.
Amortization Period
the period of time over which a mortgage is to be paid off, assuming no early payment, missed payments and constant interest rates.
the monthly payment includes interest and principal, the portions of which change with each payment. Calculation of these two components of each payment and can be prepared with either a financial calculator or computer software.
AMT basic exemption
an amount of $40,000, which is deducted from the adjusted taxable income. So, effectively only adjusted taxable income in excess of $40,000 is subject to the alternative minimum tax. This means that someone can have up to $40,000 of adjusted taxable income and still pay no AMT.
Ancillary fees
(a) fees imposed by universities, colleges and other post-secondary institutions and which include fees for health services, athletics and various other services. The amount does not include student association fees.
Annual Limits
Contributions to all RESPs on behalf of one beneficiary cannot exceed the annual limit of $4,000. (ITA 146.1(1), "RESP annual limit"). This annual limit cannot be carried forward if it is not used.
Annual LLP limit
An LLP participant can withdraw a total of $10,000 in a calendar year from any combination of her RRSPs. (ITA 146.02(1), "eligible amount").
A financial report sent yearly to a publicly held firm's shareholders. This report must be audited by independent auditors.
(a) An individual who purchases an annuity and will receive payments from that annuity.
(b) the recipient or beneficiary of an annuity. An annuity contract can have more than one annuitant.
(a) a series of income payments or receipts made yearly or at other regular intervals.
(b) A contract that guarantees a series of payments in exchange for a lump sum investment.
an agreement with a financial institution or life insurance company to provide the annuitant with an annuity. The owner of the annuity contract may or may not be the annuitant.
a series of consecutive periodic payments or receipts of equal amounts made or received at the beginning of each period.
an unrealized increase in the value of an asset over time.
Arm's length
someone that is in no way related to the employer.
a document that must be included with the application for incorporation and that described the fundamental characteristics of the corporation, including the business name; the number of directors; the number and classes of shares that the corporation is authorized to issue; and any restrictions on the business activities that the corporation can undertake.
A proposal to sell a specific quantity of securities at a named price.
the process of determining what portions of different assets such as stocks, bonds and money market instruments are to be included in an investment portfolio.
What a firm or individual owns.
things of value owned by your client.
filing a petition for bankruptcy under the Bankruptcy and Insolvency Act.
Assignment of CPP retirement pensions
an income splitting process whereby spouses or common-law partners choose to share their Canada Pension Plan retirement pensions with each other to minimize their tax burden.
Assisted contributions
contributions that are made to an RESP after 1997 in respect of which a CESG has been or will be paid.
Associated corporations
two or more corporations are considered to be associated corporations if, at any time in the taxation year:
" one corporation controlled the other corporation
" both of the corporations were controlled by the same person or group of persons
" the people or group of people who control each corporation were related to each other and one of them owns at least 25% of the shares in both corporations (ITA 256(1))
At-risk rule
a rule under the Income Tax Act that prohibits limited partners from taking deductions for more than the amount of money the investor actually stands to lose (ITA 96(2.1 to 2.6)).
a review process that CCRA uses to verify the accuracy of amounts reported on a tax return and to ensure that the taxpayer is in compliance with the Income Tax Act.
Average tax rate (ATR)
the total income tax payable for a year divided by the taxable income for a year.
the strategy of avoiding or reducing taxes by making use of various exemptions.
the period of time between about 1947 and 1966, during which the rate of live births in Canada rose from about 240,000 per year to a peak of about 480,000 births per year in 1959, and subsequently declined to about 360,000 per year in 1966. Also, refers to the group of individuals born during this time period.
Baby boom tidal wave
the combination of the baby boom followed by the baby bust.
Baby bust
the period of time after 1966, when the baby boom ended and the birth rate stabilized at a lower level. Also, refers to the group of individuals born during this time period.
Back-end load
A sales charge levied when mutual funds mutual fund units are redeemed.
Bad debt
a debt owing to the taxpayer that he is virtually certain he will not be able to collect. A debt will not be uncollectable at the end of a particular taxation year unless the creditor has exhausted all legal means of collecting it or the debtor has become insolvent and has not means of paying it.
(a) provides a clear picture of your assets and liabilities, including short-term debt obligations that are of particular concern in money management.
(b) A financial statement showing the nature and amount of a company's assets, liabilities and shareholders' equity.
Balance-due day
the day all taxes are due for the last taxation year and it varies depending on the taxpayer as follows (ITA 248(1)):
" a trust, 90 days after the end of the trust's fiscal year
" an individual who died after October in the year and before May in the following taxation year, the day that is 6 months after the day of death
" for other individuals, April 30th in the following taxation year
A mutual fund which has an investment policy of "balancing" it's portfolio, generally by including bonds and shares in varying proportions influenced by the fund's investment outlook.
Bank Rate
The rate at which the Bank of Canada makes short-term loans to chartered banks and other financial institutions, and the benchmark for prime rates set by financial institutions.
Bankers' Acceptance
Short-term bank paper with the repayment of principal and payment of interest guaranteed by the issuer's bank.
you are bankrupt if you are insolvent and either you voluntarily make an assignment or your creditors are successful in lodging a receiving order against you.
Base income
equals net income, excluding OAS benefits, of the previous year.
Basic activities of daily living
include perceiving, thinking and remembering, feeding and dressing oneself, speaking, hearing, eliminating and walking. An individual's ability to perform these activities is markedly restricted only where, even with the use of appropriate devices, medication and therapy, the individual is blind, or unable to perform the activity.
Basic Federal Tax
a basic progressive tax that is calculated as a percentage of income, which increases according to specific rates and income levels.
(a) an RRSP established to hold a specific investment product.
(b) Also called a regular RRSP. Typically holds a single type of investment such as a GIC, Canada Savings Bond, or mutual fund. Basic RRSPs are held and managed by a trustee, such as trust company or bank and are therefore considered to be managed accounts.
A declining financial market.
(a) Of an RESP contract is the person named by the subscriber as the person who is the intended recipient of the educational assistance payments from an RESP plan.
(b) any person entitled to benefits from a DPSP and includes an employee or former employee for whom the employer has contributed amounts to the plan; or in the case of death, the estate or person designated as the beneficiary by the employee or former employee.
(c) a person to whom, or for whom, a promoter agrees to pay educational assistance payments when the beneficiary is qualified to receive them (ITA 146.1(1), "beneficiary"). Generally, there are no restrictions on who can become a beneficiary.
Benefit entitlement
the retirement benefits earned under a pension plan during the year, measured in dollars per year at retirement; used for the purpose of calculating an individual's pension adjustment and RRSP contribution room.
Best-earnings plan
a defined-benefit plan that relates the amount of pension benefit payable at retirement to the best-earnings of an employee's career (usually over a three to five consecutive year period), as well as his number of years of credited service.
A statistical term used to illustrate the relationship of the price of an individual security or mutual fund unit to similar securities or financial market indexes.
A proposal to buy a specific quantity of securities at a named price.
A descriptive term usually applied to high grade equity securities.
the provision of meals and other services
Board lot
A standard number of shares for trading transactions. The number of shares in a board lot varies with the price level of the security, although in most cases a board lot is 100 shares.
A committee elected by the shareholder's of a company, empowered to act on their behalf in the management of company affairs. Directors are normally elected each year at an annual meeting.
A long-term debt instrument with the promise to pay a specified amount of interest and to return the principal amount on a specified maturity date.
A mutual fund whose portfolio consists primarily of bonds.
(a) The value of net assets that belong to a company's shareholders, as stated on the balance sheet.
(b) the adjusted cost base of the investment.
(c) when this term is used from the point of view of a corporation and its financial statements, it refers to the company's total shareholders' equity, or the sum of all initial capital investments plus any earnings of the corporation that have been retained (i.e., the profits that are left in the company after it pays dividends). When this term is used from the point of view of the investor, it refers to the amount that the investor paid for the shares. The two book values may differ, depending on the market demand for the corporation's shares.
Bouncing cheques
writing cheques with insufficient funds in the account to cover the cheque amount.
Bridging supplement
an additional benefit, of a value that approximates anticipated CPP/QPP benefits, provided by some plans to members who retire before age 65, and until such time as they reach age 65 and CPP/QPP benefits commence.
An agent who handles the public's orders to buy and sell securities, commodities, or other property. A commission is generally charged for this service.
a plan for how you are going to allocate your money.
An advancing financial market.
includes a profession, calling, trade, manufacture or undertaking of any kind, and with a few exceptions, an adventure or concern in the nature of trade (ITA 248(1)).
any step in the process of creating, producing or delivering a good or service in exchange for payment in money or other valuable consideration.
any income that a proprietor or partner (other than a limited partner) earned as a result of carrying out business activities
Business investment loss
a loss incurred by the taxpayer when he disposes of shares of a small business corporation or a debt owed to him by a Canadian-controlled private corporation for proceeds less than ACB plus expenses. The disposition must be to an arm's length person; or the disposition must be deemed to have occurred as a result of the recognition of a bad debt or shares of an insolvent company under ITA 50(1).
Business loss
occurs when business expenses exceed revenue. A business loss is reported on the taxpayer's general tax return as a negative amount and is thus effectively deducted from other income.
Business of the corporation
the external relations between a corporation and those who deal with it as a business enterprise, such as its customers, suppliers, employees, government regulators and society as a whole.
Business-use-of-home expenses
includes tax deductible expenses for the business use of a work space in the taxpayer's home, as long as one of these conditions is met (ITA 18(12)):
" it is the taxpayer's principal place of business
" the taxpayer uses the space only to earn business income and uses it on a regular and ongoing basis to meet clients, customers or patients
Buying on margin
Purchasing a security partly with borrowed money.
includes the 365 consecutive days (366 days during a leap year) from January 1 to December 31.
gives the owner the right to purchase a particular stock at a certain price until a particular date.
Callable
Preferred shares or bonds that give the issuing corporation an option to repurchase , or "call" those securities at a stated price. These are also known as redeemable securities.
Canada Education Savings Grant (CESG)
(a) A federal program that will provide a grant of 20% of certain RESP contributions for beneficiaries under age18. Also known as CESG.
(b) a federal program that will provide a grant of 20% of certain RESP contributions for beneficiaries under age18.
(c) a grant that is paid by Human Resources Development Canada (HRDC) to the trustee of an RESP for deposit on behalf of the beneficiary.
Canada Pension Plan (CPP)
(b) a federal government program designed to provide monthly pensions to contributors in retirement, to disabled contributors and their children, and to the widows, widowers and orphaned children of deceased contributors.
(a) A federally sponsored retirement program designed to provide retirement benefits, disability benefits, survivor benefits, and death benefits. The Canadian Pension Plan does not apply in Quebec. Also known as CPP.
A bond issued each year by the federal government. These bonds can be cashed in at any time for their full face value.
Canada Student Loans Program (CSLP)
(a) This financial aid program established by the federal government is used to help students cover the cost of post-secondary education. Also known as CSLP.
(b) this financial aid program established by the federal government is used to help students cover the cost of post-secondary education.
Canadian Controlled Private Companies
Small business investment trusts. Also known as CCPC.
Canadian corporation
a corporation resident in Canada.
Canadian Securities Administrators
The Canadian Securities Administrators is a policy making body composed of members from each provincial securities commission. Its mandate is to draft national policy statements for the securities industry. Also known as CSA.
Canadian-controlled private corporation (CCPC)
a Canadian private corporation that is not controlled directly or indirectly by one or more non-residents or public corporations (ITA 125(7)).
Generally, the money or property used in a business. The term is also used to apply to cash in reserve, savings, or other property of value.
Capital cost
generally means the full cost to the taxpayer of acquiring the depreciable property, including legal, accounting or other fees incurred to acquire the property.
Capital cost allowance (CCA)
(b) a tax concept that recognizes that assets lose value through depreciation, but it does not necessarily measure it in the same way as depreciation for accounting purposes.
(a) A taxation term, equivalent to depreciation, that makes allowance for wearing away of a fixed asset.
Capital debt receivable
a debt receivable, other than accounts receivable, acquired by the taxpayer for the purpose of producing non-exempt income from a business or property; or as consideration for the disposition of capital property.
a notional account in a corporation's accounting system that records the total of the tax-free 50% of capital gains, part of the death benefits from company-held life insurance policies and the tax-free portion of sales of goodwill (ITA 89(1)).
Capital dividends
payments that the shareholders receive from the corporation's capital dividend account. Because the capital dividend account represents income or gains that are not otherwise taxable, the capital account dividend income is not taxable to the shareholders when it is received. This type of dividend is not paid regularly (ITA 89(1)).
(a) a gain resulting from the disposition of most types of property as long as that gain is not included in the taxpayer's income under any other provision of the Income Tax Act (ITA 39(1)(a)). This definition of capital gain specifically excludes gains on the disposition of certain types of property, including:
" eligible capital property
" gains on inventory (i.e., profits on goods held for resale)
" the unpaid interest on bonds that are sold between coupon dates
" insurance policies (except for gains on related segregated funds)
A capital gain is calculated as the amount by which the taxpayer's proceeds of disposition exceed his adjusted cost base and any outlays or expenses he incurred for the purpose of making the disposition (ITA 40(1)(a)).
(b) Profit that is gained from the sale of real estate, securities , or another capital asset.
Capital gains deduction
a deduction that a taxpayer may be able to make for the current taxation year. He must have included in his income taxable capital gains (including reserve amounts) that have resulted from the disposition of either qualified farm property or qualified small business corporation shares (ITA 110.6).
Capital gains dividend
the payment made by an investment corporation when it realizes a capital gain on an investment. The dividend flows through to the shareholder as a capital gain.
Capital gains reserve
a provision that allows a taxpayer to defer, within limits, reporting a portion of the realized capital gain to the year in which he receives the proceeds of the disposition (ITA 40(1)(a)(iii)).
(a) a loss resulting from the disposition of most types of property, unless it is deductible from the taxpayer's income under any other provision of the Income Tax Act (ITA 39(1)(b)). This definition thus excludes losses on those properties listed as exclusions under the term "capital gain", plus losses on any depreciable capital property. A capital loss is calculated as the amount by which the sum of the taxpayer's adjusted cost base and any outlays or expenses that he incurred for the purpose of making the disposition exceed the proceeds of the disposition (ITA 40(1)(b)).
(b) The loss that results when a capital asset is sold for less than its purchase price.
Capital property
any depreciable property of the taxpayer, plus any property (other than depreciable property) that would result in a capital gain or capital loss when the taxpayer disposes of it (ITA 54(b)).
