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A-B
Annuitant - For RRSP purposes, the individual who is entitled to receive the retirement income generated by an RRSP when the assets of the plan are invested in an annuity, life income fund (LIF), or registered retirement income fund (RRIF). Annuity - A contract sold by an insurance company designed to provide regular income payments to the holder for life (a life annuity) or a defined period (a fixed term annuity), usually after retirement. Asset mix - The percentage of your investments held in stocks, bonds, and money-market instruments (treasury bills, certificates of deposit, short-term government bonds, and commercial paper). Beneficiary - For RRSP purposes, an individual designated as the heir to the assets of an RRSP in the event of the annuitant’s death. Bond - Certificate issued by a borrower, usually a government or corporation. A bond will normally have a fixed interest rate and a set maturity date, at which time the principal will be repaid in full. A typical bond will have interest coupons attached, which are redeemed annually or semi-annually. Book value - The original purchase price of an investment.
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Canada Pension Plan (CPP) – A contributory, earnings-related social insurance program which ensures a measure of income protection to contributors and their families against the loss of income due to retirement, disability or death. Each working Canadian contributes to the plan in the form of either payroll deductions or, for the self-employed, directly via CCRA. The goal of the CPP – along with Old Age Security and the Guaranteed Income Supplement – is to provide retired Canadians with a minimum level of retirement income. (Source: Department of Finance Canada) Canada Customs and Revenue Agency (CCRA) – Formerly Revenue Canada. Among other functions, this federal organization issues regulations regarding registered plans in Canada and frequently audits and monitors them. Canada Premium Bond (CPB) - A new savings product for individual Canadians, introduced by the Government of Canada in 1998. It offers a higher interest rate compared to the Canada Savings Bond and is redeemable once a year on the anniversary of the issue date or during the 30 days thereafter without penalty. (Source: Department of Finance Canada) Canada Savings Bond (CSB) – CSBs are currently offered for sale by most Canadian financial institutions to individual Canadians. CSBs pay a competitive rate of interest that is guaranteed for one or more years. They may be cashed at any time and, after the first three months, pay interest up to the end of the month prior to encashment. These bonds are considered very safe investments. Capital gain (loss) – The profit (or loss) generated on the sale of an asset. It is calculated as the difference between the sale price and the purchase price. If a share is sold at $50 and was purchased at $45, there is a capital gain of $5. Carry-forward – The difference between an individual’s maximum allowable RRSP contribution and the amount of the individual’s actual contribution. Common stock - A security representing part ownership in a company, generally carrying the right to vote on major decisions and to receive dividends. Compound interest - Interest that is earned on interest that has previously been earned. Compound growth helps to further increase the size of your portfolio as you earn income on both your original amount and any previous interest. A deposit compounded at 10 per cent annually will double in about seven years if no money is taken out. Contribution limit – The maximum deduction that may be claimed for an RRSP contribution in any year.
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Deduction Limit Statement – The special section in the Notice of Assessment received from the Canada Customs and Revenue Agency that calculates an individual’s RRSP contribution limit for the current year. Deferred Profit-Sharing Plan (DPSP) - Plan registered under the Income Tax Act into which an employer may make tax-deductible contributions, determined by reference to profits, on behalf of their employees. Payments from the plan received by employees are taxable. (Source: Department of Finance Canada) Defined Benefit Pension Plan - Plan that provides a pension that is generally calculated on the basis of final average or best average earnings and years of service. The amount of defined benefit pension that can be provided under a plan registered under the Income Tax Act is limited, in general terms, to the lesser of 2 per cent of the employee's best average earnings and $1,722 per year of service. The $1,722 limit will be indexed to increases in the average wage starting in 2005. (Source: Department of Finance Canada) Defined Contribution Pension Plan - Plan that provides whatever pension income the accumulated contributions and return on investment in the plan will buy at retirement. Total annual contributions are limited to 18 per cent of earnings up to a maximum of $13,500. (Source: Department of Finance Canada) Deflation - The average rate of decrease in prices. Diversification - An investment technique intended to minimize risk by placing money in a number of securities. In a diversified portfolio, a decline in the value of one stock, for example, would not dramatically affect the overall value of the holdings. Dividend - Payments made to shareholders of a company in the form of cash or additional shares. Earned income – For RRSP purposes, earned income is the annual total of: employment income, net rental income, net income from self employment, royalties, research grants, alimony or maintenance payments, disability payments from CPP or QPP and supplementary UIC payments. Guaranteed Investment Certificate (GIC) - Securities issued by financial institutions, such as banks and trust companies, for a specified term. GICs of up to five years issued by members of the CDIC are covered by deposit insurance up to $60,000. Home Buyers’ Plan (HBP) – A program that allows first-time home buyers to withdraw up to $20,000 from an RRSP for a down payment on a qualifying residence. This withdrawal is not taxed as income and no interest is owed on those funds. There are set terms governing the payback of the loan. Inflation - The average rate of increase in prices. When economists speak of inflation as an economic problem, they generally mean a persistent increase in the general price level over a period of time, resulting in a decline in a currency's purchasing power. Inflation is usually measured as a percentage increase in the consumer price index (CPI). Canada's inflation target, as set out by the federal government and the Bank of Canada, aims to keep inflation within a range of 1 to 3 per cent. If the rate of inflation is 10 per cent a year, $100 worth of purchases last year will, on average, cost $110 this year. At the same inflation rate, those purchases will cost $121 next year, and so on. (Source: Department of Finance Canada) Interest - 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.