Capital stock
All ownership shares of a company, both common and preferred.
The total amount of all securities, including long-term debt, common and preferred stock, issued by a company.
Career-average plan
a defined-benefit plan that relates the amount of pension benefit payable at retirement to average earnings during an employee's career, as well as his number of years of credited service.
Carry forward provision
Unused RRSP contribution room that is carried forward to a later year.
Carry-forward
a process by which the balance of RRSP contribution room remaining after that year's contributions may be carried forward to be used in a future calendar year.
Carrying Charges
a tax deduction for fees incurred from management or safe custody of investments, safety deposit box charges, accounting for recording investment income and investment council fees.
Assets that can be quickly converted to cash. These include receivables, Treasury bills, short-term commercial paper and short-term municipal and corporate bonds and notes.
the actual after-tax cash distributed to, or realized by, the investor while he holds the investment and upon the liquidation of the investment.
the routine, day-to-day administration of your cash resources.
Cash method of accounting
a method of accounting for business income whereby the taxpayer reports income in the year received and deducts expenses in the year paid.
The amount of cash a person may obtain by voluntarily surrendering a life insurance policy.
Cash surrender value (CSV)
the equity amount available to the annuitant of a commutable annuity if he decides to surrender the policy back to the provider – depending on the contract it may be the full equity value, or the equity value less a surrender charge.
CCPC
See Canadian Controlled Private Companies.
CCPC rate reduction
a reduction in federal tax of 7% that is available to Canadian controlled private corporations, beginning in 2001, on up to $100,000 of active business income that is in excess of the income that is eligible for the small business deduction (draft ITA 123.4 (3)).
Both impetuous and anxious, a dangerous combination. They are the individuals who must keep up with every fad and new scheme for fear of missing something good or being left out. Doctors and dentists often fall within this category, as well as the more obvious celebrities and entertainment personalities.
A document providing evidence of ownership of a security such as a stock or bond.
(a) Certificate that acknowledges a student as eligible for the Canada Student Loans Program.
(b) certificate that acknowledges a student as eligible for the Canada Student Loans Program.
Certified PSPA
a PSPA that has been reviewed and approved by CCRA because it can be accommodated by the taxpayer's available RRSP contribution room.
a document that transfers the ownership of collateral assets to your lender if you default on your debt.
for the purpose of the farm rollover rules, this includes a child of the taxpayer, a stepchild, an adopted child (including a child adopted in fact), a grandchild, a great-grandchild or the spouse or common-law partner of any child as previously defined.
Child care expense deduction
Permits the deduction of up to $7,000 of child care costs for children under 7 years, $4,000 for children who are under 16 years of age at some point during the year or $10,000 for children of any age for whom the disability tax credit applies.
Child tax benefit
(a) Is a federal tax credit aimed at low- and middle-income families. The amount is based on the ages and number of children, family income and care expenses. The basic benefit is $1,110 per year or $92.50 per month for each child under 18.
(b) is a federal tax credit aimed at low- and middle-income families. The amount is based on the ages and number of children, family income and care expenses. The basic benefit is $1,110 per year or $92.50 per month for each child under 18.
Clawback
reduction of social security benefits based upon net income.
Clawback of age credit
the clawback threshold is indexed by the CPI. For 2001, the age credit clawback threshold is $26,941. The clawback rate is 15%.
Clawback of Old Age Security
a 100% repayment of, or tax on, OAS benefits at a rate of 15% of net income above a threshold amount. For 2001, the OAS clawback threshold is $55,309.
Clone fund
see RRSP wrapper.
A fund company that issues a fixed number of shares. It shares are not redeemable, but are bought and sold on stock exchanges or over-the-counter market.
Closed-end investment corporation
an investment corporation that issues a fixed number of shares that are subsequently bought and sold on a stock exchange in the secondary security market or in the over-the-counter market. Once all of the shares are sold, the investment corporation does not issue any new shares.
Closely-held corporation
a private corporation where there are only a few shareholders (or even only one shareholder) and where shares are not distributed to the publicy.
is equally responsible for the debt with the principal debtor whether or not the principal debtor defaults on the loan.
assets used to secure a loan.
A negotiable corporate promissory note with a term of a few days to a year. It is generally not secured by company assets.
Common shares
shares that represent the true equity ownership of the corporation, such that the shares will increase in value as the shareholders' equity increases.
Common stock
A security representing ownership of a corporation's assets. Voting rights are normally accorded holder's of common stock.
Common-law partner
for the purpose of the Income Tax Act, a person of the same or opposite sex who, at that particular time, is living with you in a conjugal relationship, and is the natural or adoptive parent (legal or in fact) of your child; or had been living with you in such a relationship for at least 12 continuous months, or had previously lived with you in such a relationship for at least 12 continuous months (when you calculate the 12 continuous months, include any period of separation of less than 90 days). Common-law partners have all of the same rights and obligations as spouses under the Income Tax Act.
Common-law partner trust
any trust created by the taxpayer under which:
" his common-law partner is entitled to receive all of the income of the trust that arises before her death
" no person except his common-law partner may, before her death, receive or otherwise obtain the use of any of the income or capital of the trust (ITA 73(1.01)(c)(i))
Commutation payment
a single lump-sum payment from an annuity that is equal to the present value of the future annuity payments from the plan.
convert an annuity to a single sum that represents the present value of all future payments.
Commuted value
the single sum that represents the present value of all future pension payments that an individual is entitled to receive.
converting an annuity to its equivalent lump sum value.
The process by which income is earned on income that has previously been earned. The end value of the investment includes both the original amount invested and the reinvested income.
Comprehensive cash flow plan
requires projecting your cash flow pattern into the future in a way that reflects your new objectives and money management strategies. This cash flow projection then becomes your budget for the coming year.
Connected corporations
for the purpose of determining whether Part IV Tax applies, two corporations are deemed to be connected if, at any time in a taxation year of the recipient corporation the payer corporation was controlled by the recipient corporation; or the recipient corporation owned more than 10% of the payer corporation (as measured by specific rules) (ITA 186(2)).
Connected individual
(a) shareholders owning at least 10% of the issued shares.
(b) someone who has the influence to affect business policies, either because of his direct involvement in the company, or because he is related to someone of influence.
Consolidated Student Loan Agreement
A document, which consolidates student loan(s) and establishes the repayment terms.
a loan for a fixed amount and for a fixed purpose, usually repayable in regular installments (also called a direct or fixed loan).
A statistical device that measures the change in the cost of living for consumers. It is used to illustrate the extent that prices have risen or the amount of inflation that has taken place.
measures the price of a specific basket of goods on a national basis.
a proposal that you prepare, with the assistance of a licensed trustee, asking your creditors to reduce your debt or extend the schedule for repayment of your debts.
Contractual plan
An arrangement whereby an investor contracts to purchase a given amount of a security by a certain date and agrees to make partial payments at specified intervals.
(a) The amount you can contribute to your RRSP each year.
(b) the amount that an individual may contribute to an RRSP and deduct from his current income, after accounting for current income and any pension adjustments and carry-forward amounts.
Contributory earnings
(a) earnings that are subject to pension contributions. This amount may or may not be the same as taxable income as reported for income tax purposes.
(b) all employment earnings above a basic exemption level, up to a yearly maximum, upon which Canada Pension Plan premiums are payable.
Contributory period
the period which commences on the later of January 1, 1966 or a person's 18th birthday, and which extends to age 60, or to age 70 if the individual continues to work and does not apply for a retirement pension.
Contributory plans
pension plans that require the employee to contribute to the pension fund.
in the context of determining whether two corporations are associated, this refers to de facto control, or control in fact, regardless of actual share ownership (ITA 256(5.1)). In the context of determining whether two corporations are connected for the purpose of determining Part IV tax, a corporation is controlled if more than 50% of its voting shares are held by another corporation or by persons with whom the other corporation does not deal at arm's length (ITA 186(2), (4)).
changing highly taxed income into more favourably taxed income.
Conversion rate for tax credits
the rate that is applied to the eligible amount to calculate the amount of the tax credit. The conversion rate for most federal and provincial tax credits is the tax rate for the first tax bracket.
A security that can be exchanged for another. Bonds or preferred shares are often convertible into common shares of the same company.
(a) A legal business entity created under federal or provincial statutes. Because the corporation is a separate entity from its owner, shareholders have no legal liability for its debts.
(b) a business form that is recognized by the legal system as being a non-human individual with its own rights and duties, defined by the following characteristics: limited liability; continuous existence; separation of management and ownership; ease of transfer of ownership; and no duty of loyalty from the owners.
The annual interest rate of a bond.
See Canadian Pension Plan.
CPP pension credits
the taxpayer's pensionable earnings, and the contributions the taxpayer pays on them over the years.
CPP supplement
for employees who retire before age 65 a CPP supplement is added to the employer pension until age 65 to provide a 2% benefit.
an amount that a taxpayer can claim on his tax return to offset the amount of tax that he has to pay on his taxable income.
Credit counsellor
a financial advisor who specializes in credit problems
Credit file
consists of a series of ratings provided by the lenders of previously- or currently-held loans and credit cards
a historical record of your past credit history, maintained by a credit bureau.
Credit splitting
the division of the CPP pension credits which the couple built up during the time they lived together can be divided equally between them when a relationship ends.
See Canadian Securities Administrators.
CSLP
See Canada Student Loans Program.
Culpable conduct
for the purpose of determining civil liability for advisors, this is conduct, whether it be an act or a failure to act, that:
" is tantamount to intentional conduct
" shows an indifference as to whether the Act is complied with
" shows a wilful, a reckless or a wanton disregard of the law (draft ITA 163.2(1))
Cumulative net investment loss (CNIL)
the amount by which the aggregate of a taxpayer's investment expenses exceeds the aggregate of his investment income for all taxation years after 1987 (ITA 110.6(1)).
Currency Risk- Also known as exhange rate risk. This is the risk that exists when dealing in investments denominated in different currencies. Contrary movements in the currencies may create or increase a loss.
An asset that could be converted into cash within 12 months.
Current contribution limit
the lesser of (18% of earned income in the previous year and the maximum current contribution limit). Also referred to as the RRSP dollar limit.
Current liablity
A liablity that has to be paid within 12 months.
The annual rate of return that an investor purchasing a security at its market price would realize. This is the annual income from a security divided by the current price of the security. It is also known as the return on investment.
Current-year option
an alternative method of calculating required tax instalments, whereby the taxpayer can pay one quarter of his estimated net tax owing and CPP contributions payable for the current taxation year on each instalment date (ITA 156(1)(a)(i)).
A financial institution, usually a bank or trust company, that holds a mutual fund's securities and cash in safekeeping.
a lump sum benefit of a maximum of $2,500 payable under the Canada Pension Plan to the spouse or common-law partner or estate of a deceased contributor.
A bond unsecured by any pledge of property. It is supported by the general credit of issuing corporation.
An obligation to repay a sum of principal, plus interest. In corporate terms, debts often refers to bonds or similar securities.
an amount that a taxpayer can deduct on his tax return to reduce the amount of income that is subject to tax.
Deemed dispositions
situations in which the Income Tax Act presumes a disposition to have occurred; generally involves transactions that do not give rise to proceeds.
Deemed proceeds of disposition
the amount that the taxpayer is deemed to have received upon an actual or deemed disposition as a result of the many rules contained in the Income Tax Act.
(a) the strategy of postponing the payment of taxes.
(b) A form of tax sheltering that results from an investment that offers deductions during the investor's high-income years, and/or postpones capital gains or other income until after retirement or during another period when income level is expected to change.
a life or term annuity that does not commence to be payable until some point at least one year in the future (as opposed to an immediate annuity, which must commence payments within one year of purchase).
A plan that allows an employer to set aside a portion of company profits for the benefit of employees. A corporation makes a contribution to the plan on behalf of an employee.
Deferred profit sharing plan (DPSP)
a form of trust fund, registered with CCRA in accordance with the Income Tax Act, to which an employer makes contributions on behalf of its employees.
A registered pension plan that guarantees a specific income at retirement, based on earnings and the number of years worked.
Defined Benefit Plan
An employer-sponsored pension plan. The employer guarantees a specific amount of pension at retirement. This amount is usually calculated based on earnings and the number of years of service.
Defined contribution pension plan
A registered pension plan that does not promise an employer a specified benefit upon retirement. Benefits depend on the performance of investments made with contributions to the plan
Also known as a money purchase plan. The employer guarantees the contributions made to the employee's plan but not the income at retirement. Retirement income is determined by the performance of the underlying investments.
Defined-benefit pension plan
any plan that defines the amount of the pension benefit payable at retirement, usually by way of a formula that relates the value of the pension benefits to earning levels and years of service.
Defined-benefit RPP
Defined-contribution pension plan
a plan in which the contribution required from the employer and the employee is known up-front, but for which the ultimate benefits are not known. The value of the pension will depend on what can be purchased by the total accumulation of contributions plus interest – hence the alternate term of money-purchase plan.
Defined-contribution RPP
a plan in which the contribution required from the employer and the employee is known up-front, but for which the ultimate retirement benefits are not known.
the study of the age distribution of a population and its effect upon the social and economic structure of that population.
The principal amount, or value at maturity, of a debt obligation. Also known as the par value or face value.
Departure tax
a tax liability that may arise as a result of the deemed disposition of capital property at fair market value that occurs when a taxpayer ceases to be a resident of Canada.
Dependent child
a child who is under the age of 18, or who is between the ages of 18 and 25 and who is in full-time attendance at an approved educational institution.
Depreciable property
generally any tangible or intangible property that fits into one of the prescribed classes for which CCA can be claimed.
(a) or depreciation expense is an accounting concept that recognizes as an expense an estimate of the decline in value of an asset used to produce income as the result of exhaustion, wear and tear, and obsolescence.
(b) Charges made against earnings to write off the cost of a fixed asset over its estimated useful life. Depreciation does not represent a cash outlay. It is a bookkeeping entry representing the decline in value of an asset that is wearing out.
Derivative products are investments whose value and returns depend on the value of the underlying securities.
Designated benefit
a lump-sum amount that a spouse or common-law partner, child or grandchild is entitled to receive from a RRIF as a result of the death of the annuitant.
Designated educational institution
a university, college or other educational institution that qualifies for the purposes of the education tax credit that a taxpayer can claim on her tax return.
Designated person
in the context of the income attribution rules, includes the spouse or common-law partner of the taxpayer, as well as any person who is under 18 years of age as of December 31 of the year and who does not deal with the taxpayer at arm's length, or is the niece or nephew of the taxpayer (ITA 74.5(5)).