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Life Income Fund (LIF) - A Life Income Fund (LIF) is similar to a RRIF in that it provides regular retirement income payments on a predetermined basis. In general, the rules and regulations governing LIFs vary according to pension regulations. A LIF allows you to withdraw an annual payment amount of your own choosing, subject to both minimum and maximum annual payment amounts. In some provinces, a LIF must be used to purchase a life annuity at age 80. Other provinces allow a LIF to be converted to an LRIF. Lifetime over-contribution limit - You are allowed to exceed your RRSP contribution limit as long as you don’t exceed the lifetime maximum over-contribution limit of $2,000. If your over-contribution is more than this, the Canada Customs and Revenue Agency will charge you a penalty tax of one per cent of the excess per month as long as it remains in the plan. Liquidity - The ability to convert a security to cash quickly. Locked-in Retirement Account (LIRA) - If you leave an employer prior to retirement, you may be entitled to pension credits from contributions made to a registered company pension plan while you were employed. Rather than leave these funds under company management, you may choose to transfer your pension credits to a Locked-in Retirement Account (LIRA), also known as a Locked-in RRSP. Generally speaking, funds in a LIRA may be invested in the same way as an RRSP. Like an RRSP, a LIRA matures at the end of the year in which the holder reaches age 69. At that time, you must convert your LIRA to a Life Income Fund (LIF), Locked-In Retirement Income Fund (LRIF) (in Alberta, Saskatchewan and Manitoba only) or life annuity. You may not cash in your plan or take out a lump sum. Marginal Tax Rate - The ratio of the increase in tax to the increase in the tax base (i.e. the tax rate on each additional dollar of income). A single individual earning $40,000 who experiences a $1,000 increase in income and has to pay an additional $452 in income tax has a marginal tax rate of 45.2 per cent ($452 divided by $1,000). (Source: Department of Finance Canada) Money Purchase Pension Plan – see Defined Contribution Pension Plan. Mutual Fund - A mutual fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. Non-registered investments - Non-tax sheltered investments, or those on which earnings are recognized as income in the year they are earned and taxed according to Canada Customs and Revenue Agency regulations. Old Age Security (OAS) - A monthly payment to Canadians age 65 and over. OAS payments are taxable and are reduced for individuals with net income in excess of $55,309. (Source: Department of Finance Canada) Overcontribution allowance - An amount (up to $2,000) of excess contributions permitted to a registered retirement savings plan (RRSP) to provide a margin of error for overcontributions without incurring a penalty tax of 1% a month.
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Pension adjustment (PA) – The amount contributed annually to a registered pension plan, either by an employer or employee. The PA is reported on the T4 slip that you receive from your employer. To find out how your PA is calculated, ask your employer or pension administrator. Pension adjustment reversal (PAR) - You may have noticed that after 1998 you may have additional contribution room from a Pension Adjustment Reversal (PAR). The purpose of the PAR is to restore RRSP contribution room that was previously "lost" from Pension Adjustments (PAs). Quebec Pension Plan (QPP) - A contributory, earnings-related social insurance program which ensures a measure of income protection to contributors and their families against the loss of income due to retirement, disability or death. The plan operates only in Quebec; throughout the rest of Canada a similar program (the Canada Pension Plan) is in effect. (Source: Department of Finance Canada) Rate of return - The level of earnings attained or expected from an investment over a period of time. Registered Education Savings Plan (RESP) – A registered investment vehicle that allows an individual to save for a child's post-secondary education. Registered investment - Any security that is held in a tax-sheltered plan approved by the Canada Customs and Revenue Agency. Registered Pension Plan – A pension plan registered with the Canada Customs and Revenue Agency to provide tax relief for contributions. Registered Retirement Income Fund (RRIF) - A RRIF is tax-sheltered like an RRSP and is set up with the proceeds from and RRSP, but instead of making contributions, you are required to make a minimum annual withdrawal based on your age. This withdrawal is part of your taxable income for the year. The money in your RRIF continues to grow tax-sheltered until withdrawn as income. You can set up your RRIF at the same financial institutions that sell RRSPs. Registered Retirement Savings Plan (RRSP) - An investment plan registered with the Canada Customs and Revenue Agency which allows an individual to accumulate savings and earnings for retirement on a tax-sheltered basis. Revenue Canada – see Canada Customs and Revenue Agency.
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Self-directed RRSP - When you set up a self-directed RRSP, you can make all your RRSP investing decisions yourself – what securities you’ll hold, what your asset mix will be and when to buy or sell. Self-directed RRSPs offer you complete control over your RRSP, and may be worth considering if you are comfortable making your own investment decisions. Financial institutions, full-service and discount brokers offer them, as do financial planners and a number of commission-free mutual fund dealers. Spousal RRSP – An investment plan that is set up for the benefit of a spouse or common-law spouse. Contributions and withdrawals are subject to rules and regulations set down by Canada Customs and Revenue Agency. Survivor benefits - Benefits to which a surviving spouse or other specified beneficiary is entitled upon the death of the policy or plan holder. Treasury bill - Short-term government debt. Treasury bills bear no interest, but are sold at a discount. The difference between the discount price and par value is the return to be received by the investor. Trustee - An individual or organization that holds or manages and invests assets for the benefit of another. Unused deduction room – Also unused contribution room. The difference between an individual’s annual RRSP deduction limit and the amount they actually contributed. The unused amount is “carried forward” and may be contributed at a future time. Vesting - 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 a deferred pension. Withholding tax - The amount of money a financial institution is legally obligated to withhold at source and remit to the Canada Customs and Revenue Agency on funds withdrawn from an RRSP or on RRIF income payments which exceed the minimum annual income payment amount.