Designated plans
IPPs that are established primarily for connected persons or high earners. They are subject to numerous special rules related to funding, pensionable service, and the salary on which benefits can be based.
Desk audit
an audit in which CCRA's scrutiny is limited to requesting that the taxpayer mail in supporting documentation or receipts.
Direct loan
see consumer loan.
individuals who are appointed to manage the business and affairs of the corporation.
Disability credit
a non-refundable tax credit for mental or physical impairment based upon an indexed amount. For 2001, the amount is $6,000.
a monthly benefit payable under the Canada Pension Plan to a disabled contributor.
Disabled beneficiary
under the CPP, suffering from a prolonged and severe medical impairment of a physical or mental nature, such that the disabled individual is medically incapable of regularly pursuing any substantially gainful employment.
includes the taxpayer, or a person related to the taxpayer by blood, marriage or adoption, where that person is entitled to claim the disability amount for the year of the HBP withdrawal.
an official act in a bankruptcy that cancels the unpaid portions of any debts that remain after they have been reduced by proceeds from the liquidation of your estate.
The amount by which a bond sells on the secondary market at less than its par value or face value.
Disposition of property
any transaction or event that entitles a taxpayer to proceeds of disposition (ITA 54), as well as:
" any redemption or cancellation of a taxpayer's interest in shares, bonds, debentures, notes, certificates, mortgages, agreements of sale or similar property
" any expiration of options held by the taxpayer to acquire or dispose of property
" any transfer of property to a trust, including transfers to RRSPs, deferred profit sharing plans, employees' profit sharing plans or registered retirement income funds
Payments to investors by a mutual fund from income or profit realized from sales of securities.
The investment in a number of different securities. This reduces the risks inherent in investing. Diversification may be among types of securities, companies, industries or geographical locations.
(a) A per-share payment designated by a company's board of directors to be distributed among shareholder's. For preferred shares, it is generally a fixed amount. For common shares, the dividend varies with the fortunes of the company and the amount of cash on hand. It may be omitted if business is poor or the directors withhold earnings to invest in plant and equipment.
(b) a payment by a corporation of a share of the earnings of the corporation to a shareholder. It is included in taxable income of shareholders.
Dividend fund
A mutual fund that invest in common shares of senior Canadian corporations with a history of regular dividend payments at above average rates, as well as preferred shares.
Dividend gross-up
the first part of the dividend gross-up and tax credit scheme, which requires the taxpayer to include 125% of dividends from taxable Canadian corporations in his taxable income for the year (ITA 82(1)). The second part of the scheme allows him to claim a federal dividend tax credit of 131/3% of the grossed-up dividend, or 162/3% of the original dividend amount (ITA 121). A provincial dividend tax credit is also available.
Dividend in kind
a dividend that is paid in the form of shares in a corporation other than the payer corporation, such that it is not considered to be a stock dividend.
Dividend tax credit (DTC)
(a) the second part of the dividend gross-up and tax credit scheme that allows a taxpayer to claim a federal tax credit of 131/3% of the grossed-up dividend (ITA 121).
(b) An income tax credit available to investors who earn dividend income through investments in the shares of Canadian corporations.
Dollar cost averaging
A principal of investing which entails the use of equal payments for investment at regular intervals in the hope of reducing average share cost by acquiring more shares in periods of lower securities prices and fewer shares in periods of higher securities prices.
Domestic-issue, foreign-pay bond
bonds and money market investments that are issued by a Canadian borrower, but denominated in a foreign currency.
Double dipping
obtaining an extra year's worth of deductible contribution to a registered plan.
a reasonable and well-researched basis for an investment recommendation.
Duration Limits
Subscribers can contribute to an RESP until the end of the 21st year after the year in which they make the first contribution, for a total of 22 years of contributions.
Duty to diagnose
an obligation to gather and analyze all relevant information with respect to a client's situation and the potential investment strategy before a recommendation is made.
Duty to disclose
an obligation to clearly and accurately describe conclusions regarding his financial situation to a client, as well as the recommended wealth accumulation strategies, and the levels and types of risk associated with those strategies.
See Educational Assistance Payment.
(a) For tax purposes, earned income is generally the money made by an individual from employment. It also includes some taxable benefits. Earned income is used as the basis for calculating RRSP maximum contribution limits.
(b) the basis for calculating the current RRSP contribution limit; generally includes net income from employment, business and rentals.
Earnings per share (EPS)
Earnings statement
A financial statement showing the income and expenses of a business over a period of time. Also known as an income statement or profit and loss statement.
Education amount
(a) An amount of $400 per month for full-time students and $120 per month for part-time students.
(b) An amount for each whole or part month enrolled in a qualifying educational program for a non-refundable tax credit.
The federal education tax credit is calculated as (the education amount × the rate for non-refundable tax credits) for each month enrolled as a student (ITA 118.6 (2)).
Education trust
Another name for a Registered Education Savings Plan (RESP).
Educational assistance payment (EAP)
any amount paid, or payable under an RESP to, or for a beneficiary to assist with that individual's education at the post-secondary school level (ITA 146.1(1), "educational assistance payment").
Eligible amount
the portion of a designated benefit that may be transferred to the beneficiary's RRIF.
Eligible capital property
includes goodwill and other "nothings", the cost of which neither qualifies for capital cost allowance nor is deductible in the year of its acquisition as a current expense.
Eligible child
in the context of the childcare expense deduction, this includes the child of the taxpayer or his spouse or common-law partner, or a child who was dependent on the taxpayer or his spouse or common-law partner and who had a net income of less than $6,956 in 1998 (ITA 63(3)).
Eligible income
for the purpose of calculating the small business deduction, eligible income is the lesser of active business income, taxable income and $200,000.
Eligible post secondary institution
any of the following:
" a university, college or other educational institution that has been designated for purposes of the Canada Students Loans Act or the Canada Student Financial Assistance Act, or is recognized for purposes of the Quebec Student Loans and Scholarship Act
" an educational institution in Canada that is certified by the Minister of Human Resources Development to be providing courses, other than courses designed for university credit, that give a person occupational skills or that improve a person's occupational skills
" a university, college or other educational institution outside Canada that provides courses at a post-secondary school level, provided that the beneficiary is enrolled in a course that runs at least 13 weeks (ITA 146.1(1), "post-secondary educational institution").
Employee stock option plans (ESOPs)
an employment benefit by which a corporation gives or sells stock options to its employees as an incentive for them to work towards increasing the market value of the corporation.
Employee stock options
certain rights that a corporation may grant to its employees or to the employees of a non-arm's length corporation that allow the employee to acquire shares of either of those corporations.
Employment income
anything a taxpayer receives in respect of an office or employment including salary, wages and other remuneration, such as gratuities. It also includes the value of certain fringe benefits. Employment income is fully taxable (ITA 5(1) and 6(1)).
The net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares are often known as equities.
A mutual fund whose portfolio consists primarily of common stocks.
Equity ratio
the ratio of net assets (i.e., assets minus liabilities) to total assets.
Equity Ratio = ((assets – liabilities) ÷ assets)
Equivalent before-tax return
the investment return required before tax to be as well off as paying down debt.
Equivalent to spouse amount
an amount for a non-refundable tax credit claimed by anyone who was single, divorced, separated or widowed at any time in the tax year and who supported a dependent who was under 18, related by blood or marriage, living with you in a home which you maintained and residing in Canada, during that tax year.
Estate freeze
a tax planning strategy that freezes the value of an asset at the time the freeze is effected, such that any future growth in those assets will be passed on to the owner's intended beneficiaries, ultimately to be taxed in their hands when they dispose of them.
Excess amounts
any withdrawals from a RRIF in excess of the minimum amount.
Exchange risk
the possibility of loss, as measured in a specific currency, arising from an increase in the value of that currency relative to the currency in which the property is denominated. Also called exchange risk.
Executive pension plan
See individual pension plan.
Exempt market
Exempt PSPA
a PSPA that does not have to be certified by CCRA. This occurs in situations where the past service event applies to most of the plan members, and where few of those members are highly paid.
see technical notes.
The principal amount, or value at maturity, of a debt obligation. Also known as the par value or denomination
Face value of a residual
the amount of principal repayment.
Face value of an interest coupon
the interest payment.
Fair market value (FMV)
(a) The price at which the property could have reasonably been expected to be sold if it was sold in an open market.
(b) The price a willing buyer would pay a willing seller if neither was under a compulsion to buy or sell. The standard at which property is valued for a deemed disposition.
False statement
a direct falsehood, as well as statement that is misleading because of an omission from the statement.
An inter vivos trust established with family members as beneficiaries.
Farm property
for the purpose of the rollover rules this includes land and depreciable property used in the business of farming (ITA 73(3)), as well as capital stock of a family farm corporation or an interest in a family farm partnership (ITA 73(4)).
Federal abatement
a reduction of corporate federal tax in the amount of 10% of taxable income intended to make room for the provinces to levy their own corporate tax (ITA 124(1)).
Federal AMT rate
the net adjusted taxable income is multiplied by 17% (16% after 2000), to give the gross minimum amount.
an annual disclosure by the federal government outlining the government's anticipated revenues and expenditures for the year; also a source of most proposals for major income tax changes.
Federal dividend tax credit
13.33 % of taxable dividends from taxable Canadian corporations.
Federal tax credits
a tax credit that reduces the taxpayer's basic federal tax by the same amount regardless of her marginal tax rate.
An individual or institution occupying a position of trust. An executor, administrator or trustee. Hence, " fiduciary" duties.
Field audit
a more comprehensive form of audit in which CCRA will send an auditor to the taxpayer's residence or place of business, where the auditor will take a detailed look at the taxpayer's records and receipts.
Final-earnings plan
a defined-benefit plan that relates the amount of pension benefit payable at retirement to the average final-earnings of an employee's career (usually over the last three to five years), as well as his number of years of credited service.
Financial dependent
in the context of determining a designated benefit, a child or grandchild who is considered to have been financially dependent on a deceased RRIF annuitant, if that child or grandchild's income in the year preceding the death of the annuitant was less than or equal to the basic personal amount as it relates to personal tax credits.
a financial instrument whose value is based upon another more elementary financial instrument.
anyone who has not owned a home that she occupied as her principal residence at any time during the period beginning January 1 of the fourth year before the year of the withdrawal and ending 31 days before the withdrawal.
The policy pursued by government to manage the economy through its spending and taxation powers.
an accounting period that normally covers 365 consecutive days (366 days during a leap year) such that at the end of this period the business closes its books for the year and determines its profit or loss for that period. Also called a taxation year.
a term of life, indexed or non-indexed annuity with the amounts of the payments based upon a specified interest rate at the time of purchase.
Assets of a long-term nature, such as land and buildings.
Fixed income investments
Investments that generate a fixed amount of income that does not vary over the life of the investment.
Fixed liability
Any corporate liability that will not mature within the following fiscal period. For example, long-term mortgages or outstanding bonds.
Fixed loan
Fixed-dollar withdrawal plan
A plan that provides the mutual fund investor with fixed-dollar payments at specified intervals, usually monthly or quarterly.
Fixed-period withdrawal plan
A plan through which the mutual fund investor's holdings are fully depleted through regular withdrawals over a set period of time. A specific amount of capital together with accrued income, is systematically exhausted.
Flat-benefit plans
a defined-benefit plan where retiring members receive a flat rate benefit, regardless of their earnings.
Flow through
a tax concept whereby investment and property income, including capital gains, dividends and interest, pass to the investor while retaining its character for tax purposes.
Foreign content limit
The portion of an RRSP that can be held in foreign investments. The current limit is 30% of the book value of the total assets held in an RRSP.
Foreign property
generally consists of shares, units and debt issued by non-resident entities.
Foreign property limit
the Income Tax Act imposes a limit on the foreign property for each RRSP. The limit was 20% for years prior to 2000, but it was increased to 25% for 2000 and 30% for years after 2000.
Foreign property rule (FPR)
in respect of deferred income plans generally limits the amount of foreign property that such a plan can hold. This limit applies to each RRSP of an individual.
Foreign property rule (FPR) limit
the limit is 30%.
Forgiven amount
in the context of calculating a Section 80 gain, this is generally calculated as the principal amount of the loan, reduced by any amount paid at the time of settlement in satisfaction of the principal amount.
Former business property
real property, other than certain rental properties, that was used primarily by the taxpayer or someone related to the taxpayer for the purpose of earning business income (ITA 248(1)).
Fraudulent preference
see Act of Bankruptcy.
the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer by virtue his employment or office is also taxable as employment income (ITA 6(1)(a)).
Front-end load
A sales charge levied on the purchase of mutual fund units.
Front-end loaded
with interest means that the payments in the early period of your loan consist mostly of interest.
Full-rate taxable income
corporate income that does not benefit from any other special effective rates provided for under the Income Tax Act than the general rate reduction (draft ITA 123.4(1)). It does not include manufacturing and processing income, investment income earned by a CCPC, income eligible for the small business deduction, or income that is eligible for the accelerated general CCPC rate reduction.
Also referred to as portfolio manager. A fund manager is a trained investment professional who is responsible for managing a fund's portfolio. Among other things, the fund manager makes all the decisions regarding the buying and selling of the securities in the fund.
A method of evaluating the future prospects of a company by analyzing its financial statements. It may also involve interviewing the management of the company.
General Index of Financial Information (GIFI)
a new reporting format introduced by CCRA for the purpose of standardizing the reporting of financial statement information. The GIFI assigns a code number to items that are typically reported on financial statements and the corporation must enter all of its information using these codes.
a member of either a general partnership or a limited partnership who has unlimited personal liability for the debts and liabilities of the partnership.
a partnership that consists only of general partners.
General rate reduction
a reduction to the general federal tax rate of 38% that can be applied to full-rate taxable income, beginning in 2001 (draft ITA 123.4(1)). The reduction is 1% for the portion of qualifying income that falls in 2001, 3% for 2002, 5% for 2003, and 7% for 2004 and later years.
See Guaranteed Income Supplement.
the amount required in order to meet an objective which requires an accumulation of funds.
Goods and services tax credit
Is a tax credit introduced to help low income families compensate for any increase in living cost resulting from the Goods and Services Tax (GST). Most secondary students do not have significant income and are eligible for the tax credit worth about $300 per year.
Goods and services tax credit (GST)
Grandparenting provisions
in cases where the tax rules have changed over time, these are special provisions in the Income Tax Act that ensure that the old rules still apply to situations that already existed before the new rules were introduced.
Grant contribution room
Beginning with 1998, each child under age 18 who is resident in Canada accumulates grant contribution room at a rate of $2,000 per year up to and including the year in which the child turns 17. The grant room accumulates whether or not the child is currently an RESP beneficiary, and any unused contribution room is carried forward.
amounts that a taxpayer receives either from her employer or from others in respect of her service with that employer.
(b) Employment and business income before-taxes.
(a) Income before taxes including wages, liquid assets, income from investments, and monetary gifts.
Group RESPs
RESPs that operate on a pooling principle, where the beneficiary named under a contract by a subscriber will receive educational assistance payments only if he enrolls in a qualifying program. These are also referred to as pooled RESPs, education trusts or scholarship trusts.
(a) A variation on basic RRSPs, typically sponsored by an employer, union or professional association and managed by a trust or insurance company on behalf of the group.
(b) Company sponsored retirement group savings plan.
Shares of companies whose earnings are expected to increase at an above-average rate. Growth stocks are often typified by their low yields and relatively high price/earnings ratios. Their prices reflect investors' belief in the future earnings growth.
See Goods and Services Tax.
Guaranteed annuity
a pension that is payable for life, with a provision that payments are guaranteed to continue for a minimum number of years (such as five years), even if death occurs before the end of the guaranteed period.
(a) Non-taxable benefits available to low-income pensioners in addition to old-age security benefits. Also known as GIS.
Guaranteed Income Supplement (GIS)
(b) Provides additional benefits to low-income pensioners who meet a basic income test and is reduced by $1 for every $2 of income excluding OAS benefits.
(a) A deposit instrument paying a predetermined rate of interest for a specified term, available from banks, trust companies and other financial institutions.
(b) Investments purchased through banks and trust companies for one to five years maturity and with a fixed interest rate. Also called certificates of deposit (CDs).
Guaranteed premium return annuity
a life annuity that includes a guarantee that at least the full amount of the initial investment or premium will be paid out before payments cease as a result of death.
a third party who agrees to repay any outstanding balance on your loan if you fail to do so. A guarantor is responsible for the debt only if the principal debtor defaults on the loan.
Both careful and somewhat worried about their money. People approaching retirement often migrate into this category as they realize that their future earnings are limited and they must preserve what they have to support themselves in the future.
HBP balance
at any point in time is calculated as:
" the total of all eligible withdrawals that he made from his RRSPs under the HBP; minus
" the total of all amounts that he designated as an HBP repayment or that were included in his income because he failed to repay the required amounts to his RRSPs in previous years
Highly-paid employees
for individual pension plans, are those earning more than 2.5 times the Yearly Maximum Pensionable Earnings.
Holding company (HOLDCO)
a corporation that exists primarily for the purpose of holding or owning property.
Home Buyers' Plan (HBP)
Those purchasing a home for the first time can borrow up to $20,000 from their RRSPs. The borrowed funds must be repaid within 15 years in equal annual instalments. Also known as HBP.
Home Equity Plan
see Reverse Annuity Mortgage (RAM).
Home purchase loan
a loan that the taxpayer uses to acquire a dwelling or a share in a co-operative housing corporation to live in, or that is used to repay a loan that was previously incurred for such a purpose (ITA 80.4(7)).
Home relocation loan
a loan that the taxpayer uses to acquire a new home in a new location as a result of a change in job location, provided that the distance between the old residence and the new work location is at least 40 kilometres greater than the distance between the new residence and the new work location (ITA 248(1)).
See Investment Dealers Association.
properties that are the same in all material respects, such that a prospective buyer would not have a preference for one as opposed to another.
IFIC
See the Investment Funds Institute of Canada.
usually, an annuity that yields its first payment one month after the annuity is purchased, although by strict definition it could take place within one year of purchase.
In trust for
The designation specified when an account is established for another as beneficiary, usually for a minor.
Inclusion rate
the proportion of a capital gain that must be included in income, currently set at 50% for dispositions of capital property after October 17, 2000.
Income attribution
(a) deems the investment income to be taxable to the transferor, regardless of the legal ownership of the assets.
(b) A process specified under the Income Tax Act where certain investment income may be deemed taxable to a person other than the recipient if the investment income was the result of certain transactions between family members.
Mutual funds that invest primarily in fixed-income securities such as bonds,mortgages and preferred shares. Their primary objective is to produce income for investors, while preserving capital.
a tax planning strategy in which various techniques are used to minimize income taxes by establishing the same taxable income for each spouse or common-law partner or other members of a family unit.
Income splitting RRSP
The goal of income splitting is to build two streams of retirement income that are similar. The advantage is tax savings.
Income splitting tax
a tax that imposes the top federal tax rate of 29%, instead of the normal graduated rates, on split income earned by individuals under 18 years of age, (ITA 120.4(2)).
Income Tax Act (ITA)
a federal statute documenting the majority of Canada's income tax laws.
Income Tax Application Rules, 1971 (ITARs)
transitional rules introduced when the major overhaul of the tax system came into effect beginning in 1972.
Income-level Cutoff
the base income amount of base income at which the social security benefit is entirely clawed back
A mutual fund that matches its portfolio to that of a specific financial market index, with the objective of duplicating the general performance of the market in which it invests.
Indexation factor
for a given taxation year beginning January 1 is the percentage change in the average CPI for the 12-month period ending on September 30 of the previous year relative to the average CPI for the 12-month period ending on September 30 of the year earlier.
an annuity that includes a provision for increased payments over time, as a hedge against inflation.
Individual family RESP
an RESP that can have multiple beneficiaries, provided that they are under 21 years old when named and they are all related to the subscriber by blood or adoption (ITA 146.1(2)(j)). Individuals who are related to the subscriber by blood or adoption could include parents, siblings, children or grandchildren, but the list does not include nieces or nephews (ITA 251(6)).
Individual non-family RESP
an RESP that can have only one beneficiary at any time. The beneficiary does not have to be related to the subscriber and can be over 21 when named.
Individual Pension Plan (IPP)
an employer-sponsored, defined-benefit registered pension plan specifically established for the benefit of significant connected individuals or other highly-paid employees. Also called executive pension plan.
Confident, but unlike the adventurer, confidence is based on careful, methodical research and analysis. Lawyers, engineers and accountants are typically labelled as individualists.
A condition of increasing prices. In Canada, inflation is generally measured by the Consumer Price Index.
Inflation adjusted rate of return
see real rate of return.
Information Circulars (ICs)
special bulletins published by CCRA that deal with the Department's administrative and procedural practices, such as its collection policies, or objection and appeal procedures.
you are insolvent if you have debt obligations in excess of $1,000 and are unable to meet your obligations as they come due, have ceased making payments, or have debts due and accruing which exceed the value of your assets.
Installment loan
required to repay in fixed monthly payments, which consist of a blend of principal and interest.
Instalment penalty
a penalty that may be imposed on a taxpayer if her instalment payments are late or less than the required amount, and if the instalment interest charges for the taxation year are more than $1,000 (ITA 163.1)).
Instalment sale
a sale of capital property in which the taxpayer receives the proceeds in installments over a period of several years.
periodic payments of income tax that some taxpayers pay to CCRA four times a year on March 15, June 15, September 15 and December 15.
Integrated pension plan
a defined-benefit pension plan that is designed to build upon standard government benefits, such as those provided by the Canada or Quebec pension plans.
a trust created while still alive.
Payments made by a borrower to a lender for the use of the lender's money. A corporation pays interest on bonds to its bondholders.
Interest coupon
the right to a semi-annual interest payment.
interest paid on money borrowed to earn property or business income.
Interest rate differential (IRD)
on a mortgage, this is the present value of the difference between the interest expense to the end of the mortgage term or the borrower's life expectancy at the original interest rate and at the current interest rate.
Interest Relief Plan
Helps full-time and part-time students who are finding it difficult to pay back their federal student loans because of low income. Relief is normally approved for 3-month periods for a maximum lifetime benefit of up to 30 months within the first five years of repayment when for this period the federal government pays the interest and she does not have to make any loan repayments.
International fund
A mutual fund that invests in securities of a number of countries.
Interpretation Bulletins (ITs)
special bulletins published by CCRA that outline the Department's interpretation of specific sections or areas of income tax law, generally in something approximating plain language. In addition to explaining the basic rules, these bulletins often cover some of the more unique applications of, or exceptions to, the rules and sometimes provide useful illustrative examples.
Intrinsic value
The amount by which the price of a warrant or call option exceeds the price at which the warrant or option maybe exercised.
an asset that is used to store and earn value for future use.
Investment adviser
Investment counsel to a mutual fund. Also may be the manager of a mutual fund.
Investment assets
personal or business assets that are meant to be liquidated to fund financial objectives.
Investment benefits
ways that an investment can improve the financial situation of the investor, including increases in immediate cash flow, long-term appreciation or current tax deductions.
A corporation or trust whose primary purpose is to invest the funds of its shareholders.
Investment corporation
a corporation that sells shares to investors or subscribers and uses the proceeds to purchase financial securities (ITA 130(3))
Investment counsel
A firm or individual which furnishes investment advice for a fee.
Investment dealer
A securities firm.
Investment Dealers Association
The national self-regulatory organization (SRO) for the securities industry. Also known as IDA.
A term generally interchangeable with "mutual fund."
Investment Funds Institute of Canada
The mutual fund industry trade association set up to serve its members, co-operate with regulatory bodies, and protect the interests of the investing public that use mutual funds as a medium for their investments.
Issued shares
The number of securities of a company outstanding. This may be equal to or less than the number of shares a company is authorized to use.
a pension that is payable to two annuitants, and that includes a provision that payments will continue for the life of the survivor after the first annuitant dies.
Joint life annuity
an annuity in which it is payable to 2 people, but payments cease upon the death of either of the annuitants.
a "partnership-like" entity that is usually formed to carry out one transaction or a series of related transactions over a short period of time.
Jointly and severally liable
means that a creditor can obtain a judgement against the partnership and demand payment of the entire amount from any one or all of the partners.
Know Your Client rule
Information that mutual fund salespersons are required to gather on all clients in order to make appropriate investment decisions. Questions include: the client's age, annual income and net worth, occupation, tolerance for risk, investment objectives, investment knowledge, and experience.Also known as KYC.
See Know Your Client rule.
Labour Sponsored Investment Fund
Similar to mutual funds but must be sponsored by organized labour organizations. They offer federal and provincial tax breaks to encourage investment in small and medium-sized Canadian companies. Also known as LSIF.
Late-filing penalty
a penalty that may be imposed on an individual who fails to file an income tax return, of 5% of the tax owing at the time the return was due; plus 1% of the tax owing times the number of complete months the return is not filed, to a maximum of 12 (ITA 162(1)).
An agreement whereby an investor agrees to make a series of purchases of mutual fund units.
The financial advantage of an investment that controls property of greater value than the cash invested. Leverage is usually achieved through the use of borrowed money.
Liabilites
(a) All debts or amounts owing by a company in the form of accounts payable, loans, mortgages and long-term debts.
(b) Debts or obligations that commit your client to making payments in the future.
the legal claim of one person upon the immovable property of another person for the payment of a debt or the satisfaction of an obligation.
(a) An annuity where payments are guaranteed for the duration of the lifetime of the annuitant(s), regardless of how long (or short) a period that the annuitant survives.
(b) An annuity under which payments are guaranteed for the life of the annuitant.
Life annuity with a guaranteed term
a life annuity that includes a clause that guarantees that payments will continue for a specified period, even if the annuitant dies before the guaranteed period expires.
the average number of years of life remaining for a person at a specific age, assuming the current mortality rates prevail for the remainder of that person's life.
Life expectancy adjusted withdrawal plan
A plan through which a mutual fund investor's holdings are fully depleted while providing maximum periodic income over the investor's lifetime.
Life income fund (LIF)
a RRIF that receives funds from a locked-in retirement account that provides for a life income by restricting both the minimum and maximum withdrawals from the plan. Furthermore, property held within a LIF must be used to purchase a life annuity by age 80. Also called as locked-in RRIF.
Lifelong Learning Plan (LLP)
(a) An eligible individual is allowed to make tax-free withdrawals from an RRSP to finance full-time training or education for herself, and her spouse or common-law partner.
(b) An eligible individual is allowed to make tax-free withdrawals from an RRSP to finance full-time training or education for herself, and her spouse or common-law partner. Also known as LLP.
Lifetime capital gains exemption (LCGE)
a provision in the Income Tax Act that sheltered $100,000 of total gains (or $75,000 of taxable capital gains) from taxation. The LCGE was eliminated by the Federal Budget of February 22, 1994.
Lifetime Limits
Contributions to all RESPs on behalf of a beneficiary are subject to a lifetime limit of $42,000 for 1997 and later years.
Lifetime Retirement Benefits (LRB)
refers to the basic benefit amount that is payable for life, calculated without any temporary supplements such as bridging benefits, or without any actuarial surpluses.
a term often used to refer to corporations because they give shareholders limited liability.
essentially the same as a general partnership, with the important exception that limited liability partners are not personally liable for the negligence of another partner.
Limited partner
a member of a limited partnership who has limited liability for the debts and liabilities of the partnership.
a partnership in which one or more of the partners has limited liability for the debts and liabilities of the partnership.
(a) The ease of converting an asset into cash without significant loss.
(b) Refers to the ease with which an investment may be converted to cash at a reasonable price.
Listed personal property
a subset of personal-use property that includes only the following items (ITA 54):
" a print, etching, drawing, painting, sculpture or similar work of art
" jewellery
" a rare folio, rare manuscript or rare book
" a stamp
" a coin
See Lifelong Learning Plan.
LLP Balance
A participant's LLP balance at any point in time is calculated as:
" the total of all eligible withdrawals that he made from his RRSPs under the LLP; minus
" the total of all amounts that he designated as an LPP repayment, or that were included in his income because he failed to repay the required amounts to his RRSPs in previous years
LLP participant
someone who withdraws money from her RRSP under the LLP. The LLP participant cannot fund the education of both himself and his spouse or common-law partner as students at the same time.
LLP student
the person whose education is being financed using the LLP. The LLP student can be the same person as the LLP participant, or he can be the spouse or common-law partner of the LLP participant.
Commissions charged to holders of mutual fund units. ( See sales charge.)
Load fund
A mutual fund that charges a commission to purchase its shares.
Loan for value
a loan from a taxpayer where:
" interest is charged at a rate equal to or greater than the lesser of:
o the prescribed rate as set by ITR 4301
o a rate that would have otherwise been considered reasonable for parties dealing at arm's length
" the specified person actually pays the interest to the taxpayer no later than 30 days after then end of the taxation year
" the specified person has consistently paid the interest owing no later than 30 days after the end of previous taxation years
Locked-in
refers to pension contributions that can no longer be taken out of the pension fund, but that instead must be used to provide a lifetime retirement income. While provincial pension legislation specifies that the funds must be used to provide a retirement income, the Income Tax Act specifies that the pension must begin no later than the end of the year in which the annuitant attains 69 years of age (ITR 8502e).
Locked-in registered funds
funds in a Locked-in retirement account (LIRA), Life income fund (LIF), or Locked-in retirement income fund (LRIF).
Locked-in Retirement Account (LIRA)
an RRSP from which the release of funds is prohibited, by pension legislation, unless the release is in the form of a retirement income from a life-income fund. Used to receive a transfer of vested benefits from a pension plan following termination of employment prior to retirement. Also called locked-in RRSP.
Locked-in retirement income fund (LRIF)
a RRIF, available in certain provinces that receives funds from a locked-in retirement account and provides for a life income by restricting both the minimum and maximum plan withdrawals. Unlike a LIF, there is no requirement to convert the amount in a locked-in retirement income fund to an annuity at any age.
Locked-in RRIF
see locked-in retirement income fund and life income fund.
an outdated term for a locked-in retirement account.
the provision of a place to live.
Long-term asset
An asset that is expected to last (or to be held) for more than one year.
Debt that becomes due after more than one year.
LSIF
See Labour Sponsored Investment Fund.
The entity within a mutual fund complex responsible for the investment of the fund's portfolio and/or the administration of the fund. It is compensated on a percentage of the fund's total assets.
A measure of the total costs of operating a fund as a percentage of average total assets.
The sum paid to the investment company's adviser or manager for supervising its portfolio and administrating its operations.
An investor's equity in the securities in his or her account. The margin purchaser puts up a portion of the value of the securities, borrowing the remainder from the investment dealer.
The rate of tax on the last dollar of taxable income.
Marginal tax rate (MTR)
the rate of tax that a taxpayer will have to pay on his next dollar of income.
A vehicle used to denote trends in securities markets. The most popular in Canada is the Toronto Stock Exchange 300 Composite Index. (TSE 300).
In the case of a security, market price is usually considered the last reported price at which the stock or bond was sold.
The current value of a security.
the ease with which an asset can be bought or sold.
Mature RRSP
(a) An RRSP matures when it begins to provide retirement income. All plans must mature by the end of the year in which the annuitant turns age 69.
(b) An RRSP matures when it begins to provide retirement income. All plans must mature by the end of the year in which the annuitant turns age 69.
(a) The date for the repayment of a bond.
(b) The date at which a loan or bond or debenture comes due and must be redeemed or paid off.
Medical expense tax credit (METC)
provides tax recognition for above-average medical expenses incurred by individuals. For 2001, the METC reduces the federal tax of a claimant by a conversion rate of qualifying unreimbursed medical expenses in excess of the lesser of (3% of net income and the 3% net income ceiling). For 2001, the conversion rate is 16% and the 3% net income ceiling is $1,677.
MFDA
See Mutual Fund Dealer Association.
the amount that must be withdrawn from a RRIF each year, in accordance with the Income Tax Act beginning the year after the RRIF is established. (ITA 146.3(1))
Minimum Tax
see Alternative Minimum Tax.
Minimum tax carry-over
the excess of minimum tax over regular tax. If your client paid minimum tax for any of the past seven years, but does not have to pay minimum tax for the current tax year, he may be able to apply the minimum tax he paid in those seven years against this year's taxes.
a medium of exchange or a measure of value that you can use to pay for goods and services and to settle debts.
Money management process
an essential component of any financial planning process. In fact, good money management mirrors the five-step financial planning process.
A sector of the capital market where short term obligations such as Treasury bills, commercial paper and bankers' acceptance are bought and sold.
A type of mutual fund that invests primarily in treasury bills and other low-risk short-term investments.
Money purchase limit
the maximum annual contribution permitted to a defined-contribution pension plan. The limit is $13,5000 from 1996 to 2002, increased thereafter.
Money purchase pension plan
Another term for defined contribution pension plan.
Money purchase plan
a common name for defined-contribution pension plan.
Mortgage fund
A mutual fund that invests in mortgages. Portfolios of mortgage funds usually consists of first mortgages on Canadian residential property, although some funds also invest in commercial mortgages.
Mortgage-backed securities
Certificates that represent ownership in a pool of mortgages. The holders of these securities receive regular payments of principal and interest.
Motor vehicles expenses
total operating expenses (including leasing charges, fuel, maintenance, repairs, car washes, licenses and insurance), capital cost allowance and interest on loans used to acquire the vehicle.
Moving average basis
the method for determining the ACB of each identical property acquired after 1971, which involves calculating a new average cost for each property at the time of each purchase.
An investment entity that pools shareholder or unitholder funds and invests in various securities. The units or shares are redeemable by the fund on demand of the investor. The value of the underlying assets of the fund influences the current price of units.
Mutual Fund Dealer Association
The MFDA is the self-regulatory organization (SRO) for the distribution side of the mutual fund industry. Also known as MFDA.
National Instrument 81-101
Covers the disclosure rules for the simplified prospectus, annual information form, and annual reports.
Covers the operation and administration of mutual funds, including the kinds of investments a mutual fund can make, how units are redeemed, how the mutual fund manager can make changes to the mutual fund, and how the mutual fund can advertise.
Covers mutual fund sales practices, which all mutual fund distributors and managers must follow.
occurs if a partner omits to do something that a reasonable person would do or does something that a reasonable person would not do given the same circumstances, such that his conduct falls below the standard of care expected of someone in his position.
Net adjusted taxable income
in the alternative minimum tax calculation, this amount is the taxable income plus net additions to taxable income minus the basic exemption.
Net asset value
The value of all the holdings of a mutual fund, less the fund's liabilities.
a measure of the value of shares in either a closed-end or open-end investment corporation, calculated as the fair market value of the investments held by the investment corporation divided by the number of shares issued by that corporation.
Net asset value of a mutual fund divided by the number of shares or units outstanding. This represents the base value of a share or unit of a fund and is commonly abbreviated to NAVPS.
Net capital gain
the excess of taxable capital gains over allowable capital losses.
Net capital loss
in its most basic form, this is simply the excess of all allowable capital losses for the year over all taxable capital gains for the year (ITA 111(8)).
Net capital losses
arise when the capital losses incurred upon the sale of some of the corporation's capital property exceed the capital gains realized upon the sale of other capital property.
your total income less any permitted deductions that were incurred as a result of earning that income (such as, childcare expenses, investment losses, union dues, etc.).
Net tax owing
for the purpose of calculating a taxpayer's required instalment payment, this is the total of his federal and provincial taxes payable minus all taxes deducted at source and his refundable tax credits.
Net taxable capital gain
the amount by which a taxpayer's taxable capital gains exceed his allowable capital losses (ITA 3(b)).
the difference between total assets and total liabilities; also referred to as wealth.
New RRSP contribution room
the new room arising in the current year, calculated as the current contribution limit plus pension adjustment reversals from the current year, less any pension adjustment from the previous year or a past service pension adjustment incurred in the current year.
NHA-insured mortgages
Funds that hold only first mortgages that are insured against default by the Canada Mortgage and Housing Corporation under the terms of the National Housing Act (NHA).
No-calculation option
the default method of determining how much an individual must pay in tax instalments, whereby CCRA determines an amount based on its knowledge of the tax and CPP owing in the previous 2 years, and informs the taxpayer how much he must pay on an instalment reminder.
No-load fund
A mutual fund that does not charge a fee for buying or selling its shares.
Nominal amount
an amount not adjusted for inflation.
Non-arm's length person
includes the taxpayer's parents, grandparents, brothers, sisters, brothers-in-law, sisters-in-law, children, adopted children and grandchildren, as well as any other party with whom the taxpayer transacts if their transactions do not reflect ordinary commercial dealings between parties acting in their separate interests.
Non-capital loss
in the context of business income, a non-capital loss occurs to the extent that a business loss creates a negative amount of net income for a taxpayer. In a broader sense, non-capital losses can include (ITA 111(8)):
" unused losses from an office, employment, business or property
" unused allowable business investment losses (ABILs)
" the unused portion of the taxpayer's share of partnership losses from business or property
" the unused portion of the taxpayer's share of partnership ABILs
Non-capital loss carryover
refers to the fact that non-capital losses can be carried back for up to three years and forward for up to seven years to be applied against any other source of income in those years.
Non-capital losses
primarily relate to business losses that were incurred in previous years and that have been carried forward to be deducted from taxable income in a future year. They generally include:
Non-contributory
RPPs that are totally funded by the employer.
Non-depreciable capital property
capital property other than depreciable property.
Non-exempt
means that it must be approved or certified by CCRA on a case-by-case basis before the corresponding past service transaction will be permitted.
Non-exempt PSPA
a PSPA that must be certified by CCRA before the past service transaction can be completed.
one that does not provide for a periodic increase in the payments as either a fixed percentage or the change in the Consumer Price Index.
Non-qualified investment
any property that is not a qualified investment.
Non-qualifying RRIF
any RRIF that was established in 1993 or later, or one that was established prior to 1992 that has subsequently received a transfer of property from anything other than a qualifying RRIF. (ITR 7308(2))
(a) Can only be used to reduce federal tax payable to zero dollars, not create a negative amount to be refunded.
(b) Can only be used to reduce federal tax payable to zero dollars, not create a negative amount to be refunded.
Non-registered Savings Plan
Unlike a registered savings plan, a non-registered savings plan has no restrictions on content. It also does not have tax benefits.
Non-share consideration
in the context of Section 85 rollovers, this can consist of cash or a promissory note for any amount up to the FMV of the property disposed to the corporation.
Non-sufficient Funds (NSF)
the bank's administration charges, incurred for bouncing cheques, which can run between $10 to $20 per incident.
Non-tax-deferred savings
see unregistered funds.
Non-working assets
those assets that she intends to hold on to indefinitely, such as family heirlooms.
an annuity that is analogous to a loan from the policyholder to the policy provider, where the allocation of the payments for income tax purposes between interest and principal are calculated according to an amortization schedule, such that the early payments consist of a higher proportion of interest than later payments, as opposed to a prescribed annuity.
Normal pension
defined within the pension contract, in terms of the form that the standard pension benefits will take and what benefits, if any, a member's beneficiary or estate will receive if the member dies after retirement.
Normal retirement age (NRA)
the age, specified in the pension plan, at which a member is permitted to retire and receive full, unreduced retirement benefits.
Notched option
a provision made by some pension plans to provide a higher than "normal" pension in retirement years prior to age 65, and slightly lower than normal payments after age 65, when CPP/QPP and OAS benefits have commenced, resulting in a level income.
a document issued by CCRA after it assesses a taxpayer's return, explaining the details of his assessment and identifying any balance that he owes or that is owed to him.
Notice of Confirmation
a document that CCRA will send to a taxpayer who has filed an objection if the Chief of Appeals disagrees with the taxpayer, confirming that the original assessment was correct.
Notice of Directors
documents the names of the initial directors who will hold office until the first shareholders' meeting.
Notice of Reassessment
a document that CCRA will send to a taxpayer who has filed an objection if the Chief of Appeals agrees with the taxpayer in whole or in part, showing how CCRA has adjusted the taxpayer's return and its assessment of that return. It may also be issued if CCRA reassesses the return based on information it gathered through an audit or if the taxpayer requests a reassessment after supplying new or missing information.
Notice of Ways and Means Motions (NWMM)
a document that summarizes proposed income tax changes in plain language and serves to introduce the proposed changes in the House of Commons.
See Old Age Security.
OAS Clawback
a special tax introduced in 1989 requiring the repayment of OAS benefits by high-income earners. The clawback is 15% of income that exceeds the OAS clawback threshold. The OAS clawback threshold is indexed annually for the change in the CPI.
OAS Clawback Rate
the rate, currently 15%, at which net income in excess of the OAS clawback threshold is subject to repayment.
OAS Clawback Threshold
the amount below which the OAS need not be repaid. The OAS clawback threshold is indexed annually to the extent of the change in the CPI.
a formal process whereby a taxpayer notifies CCRA that he or she is not satisfied with his or her assessment, reassessment or CCRA's interpretation of income tax law.
a financial state or position that you wish to achieve.
Odd lot
Any number of securitites that represent less than a board lot.
Old Age Security
A federally sponsored program that all Canadians are entitled to receive at age 65 and older. OAS benefits are subject to a clawback. Also known as OAS.
Old Age Security (OAS)
a social security payment to those 65 years of age and older.
Old Age Security (OAS) Program
one of three public pension benefits, which provide seniors with a basic income guarantee.
Old seniors
those who have slowed down because of age or health.
An open-end mutual fund continuously issues and redeems units, so the number of units outstanding varies from day to day. Most mutual funds are open-end funds.
Open-end investment corporation
an investment corporation that can issue an unlimited number of shares and that uses the proceeds from the sale of shares to purchase a portfolio of securities. Investors buy shares from the investment company and resell them to that same company when they no longer want to hold on to them. Open-end investment corporations are also often called mutual funds. Shares in mutual funds are not traded on the open market. Instead, they are purchased directly from the investment corporation, and they are sold back to the same corporation when the investor no longer wants them.
Operating company (OPCO)
a corporation carrying on an active business.
Operating cost benefit
a taxable employment benefit based on the number of kilometres the employee drives the car for personal use.
The right or obligation to buy or sell a specific quantity of a security at a specific price within a stipulated period of time.
Ordinarily inhabited
a property is ordinarily inhabited by the taxpayer if he or his family primarily use it for accommodation purposes, as opposed to some other purpose.
Ordinary annuity
a series of consecutive periodic payments or receipts of equal amounts made or received at the end of each period.
Ordinary perpetuity
a perpetuity in which the payments are made or received at the end of each period.
Orphan's benefits
a flat rate monthly pension payable under the Canada Pension Plan to the dependent child of a deceased contributor.
(a) A securities market that exists for the securities not listed on stock exchanges. Bonds, money market securities and many stocks traded on the over-the-counter market.
(b) A computerized network of brokers and securities firms that specialize in trading stocks that are not listed on an exchange.
Overaward
Amount of Canada student loan issued to a student in excess of what the student is entitled to receive and will be recovered from any future Canada student loan entitlement.
when your bank will cover withdrawals after you have depleted your account, up to a prearranged credit limit. Bearing in mind, that it is only intended to cover brief periods (a few days) of negative cash flow. High daily interest on the overdrawn amount and possibly a small administration fee will be implemented, but you will not face NSF charges.
a term that is often used to refer to a person who is major shareholder of a corporation and who also takes an active role in running that corporation.
the amount of money that a corporation receives in exchange for selling its shares. This amount is recorded in the corporation's paid-up capital account.
Par value
The principal amount, or value at maturity, of a debt obligation. It is also known as the denomination or face value. Preferred shares may also have par value, which indicates the value of assets each share would entitled to if a company were liquidated.
Part IV Tax
a special tax levied under ITA 186(1) on dividend income from the portfolio investments held by a corporation. Portfolio investments are investments in a portfolio of stocks and bonds as opposed to the shares of a connected corporation. The Part IV tax is calculated as 331/3% of dividends from portfolio investments and is approximately equal to the rate of tax that would be paid by an individual in a 50% marginal income tax bracket, after allowing for the dividend gross-up and tax credit (ITA 186(1)).
one of the owners of a partnership, who may be either a general partner or a limited partner.
the relation that exists between two or more individuals (where an individual could include either a person or a corporation) carrying on an unincorporated business in common with a view of profit.
Past service event
(a) Something that increases a member's pension benefits for service prior to the event, but after 1989.
Past service pension adjustment (PSPA)
represents the value of a past service event, including retroactive benefit upgrades and the purchase of additional pension credits.
Past Service Pension Adjustments
Benefits received from a defined pension plan for past service. These benefits reduce RRSP contribution room. Also known as PSPA.
Pay yourself first
you first earmark a portion of your income for savings, and then spend the rest.
Penalty for misrepresentations in tax planning arrangements
a new civil penalty for every advisor who makes, or causes another person to make, a statement that the advisor knows, or would reasonably be expected to know, but for circumstances amounting to culpable conduct, is a false statement that could be used by another person for the purpose of the Income Tax Act (ITA 163.2(2)).
Penalty for participating in misrepresentation
applies if the advisor knowingly participates in, assents to or acquiesces in the making of a false statement by or on behalf of another person, or a statement that the advisor should have known was a false statement, but for circumstances amounting to culpable conduct (ITA 163.2(4)).
Penalty on Overcontributions
There is a penalty tax of 1% per month on any cumulative excess amount (ITA 204.9(1)).
An amount that reduces the allowable contribution limit to an RRSP based on the benefits earned from the employee's pension plan or deferred profit sharing plan.
Pension adjustment (PA)
the value of benefits that have accrued during the year under a registered pension plan or deferred profit sharing plan; used to reduce a member's RRSP contribution room.
Pension adjustment reversal (PAR)
increases the individual's RRSP deduction limit by the amount by which the PAs and PSPAs exceed the termination benefit, restoring the RRSP room that would otherwise be lost permanently (ITR 8304.1).
payments received from all registered pension plans including regular pension payments received in the form of annuities, lump sum payments and refunds of contributions.
Pension Benefits Standards Act (PBSA)
federal legislation that governs all pension plans organized and administered for employees that perform service in connection with any federal works, undertakings or businesses that are within the legislative authority of federal Parliament.
Pension credit
a federal tax credit of a conversion rate on up to $1,000 of eligible pension income. For 2001, the conversion rate is 16%.
Pension Index
an index used to adjust Canada Pension Plan benefits on an annual basis, calculated as the average of the changes of the annual Consumer Price Indices for each of 12 consecutive, 12-month periods, ending with October of the preceding year.
A formal arrangement through which the employer, and in most cases the employee, contribute to a fund that provides the employee with a lifetime income after retirement.
Pension Reforms
changes to the Income Tax Act, typically effective as of 1991, that placed a single limit on the total deductible contributions to all forms of retirement savings plans, including RRSPs, DPSPs, and RPPs.
Pensionable employment
employment that generates income subject to Canada Pension Plan contributions; any employment in Canada that is not specifically exempt under the Canada Pension Plan.
Pensionable employment earnings
earnings from pensionable employment.
Perfect income split
would be achieved by having the spouses or common-law partners exactly the same age with exactly the same types and amounts of financial resources.
Life insurance coverage for which the policyholder pays an annual premium, generally for the life of the insured. This type of policy features a savings component, known as the cash surrender value.
an annuity in which the payments begin on a fixed date and continue indefinitely.
Perpetuity due
a perpetuity in which the payments are made or received at the beginning of each period.
Personal services business
services that are provided by a specified shareholder of a corporation (or a relative of that specified shareholder) to another entity, such that the specified shareholder would have otherwise been deemed to be an employee of that entity if the corporation did not exist (ITA 125(7)).
Personal-use property
any property that is owned by the taxpayer and used primarily for his enjoyment or for the use or enjoyment of one or more individuals related to the taxpayer and designated by him to be his principal residence(ITA 54).
the ability to transfer pension credits to another pension plan or to a locked-in RRSP when an employee changes jobs.
(a) Any number of investment assets that she accumulated for the purpose of transferring her purchasing power to the future.
(b) All the securities which an investment company or an individual investor own.
Portfolio assets
non-registered funds, such as bank accounts, stocks, bonds and mutual funds. These assets are assumed to be readily available to provide funds for retirement.
a methodology for selecting securities for a portfolio in order to maximize the return for a given level of risk.
Post-retirement plan
usually involves determining how much the client can afford to spend during retirement, given his known sources of income, asset base, tax situation and planning horizon.
Preauthorized chequing arrangement (PAC)
arranging to have money deducted directly from your bank account and transferred automatically to pay bills or deposit in an investment account.
An ownership security that is senior to the common stock of a corporation, with a preferred claim on assets in case of liquidation and a specified annual dividend
a hybrid security in that they have some characteristics of common shares and some of bonds. Preferred shares usually have a specified dividend rate, such that the corporation will pay dividends at that rate as long as it is able to and must in fact pay these dividends before any dividends can be paid to common shareholders. However, preferred shareholders forfeit the entitlement to equity growth in the company.
The amount by which a bond's selling price exceeds its face value. Also, the amounts paid to keep an insurance policy in force.
Prescribed annuity
receives special consideration under the Income Tax Act because it is assumed that the interest portion of the annuity payments are spread evenly over the life of the annuity contract, thereby easing the tax burden on a taxpayer during the early years. This prescribed treatment is only available for annuities purchased with non-registered funds because the entire amount of a registered annuity is subject to tax. The prescribed annuity offers a tax deferral and a more level source of after-tax income.
Prescribed rate
the rate set by ITR 4301, which is adjusted quarterly.
The current worth of an amount to be received in the future. In the case of an annuity, present value is the current worth of a series of equal payments to be made in the future.
Price earnings ratio (P/E)
This is the ratio that indicates how a stock's price is related to the company earnings. Useful in comparing similar stocks. Also called the earnings multiple.
Primary distribution
A new security issue,or one that is made available to investors for the first time.
The person for whom a broker executes an order, or a dealer buying or selling for his or her account. Also, an individual's capital or the face amount of a bond.
Principal residence
any accommodation owned by the taxpayer (either alone or jointly) and ordinarily inhabited by him, his spouse, former spouse, common-law partner, former common-law partner or child (ITA 54).
Principal residence exemption
an exemption that the taxpayer can use to offset the capital gain that arises upon the disposition of his principal residence (ITA 40(2)(b)). Calculated as:
(N1 +1) x (capital gain realized)
N1 = number of years designated as principal residence after 1971
N2 = number of full or partial taxation years of ownership after 1971
Prior-year option
an alternative method of calculating required tax instalments, whereby for the current taxation year the taxpayer would pay one quarter of his net tax owing and CPP payable for the prior year on each instalment date (ITA 156(1)(a)(ii)).
Private corporation
a corporation that is resident in Canada, is not a public corporation, and is not controlled directly or indirectly by one or more public corporations (ITA 89(1)).
Private health services plan
an insurance contract or insurance plan that provides coverage of hospital expenses and medical expenses or any combination thereof (ITA 248(1)).
Proceeds of disposition
includes the sale price of property that has been sold, as well as compensation for property that has been expropriated, stolen, or lost (ITA 54).
Profit-sharing pension plan
a form of defined-contribution pension plan, where the contributions made by the employer reflect the profits from the year.
Progressive tax rates
the rate of tax increases as taxable income increases.
the rate of income tax increases as the taxable income of the taxpayer increases. These include progressive tax rates, clawbacks, tax credits and deductions, federal and provincial surtaxes, and income attribution.
(a) A written loan agreement signed by the borrower and specifying the name of the borrower, amount of the loan, interest rate, terms of repayment and any security provided to the lender as collateral.
(b) A promise to pay.
a person who agrees to pay the income as educational assistance payments to one or more beneficiaries designated in the contract.
property of any kind, whether real or personal, tangible or intangible (ITA 248(1)).
Property income
(a) Income that is produced by an asset while it is being held by the investor, including interest income, rents or dividends and business income of a specified member of a partnership.
(b) Interest, dividends and rent.
Property losses
include rental losses and business losses incurred by a specified member of a partnership.
The document by which a corporation or other legal entity offers a new issue of securities to the public.
Province or territory of residence
For the purpose of qualifying for a Canada Student Loan, the province or territory of residence is where the student has most recently lived for at least 12 consecutive months excluding full-time attendance at a post-secondary institution.
Provincial Securities Commission
The provincial securities commissions are the regulatory bodies for each province or territory. They are responsible for regulating the underwriting, distribution and sale of securities, as well as registration and enforcement.
Provisional PSPA
a PSPA that has conditional approval from CCRA, such that the taxpayer will be permitted to complete the past service transaction even though he does not have sufficient RRSP contribution room to cover the anticipated PSPA, such that he may have negative RRSP contribution room to carryforward to future years.
a document that allows shareholders to send representatives to vote in their place at a shareholders' meeting if they are unable to attend.
PSPA
See Past Service Pension Adjustments.
Public assistance program
a program where the recipients of the benefits do not contribute directly to the cost of the providing the benefits, but where society bears the responsibility of covering the costs through federal income taxes.
Public corporation
a corporation that has one or more classes of its shares listed on a prescribed stock exchange in Canada; or one that has elected or has been designated by CCRA to be a public corporation provided that, among other conditions, its shares are held by at least 150 shareholders, each of whom holds at least $500 worth of shares (ITA 89(1), ITR 4800)
Pure deferred annuity
an annuity where the only benefits available are annuity payments commencing at the end of the deferred period, which is fixed and inflexible.
See Quebec Pension Plan.
Qualification date
the date that a particular piece of pension legislation or regulation entered into force.
Qualified farm property
property that may be eligible for a capital gains exemption, including real property (land and buildings, but not machinery) used in a farming business in Canada, shares of a family farm corporation and interests in a family farm partnership. In order to be eligible as qualified farm property, certain conditions requiring prior use must also be met (ITA 110.6(1)).
The Income Tax Act now imposes restrictions on the types of property that an RESP trust can hold. With the exception of certain annuity contracts, the types of property that qualify for an RESP are the same as those that qualify for an RRSP (ITA 146.1(1), "qualified investment", and ITR 4900(9)(a)).
Qualified small business corporation
a Canadian-controlled private corporation that meets the following conditions:
" all or substantially all (i.e., 90%) of its assets are used in an active business carried on in Canada
" it is owned by the taxpayer, his spouse or common-law partner, or a related partnership
" during the pervious 24-month period, it was not owned by an unrelated person, and more than 50% of the fair market value of the assets of the corporation during that time could be attributed to assets that are used in an active business carried on primarily in Canada (ITA 110.6(1))
Qualifying acquisition
an acquisition of common shares in a public corporation by means of exercising an employee stock option after February 27, 2000, while meeting prescribed conditions, so that the taxable benefit can be deferred until the taxpayer disposes of the shares (ITA 7(9)).
Qualifying educational program
the beneficiary must be enrolled in a program that runs for at least 3 or more consecutive weeks, and must spend 10 or more hours per week on courses or work in the program (ITA 146.1(1), "qualifying educational program").
Qualifying factor
the combination of age and years that must be achieved by an employee to qualify for an unreduced early retirement.
Earliest retirement age without actuarial reduction = ((age of joining the plan + qualifying factor) ÷ 2)
Qualifying home
a housing unit located in Canada, including existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, co-operative housing units and apartments in duplexes, triplexes and even apartment buildings all qualify (ITA 146.01(1), "qualifying home").
Qualifying medical expenses
the list of qualifying medical expenses is extensive and includes services provided by a medical practitioner, dentist or nurse for medical practices including naturopathy, psychoanalysis and speech therapy.
Qualifying RRIF
any RRIF that was established in 1992 or earlier, and that has had no funds or property transferred or contributed to it at any time after the end of 1992, other than funds from another qualifying RRIF, or a RRIF that was established after 1992 that only received funds or property from a qualifying RRIF. (ITA 7308(2))
Qualifying transfer
See qualifying withdrawal.
Qualifying withdrawal
an amount transferred from an RRSP to purchase past service pension credits under a defined benefit pension plan. Also called a qualifying transfer.
Quebec Pension Plan
(a) Sponsored by the Quebec Provincial government. The QPP provides similar benefits as the Canada Pension Plan, but only for the residents of Quebec. Also known as QPP.
Québec Pension Plan
(b) sponsored by the Québec provincial government providing similar benefits to the Canadian Pension Plan.
Québec Pension Plan benefits (QPP)
retirement benefits paid to contributors who are at least 60 years of age.
the annual percentage return realized on an investment
Ratio withdrawal plan
A type of mutual fund withdrawal plan that provides investors with an income based on a percentage of the value of units held.
Real amount
an amount adjusted for inflation to express purchasing power
Real estate fund
A mutual fund that invests primarily in residential and/or commercial real estate to produce income and capital gains for unitholders.
A closed-end investment company that specializes in real estate or mortgage investments. Also known as REIT.
the rate of return after taking inflation into account (also called the inflation-adjusted rate of return), calculated as:
i*= i – infl
1 + infl
i = the nominal rate of return
infl = the annual rate of inflation
a re-evaluation by CCRA of a return that has already been processed in light of errors, omissions or new information.
Receiving order
a court order made in response to a petition from your creditors, that effectively vests your property to a trustee, who will administer your estate in accordance with the Bankruptcy and Insolvency Act.
Redeemable
Preferred shares or bonds that give the issuing corporation an option to repurchase securities at a stated price. These are also known as callable securities.
Refund annuity
a pension that has a provision that ensures that the employees at least get back the value of their own contributions.
Refund of premiums
an amount received from an unmatured RRSP as a result of the death of the annuitant.
Refund of RRSP premiums
any amount paid to the spouse or common-law partner out of the taxpayer's unmatured RRSPs because of the taxpayer's death.
Refundable dividend tax on hand (RDTOH)
a notional account within a corporation's accounting system to which any Part IV tax or any refundable Part I tax is credited. When the corporation pays taxable dividends to its shareholders, the tax is refunded to the corporation at the rate of $1 for every $3 of dividends paid up to the balance in the RDTOH account (ITA 129(1)).
Refundable Part I tax
This scheme provides some tax relief to Canadian-controlled private corporations that pay tax on investment income (other than dividend income) at 442/3% by allowing them to credit an amount equal to about 262/3% of the investment income (the specific formula is complex) to its RDTOH account. If the corporation subsequently pays out taxable dividends, it can claim a refund of $1 for every $3 paid up to the balance in the RDTOH account (ITA 129(3)).
Refundable tax credits
certain tax credits, such as the GST tax credit and certain provincial tax credits, that are available regardless of whether the taxpayer has any taxable income.
Registered annuity
an annuity purchased with registered funds.
An education savings plan that permits savings to grow tax-free until the beneficiary is ready to go full-time to college, university or any other eligible post secondary institution (ITA 146.1(5) and ITA 146.1(1), "education savings plan", "registered education savings plan"). Also known as RESP.
Registered Education Savings Plans (RESPs)
an education savings plans that permit savings to grow tax-free until the beneficiary is ready to go full-time to college, university or any other eligible post secondary institution (ITA 146.1(5) and ITA 146.1(1), "education savings plan", "registered education savings plan").
funds that are held in registered plans and that have not yet been taxed as income. Also called tax-deferred savings.
Registered Pension Plan (RPP)
an employer-sponsored pension plan registered under the Income Tax Act and regulated by provincial or federal legislation. There are two types: defined-benefit plans and defined-contribution plans.
Registered Retirement Income Fund (RRIF)
A maturity option available for RRSP assets that provide a stream of income at retirement. Also known as RRIF.
A tax-deferred retirement plan that allows individuals who have not reached age 69 to set aside sums of money, within limits. These sums are deductible from taxable income and can compound on a tax-free basis. Also known as an RRSP.
Registered retirement savings plan (RRSP)
a trust set up in accordance with the Income Tax Act, to hold certain investment assets intended for retirement income.
Registered Savings Plan
Defined in the federal Income Tax Act and registered with the Canada Customs and Revenue Agency. A registered savings plan allows investors to save for retirement without paying taxes on the contents of the plan until funds are withdrawn. Restrictions apply.
Regular Allowance
a pensioner's spouse or common-law partner, aged 60 to 64 who has resided in Canada for at least 10 years since reaching 18 years of age, and who qualifies under the net income test, is eligible for a Regular Allowance equivalent to the maximum GIS benefit plus the maximum OAS benefit. The clawback is $3 per month for every $4 of a couple's base income, up to (4 ÷ 3) of the amount of the Old Age Security pension. Above that amount, the clawback is $1 for every $4 of the couple's base income.
Regulations to the Income Tax Act (ITRs)
additional tax rules made under the authority of the Income Tax Act and extending the tax statutes, used for a variety of purposes, including setting out the working rules for the statutes and specifying relevant rates.
See Real estate investment trust.
Related minor
a person under 18 years of age as of December 31 and who does not deal with the taxpayer at arm's length. Also, for the purpose of the income attribution rules, the niece or nephew of the taxpayer (ITA 74.5(5)).
individuals connected to the taxpayer by blood relationship, marriage or adoption, including his spouse or common-law partner, any of his direct descendants (children, grandchildren, etc.) and their spouses or common-law partners, and his siblings and their spouses or common-law partners. However, the definition of related persons does not include nieces and nephews (ITA 251(2)).
Repayment terms for HBP
According to the rules of the HBP, the taxpayer must repay the withdrawn funds to his RRSP. The minimum repayment schedule allows the taxpayer to spread the repayments over a series of equal annual instalments made over a period of no longer than 15 years. The 15-year repayment period begins in the second calendar year following the calendar year in which the withdrawal is made (ITA 146.01(3)). A payment is considered to apply to a specific repayment year if it is made during the year or within 60 days after the year-end.
Repayment terms for LLP
The participant in an LLP must eventually repay the withdrawals to her RRSPs. The minimum repayment schedule allows the participant to spread the repayments over a series of equal annual instalments made over a period of no longer than 10 years (ITA 146.02(3), (4)). The first repayment year is the earlier of the following:
" the fifth year following the year of the first withdrawal
" the year following the last year in which the student was enrolled on a full-time basis (ITA 146.02(3))
Resident in Canada for tax purposes
an individual who, in the settled routine of his life, regularly, normally or customarily lives in Canada.
Resident of Canada
for tax purposes, this includes someone who is ordinarily resident in Canada (ITA 250(3)), and the Tax Courts have deemed that a person is resident where, in the settled routine of his life, he regularly, normally and customarily lives.
Residual Heir
The person whom receives the balance of an estate after the other named heirs have been satisfied. This part of the estate is also called a Residuary Bequest.
Residual bond
the right to the repayment of principal. Also called residual.
based upon loss of earnings and means that due to injuries or sickness, the insured has a loss of monthly income of at least 20%. The insured must also be under the care and attendance of a physician.
(a) The accumlated profits of a company. These may or may not be reinvested in the business.
(b) the amount of profit kept in the business and not paid out as dividends.
any amount received by a taxpayer (or by his estate or beneficiary after his death), either on or after retirement, in recognition of long service; or after termination of employment, as a severance settlement.
Retiring allowance rollover
a process whereby all or portions of a retiring allowance may be transferred into an RRSP and deducted from income. The rollover is subject to a limit of $2,000 for each year of service prior to 1996, plus an additional $1,500 for each year of service prior to 1989 in which the individual earned no vested pension or DPSP benefits.
Bonds or preferred shares that allow the holder to require the issuer to redeem the security before the maturity date.
property income (such as interest, dividends or rents), or a capital gain that results from the appreciation of the asset.
Reverse annuity mortgage (RAM)
A combination of two financial products, a loan secured by a mortgage and a term or life annuity purchased with the proceeds of the loan. Also called Reverse Mortgage or Home Equity Plan.
see reverse annuity mortgage.
Revolving credit
credit that you can use from time to time to buy various goods or services of varying cash value.
Options granted to shareholders to purchase additional shares directly from the company concerned. Rights are issued to shareholders in proportion to the securities they may hold in a company.
(a) The possibility of loss; the uncertainty of future returns.
(b) The possibility that the actual return will be quite different from his expected return.
the degree of risk that a client is prepared to take in investing funds to meet a specific objective.
See Registered Retirement Income Fund.
(a) See Registered Retirement Savings Plan.
(b) A trust that can own certain investments and that must abide by many regulations imposed by the Income Tax Act and sometimes by provincial or federal pension legislation. It is an investment vehicle for retirement that can hold monies tax-free until withdrawn at retirement.
RRSP attribution rule
The Canada Customs and Revenue agency attributes to the contributor any contributions withdrawn during the year of deposit or during the next two years.
RRSP contribution factor
equal to
(1 ÷ (1-MTRc))
where: MTRc = the marginal tax rate at the time of deduction of the contribution.
RRSP deduction limit
the maximum amount you may contribute to your own and your spouse's RRSP.
RRSP dollar limit
See current contribution limit.
RRSP Home Buyers' Plan (HBP)
a taxpayer and his spouse or common-law partner may each be able to withdraw up to $20,000 from an RRSP tax-free to buy or build a qualifying home.
RRSP Wrapper
a mutual fund that is 100% eligible for an RRSP, that effectively provides the return of a specific foreign equity fund, and that effectively subverts the foreign property rule. Also called a foreign clone fund.
Sales charge
In the cases of mutual funds, these are commissions charged to holders of fund units, usually based on the purchase or redemption price. Sales charges are also know as "loads."
Sales expenses
all amounts expended by the taxpayer in earning employment income, this definition includes many expenses that are not deductible by other employees, such as:
" advertising costs
" the cost of promotional gifts
" the cost of entertaining clients, subject to the 50% rule
" the cost of leasing computer or other business equipment
the difference between total household income and total household consumption or spending.
Scholarship income
includes any monies received in the form of: scholarship, fellowship, bursary, artist project grants and achievement prizes of which the first $3,000 of income is allowed tax-free, provided that the program the student is taking makes the student eligible to receive the education amount.
Second-generation income
in the context of the income attribution rules, this is income that is earned when previously earned income that was subject to attribution is reinvested.
the market for trading previously issued securities including stock exchanges and the over-the-counter market.
Section 80 gain
a gain realized when a debt is settled or extinguished, under ITA 80.
Section 85 rollover
a provision under Section 85 of the Income Tax Act that allows the taxpayer and a corporation to jointly elect the deemed proceeds of a transfer from the taxpayer to the corporation to be any amount between the FMV of the property disposed (the upper limit) and a lower limit which is determined as the greater of: a) the FMV of the non-share consideration (ITA 85(1)(b); and b) the lesser of: (the FMV of the property disposed; and the ACB of that property (ITA 85(1)(c.1))). These deemed proceeds then become the cost of acquisition for the corporation, such that the corporation is assuming the taxpayer's potential income tax liabilities for the property.
an election permitted under ITA 97(1) that allows a partner to transfer (rollover) property to the partnership at the partner's ACB/UCC without realizing any gain or loss.
a loan agreement that provides the lender with some form of rights to specified assets in the event that you default on your loan agreement.
Securities Act
Provincial legislation regulating the underwriting, distribution and sale of securities.
insurance products offered by life insurers that are broadly analogous to mutual funds.
Self-assessment system
a characteristic of the Canadian tax system that means that taxpayers must:
" file their returns
" voluntarily report all income and expenses
" calculate any amounts they may owe
an RRSP, set up by the taxpayer, and established to hold a wide-range of investments eligible for an RRSP, essentially a brokerage account for registered funds.
(a) A standard unit of equity or ownership in the corporation. Also called stock.
(b) A document signifying part ownership in a company. The terms "share" and "stock" are often used interchangeably.
Share redemption plan
an agreement between the shareholders and the corporation that states that the corporation must purchase the interest of a deceased shareholder at a fixed price or at a price determined by a formula included in the agreement.
individuals who own the shares of a corporation.
Shareholders' equity
The amount of a corporation's assets belonging to its shareholders ( both common and preferred) after allowance for any prior claims.
Shareholders' agreement
an agreement that establishes customized rules that will govern the corporation in question, overriding the default provisions set out in federal or provincial Business Corporations Acts, thereby protecting the unique interests of the shareholders.
Shareholders' capital
the sum of all the cash or other property that shareholders contributed to a corporation in order to acquire shares in that company.
the sum of shareholders' capital and retained earnings.
The sale of a security made by an investor who does not own the security. The short sale is made in expectation of a decline in the price of a security, which would allow the investor to then purchase the shares at a lower price in order to deliver the securities earlier sold short.
Shotgun buy-sell provision
a provision that is sometimes included in a shareholders' agreement, specifying that one of the shareholders can offer to buy the other's shares at a specific price and the other shareholder must either sell his shares or buy the other's at that price.
Simplified cash management plan
involves setting aside a certain portion of your income to help meet your objectives before you pay for current living expenses.
Simplified prospectus
An abbreviated and simplified prospectus distributed by the mutual funds to purchasers of units or shares. ( See prospectus.)
Small business corporation
a Canadian controlled private corporation for which all or substantially all of the fair market value of its assets can be attributed to:
" assets that are either used principally in an active business that the corporation or a related corporation carries out in Canada
" shares or debts of one or more small business corporations that are connected with the particular corporation (ITA 248(1)).
Small business deduction (SMABUD)
a deduction that is available to Canadian-controlled private corporations for the purpose of reducing the tax payable on up to $200,000 of active business income. The small business deduction is calculated at 16% of eligible income (ITA 125).
a program that is administered by the government, where the recipients of the benefits must contribute a portion or all of the costs of the program through premiums.
Social security payments
worker's compensation, social assistance, and net federal supplements. They are not taxable, but are included in total income.
Sojourner
someone who is temporarily present in Canada.
Sole proprietor
the owner of a sole proprietorship.
a business that is unincorporated and owned by only one person.
Special Opportunity Grants
Federal government grants available to certain recipients of Canada Student Loans. Eligible categories are female doctoral students, students who have permanent disabilities, and high-need, part-time students.
Speciality fund
A mutual fund that concentrates its investments on a specific industrial or economic sector or a defined geographical area.
Specified individual
in terms of the income splitting tax, someone who:
" will not attain the age of 18 during the taxation year
" is resident in Canada throughout the year
" has a parent who is resident in Canada at any time in the year (ITA 120.4(1))
Specified investment business
a business (other than a credit union or lessor of property, other than real property) whose principal purpose is to derive income from property (including interest, dividends, rents or royalties), unless the corporation employs more than five, full-time employees; or the corporation makes use of certain managerial or administrative services provided by an associated corporation, and the first corporation could have reasonably been expected to require more than five, full-time employees if those services had not been provided (ITA 125(7)).
Specified member of a partnership
a person who is a limited partner in a limited partnership; or a general partner who does not take an active role in the business activities (other than financing activities); or a general partner in a partnership who also carries out a business similar to, but separate from, that partnership.
Split income
certain types of income earned by specified individuals that are subject to the new income splitting tax, including taxable dividends and other shareholder benefits on unlisted shares of Canadian and foreign companies, including those received directly or through a trust or partnership (ITA 120.4(1)).
Spousal amount
an amount for a non-refundable tax credit for those who supported a spouse, and calculated by subtracting the spouse's net income from the base amount. If the difference is positive, that equals the spousal amount to a maximum amount.
Spousal rollover rule
a provision of the Income Tax Act that allows a taxpayer to transfer property to his spouse, former spouse, current or former common-law partner or a spousal or common-law partner trust at its ACB (for capital property) or its UCC (for depreciable property), such that the recognition of any capital gains and recapture is deferred until the recipient spouse or common-law partner disposes of the property (ITA 73(1)).
(a) Any RRSP established for the benefit of a taxpayer's spouse or common-law partner and where the contributions are made and deducted by the taxpayer.
(b) Contributions made to your spouse's RRSP plan. The contributor receives the tax deduction, and the spouse is recognized as the owner of the plan.
Spousal trust
" his spouse is entitled to receive all of the income of the trust that arises before her death
" no person except his spouse may, before her death, receive or otherwise obtain the use of any of the income or capital of the trust (ITA 73(1.01)(c)(i))
a person of the opposite sex who is married to the taxpayer (ITA 252(3)).
The difference between the rates at which money is deposited in a financial institution and the higher rates at which the money is lent out. Also, the difference between the bid and the ask price for a security.
Standby charge
the taxable benefit the employee enjoys by virtue of having a company-owned car available for personal use and it takes into account the cost of car ownership or leasing costs (ITA 6(1)(e) and 6(2)).
describes all money flows over a period of time, including all sources of income, taxes, lifestyle expenditures, investments, the interest expenses associated with those investments, mortgage or other loan principal repayments and money obtained through the sale of assets.
Statement of lifestyle expenditures
shows how much money you pay to sustain your current lifestyle, including the money you spend on accommodations, food, clothing, household expenses, transportation, insurance, entertainment and gifts. It also includes the interest charges that are associated with financing a major capital purchase such as a house or a car.
Statement of net worth
includes a summary of your liquid assets, investment assets and personal assets, along with any debt obligations related to these assets.
Stepped contributions
where a lower contribution rate applies to earnings up to the Yearly Maximum Pensionable Earnings (YMPE), while a higher rate applies to earnings above the YMPE. Stepped contributions are designed to provide some financial relief for those earnings that are already subject to CPP/QPP contributions.
another term for shares.
a dividend paid in the form of additional shares in the payer corporation, accompanied by a capitalization of retained earnings or any other surplus account available for distribution as a dividend.. Stock dividends are issued to each shareholder in exact proportion to the number of shares held by each shareholder (ITA 248(1)).
Stock index future
a derivative that gives the owner the right to the increase in the value of a stock market index, such as the TSE 300 or Standard and Poor's 500, applied to a specified amount of capital.
Stock market capitalization
the market valuation of the shares listed on the exchanges or the sum of all the quantities of shares times their market value.
Rights to purchase a corporation's stock at a specified price.
an increase in the number of shares of a corporation accompanied by a proportional decrease in the legal paid-up capital per share, so that neither the total amount of amount of legal paid-up capital nor the amount of surplus available for distribution as a dividend is altered.
Stop-loss rule
a provision under the Income Tax Act that prevents the creation of the capital loss when shares of a corporation that has paid out a capital dividend to the taxpayer are sold.
Straight arrows
A client who is so well balanced that she does not clearly fall into any one category. Individuals that fall near the centre of the personality map are referred to as.
Straight-life annuity
a pension that is payable as an annuity for the lifetime of the member, with no further benefit after the member dies.
Strip bonds
(a) (separately traded residual and interest payments) begin as blocks of government or corporate bonds that have been bought by dealers. The dealers then separate the interest coupons and the bond.
(b) The capital portion of a bond from which coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.
a person who makes contributions to the RESP, and names one or more beneficiaries for whom he will make contributions (ITA 146.1(1), "subscriber"). The subscriber is often also called the contributor.
Substantially ceased working
describes an individual under age 65 who has earnings that are less than the current maximum CPP pension payable at age 65.
Substituted property
in the context of the income attribution rules, this is property that a recipient acquired by exchanging or using the proceeds of disposition of a particular property that he acquired by way of a transfer or loan from the taxpayer.
For a business, is planning for the next generation of owner/managers to succeed the current owner/managers.
Superannuation benefits
see Pension benefits.
a loss for which deductibility is denied because the taxpayer did not really have the intention of getting rid of the property, to the extent that he or an affiliated person reacquired it within 30 days prior to or 30 days after the day of disposition (ITA 54, 40(2)(g)).
Survivor's Allowance
an OAS pensioner's widow or widower aged 60 to 64 who has resided in Canada for at least 10 years since reaching 18 years of age, and who qualifies under the net income test, is eligible for a Survivor's Allowance. The Survivor's Allowance is only payable until age 65, when it will be replaced with standard OAS and GIS benefits. Payment of the Survivor's Allowance will terminate before age 65 if the recipient dies or remarries.
a pension payable under the Canada Pension Plan to the surviving spouse or common-law partner of a deceased contributor.
Sustainable expenditures
amount of lifestyle expenditures that would result in no shortfalls and no savings at the end of the planning period.
Systematic risks
risks that affect the returns on all comparable investments, meaning that there is a systematic relationship between the return on a specific investment and the return on all other comparable investments in the same class. Inflation, exchange rates and interest rates are examples of systematic risk.
Systematic withdrawal plan
Plans offered by mutual funds companies that allow unitholders to receive payment from their investment at regular intervals.
T2 income tax return
the income tax return that must be filed by all corporations other than registered charities for every taxation year, even if there was no tax payable for that year.
Tainted loan
a loan that is not a loan for value.
Tainted shelter deductions
see tax preferences.
opportunities for minimizing tax through avoidance, conversion and deferral.
Tax Assistance for Retirement Saving
a system to defer taxation on both the original amounts saved and the investment earnings on them.
occurs when a taxpayer legitimately structures his affairs to realize a reduction in his overall tax liability by taking advantage of provisions contained in the Income Tax Act.
the tax savings generated by an investment. These benefits flow from the initial deductions provided by many tax-advantaged investments, as well as deductions generated over the life of the investment, such as interest costs, depreciation, and depletion allowance.
refers to the fact that all taxpayers must comply with the rules set out in the Income Tax Act.
Tax Court of Canada
an independent court of law that regularly conducts hearings in major centres across Canada regarding situations where taxpayers want to appeal the rulings or the progress of the Chief of Appeals.
(a) An amount that is deducted from income tax otherwise payable.
(b) An income tax credit that directly reduces the amount of income tax paid by offsetting other income tax liability.
(a) A reduction of total income before income tax payable is calculated.
(b) An amount that can be deducted in calculating taxable income.
postponing the recognition of income and thus the payment of income taxes.
occurs when a taxpayer misrepresents his financial circumstances such that it appears that he owes less tax than he actually does.
guidebooks published by CCRA each year to help taxpayers complete their income tax returns. The tax guides may have supplementary information that the taxpayer needs to complete his return but that is not included in the general income tax package.
Tax on Income (TONI)
a scheme for calculating provincial income tax as a percentage of federal taxable income.
the legitimate structuring of one's financial affairs to minimize the amount of taxes that have to be paid.
Tax preferences
deductions or tax credits that are not claimable for minimum tax purposes. Also called tainted shelter deductions.
Tax profile
a compilation of all of the factors that affect the calculation of an investor's tax liability.
Tax treaties
agreements between two countries regarding how transactions involving the disposition of capital property in either country are to be taxed.
Tax-advantaged investment
an investment that enables the investor to avoid, convert, or defer taxable income.
see registered funds.
Tax-disadvantaged investment
an investment that generates income that is fully taxable in the taxation period regardless of whether the income has been received in cash, and with no deductions other than those representing cash expenses during the taxation period.
Tax-free zone method
a method of determined the deemed ACB of property that a taxpayer owned on V-Day. Under this method, the ACB will be the median (or middle) amount of these three amounts: cost, V-day value and proceeds of disposition (ITAR 26(3)).
Tax-paid capital
funds that are not in a registered plan.
Taxable Canadian corporation
a Canadian corporation that is not exempt from tax. Exempt corporations include municipal and provincial corporations, registered charities, and certain non-profit corporations.
Taxable Canadian property (TCP)
property on which the Income Tax Act imposes tax for both residents and non-residents (ITA 115(1)(b)). The most common forms of TCP include Canadian real estate, unlisted shares of companies resident in Canada and substantial interests (25% or more of the class) in certain shares listed on a prescribed stock exchange.
Taxable capital gain
that portion of a capital gain that must be included in taxable income, currently based on an inclusion rate of 50% for dispositions after October 17, 2000.
Taxable dividends
dividends from taxable Canadian corporations are grossed-up or increased by 25% as part of the dividend gross-up and tax credit scheme.
total income less various tax deductions.
Taxation year
see fiscal year.
A method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns.
a document published periodically by CCRA to explain changes in its administrative procedures or to announce new guidelines for the application of specific provisions of the Income Tax Act.
notices published periodically by the Department of Finance to explain the development and application of new tax policies. Also sometimes referred to as explanatory notes.
life insurance which is issued for a specified number of years, normally building up no cash value and expiring without value.
Termination benefits
(a) a severance settlement after termination of employment.
(b) An amount received by a taxpayer after termination of employment, as a severance settlement. Such payments must be included in the taxpayer's income.
Testamentary trust
a trust created upon death.
Three for One Bump (3 for 1)
By purhcasing the stock of eligible companies, an investor can increase the foreign content of an RRSP up to 50%.
Total Debt Service Ratio (TDSR)
compares the amount of your mortgage and consumer debt payments to your income. For a homeowner, the formula for TDSR is:
TDSR = ((payment of principal and interest on mortgage + property taxes + heating costs + 50% of condominium fees + payments on other personal loans) ÷ gross income)
For a renter, the formula for TDSR is:
TDSR = ((rent + heating costs + payments on personal loans) ÷ gross income)
essentially all forms of taxable income from employment, investments and business.
Total life expectancy
an individual's expected age of death, based on his current attained age.
Total LLP limit for LLP
The LLP participant cannot withdraw more than a total of $20,000 each time that she uses the LLP (ITA 146.02(1), "eligible amount").
Total RRSP contribution room
An individual's total RRSP contribution room is calculated as new RRSP contribution room; plus any carry-forward of contribution room from the previous year.
A securities transaction.
in the context of the income attribution rules, this is a sale, whether or not at fair market value, as well as a gift, but it does not include a loan for value.
Transferred or loaned property
in the context of the income attribution rules, this means all transfers or loans of property whether accomplished directly or indirectly, by means of a trust or by any other means.
Travelling expenses
food, beverage, travel fares and lodging expenses, but not motor vehicle expenses.
Short-term government debt. Treasury bills bear no interest, but are sold at discount. The difference between the discount price and the par value is the return to be received by the investor.
An individual or institiution holding property in trust for the benefit of another.
(a) An individual or institution holding property in trust for the benefit of another.
(b) The Income Tax Act requires RESP funds to be held by a corporation licensed to be a trustee.
Trusteed Plan
a fund established according to the terms of a trust agreement between the employer or plan sponsor, and an individual or corporate trustee. The trustee is responsible for the administration of the fund and/or the investment of the monies. The employer is responsible for the adequacy of the fund to pay the promised benefits.
(a) See Toronto Stock Exchange.
Tuition tax credit
A non-refundable credit for tuition fees paid to a university, college or other institution where post-secondary level courses are offered.
(b) A non-refundable credit for tuition fees paid to a university, college or other institution where post-secondary level courses are offered.
Unassisted contributions
contributions that are not eligible for the CESG.
An investment firm that purchases a security directly from its issuer for resale to other investment firms or the public or sells for such issuer to the public.
Unfunded liability
a commitment to make future pension payments that are not adequately supported by accumulated pension funds.
Unit trust
An unincorporated fund whose organizational structure permits the conduit treatment of income realized by the fund.
A life insurance term policy that is renewed each year and which has both an insurance component and an investment component. The investment component invests excess premiums and generates returns to the policyholder.
A life insurance plan composed of a life insurance policy and an investment fund which parents can use to finance their children's education costs.
loans that rely solely on your credit history, reputation and integrity to ensure payment.
Unsystematic risks
risks that depend on the unique characteristics of a particular investment asset. The potential failure of a particular business because of poor management represents an unsystematic risk.
Unused lifetime limit
a limit on the capital gains deduction that corresponds to the portion of the maximum lifetime capital gain exemption that a taxpayer has not yet used.
Valuation days (V-Days)
two dates designated by the government for the purpose of determining the deemed ACB of property owned prior to the introduction of the capital gains system. The V-Days are:
" December 22, 1971, for publicly traded common and preferred shares, rights, warrants and convertible bonds
" December 31, 1971 for all other capital property
a measure of the future benefit that an asset can offer.
an annuity based on contributions that are held in a segregated fund of equity investments, where the amount of the payments are related to the market value of the fund.
Variable life annuity
An annuity providing a fluctuating level of payments, depending on the performances of its underlying investments.
to first become exercisable.
Vested benefits
benefits that have vested with the employee, such that they legally belong to the employee and must be used to provide him with a retirement income.
(a) Refers to the point in time when the employer's contributions become the property of the employee, such that the employee has the right to receive the benefit of those contributions, even following termination of employment prior to retirement.
In pension terms, the right of an employee to all or part of the employer's contributions, whether in the form of cash or as deferred pension.
Voluntary accumulation plan
(b) A plan offered by the mutual fund companies whereby an investor agrees to invest a predetermined amount on a regular basis.
Wage assignment
an optional clause in loan agreements that allows your lender to collect up to 20% of your gross wages directly from your employer to be used for the purpose of paying off your debt.
Certificates allowing the holder the opportunity to buy shares in a company at a stated price over a specified period. Warrants are usually issued in conjunction with a new issue of bonds, preferred shares or common shares.
the difference between total assets and total liabilities; also referred to as net worth.
for OAS, a widow includes widower, and means a person whose spouse or common-law partner has died, and who has not thereafter become the spouse or common-law partner of another person.
A taxpayer can withdraw up to $20,000 from his RRSP under the HBP. He can make more than one withdrawal, as long as the total of all withdrawals is not more than $20,000. If he buys the qualifying home together with his spouse, common-law partner, or other individuals, each individual can withdraw up to $20,000.
Tax is withheld at the source.
An account offered by a investment dealers whereby investors are charged an annual management fee based on the value of the invested assets.
Year's basic exemption (YBE)
a minimum level of earnings set at $3,500, below which no Canada Pension Plan premiums are required.
Yearly maximum pensionable earnings (YMPE)
the upper ceiling on pensionable earnings, beyond which no additional Canada Pension Plan premiums are required. This amount is indexed annually to changes in the CPI.
Annual rate of return received on investments, usually expressed as a percentage of the market price of a security.
A graphic representation of the relationship among yields of similar bonds of differing maturities.
The annual rate of return an investor would receive if a bond were held until maturity.
Young seniors
those who have their health and energy, typically under 75 years of age.