A

See Hedge funds.

See defined contribution.

An index that shows the progress of the accumulation of capital growth and dividends paid.  Contrasts with a price index.

Income streams where the amount paid is related to the balance of the member's account by factors related to the member's age (allocated income streams) or the remaining term of the income stream (market linked income streams).   Superannuation funds offering such pensions need no actuarial certificate in respect of the 2004 - 05 and subsequent years.

See indexed funds.

Tests imposed by Centrelink to oblige recipients of unemployment allowances to genuinely seek work.

Your taxable income plus employer contributions to a superannuation fund.  It is used to determine liability for superannuation surcharge tax.

Grossed up fringe benefits are included in its definition. Click here for other income definitions.

See Australian Financial Services Licenses. 

An allocated income stream drawn from an insurance office. 

For information on its tax and Social Security treatment, see income streams.

An income stream under which the funds supporting each individual contract are allocated to individual payees.  This contrasts with arrangements for unallocated income streams such as lifetime annuities and complying pensions where funds for all payees are pooled. 

The income stream must be within minima and maxima which depend on your age and the balance of your account. See rates.

With an allocated  income stream your benefits cease when your individual account is exhausted, not when you or your nominated reversioner have died.  You do not lose your funds on early death but are not guaranteed  payments for your whole life.  Thus, you have no protection against living too long.

If  the investments of an allocated income stream perform well (poorly), you benefit (suffer).  Thus,  you have no protection against poor investment performance or high inflation.

Allocated income streams contrast with unallocated income streams under which the provider bears the risk of longevity and investment performance.

For information on its tax and Social Security treatment, see income streams.

An allocated income stream  drawn from a superannuation fund.

For information on its tax and Social Security treatment, see income streams.

Money paid to you by Centrelink while in specified circumstances .   The difference between an allowance and a benefit is that the circumstances giving rise to an allowance are possibly temporary.  For example, sickness, unemployment, study and children's allowances. Benefits are paid in permanent situations.

Allowances have different means tests from benefits and different treatment of your partner's income and assets.

Some allowances involve activity tests.  Activity tested allowances are subject to the liquid assets waiting period and income maintenance period.

Under modern portfolio theory, the return of a particular investment is modelled as

R = A + B x

Where R is the return,

A is the particular stock's above market return (known as alpha) and

B is the proportion of market movement that the stock has historically recorded (known as beta)

Across all stocks in a market, the average Beta is 1.  A high beta stock (Beta >1) magnifies, (gears or levers) market return.

A code issued by APIR Systems Ltd to uniquely identify an investment manager, investment or superannuation fund.

An income stream normally paid by an insurer on a regular basis at least once per year.

Tax and Social Security treatments are described with income streams.

That part of your income which will be assessed for income tax.  You subtract your tax deductions to get your taxable income.  See what is determined by your assessable income.

Grossed up Fringe benefits must be taken into account in some cases.

The choices that an investment manager makes concerning the proportions of the assets of a collective investment invested in each asset class.  It is a noun when describing the assets of the investment and a verb when discussing the value added (conducting an attribution analysis).

Major grouping into which managers can invest funds held by them.  The groupings can be sectorial or regional.   Asset classes generally have their own indices. When dealing with composite investments, asset classes are generally higher level than when dealing with sector specific investments.  For example, composite investments may regard Australian shares as an asset class while a share based investment may regard industrial shares or even say transport sector shares as an asset class.

The arrangements under which your Social Security payments are reduced if your assets exceed a threshold.  The threshold depends on your conjugal status, whether you are a home owner and the allowance or benefit you are receiving. The assets test is not subject to any formal indexation. This means it may gradually become harsher.  Click for current details. Your assets may include assets of private companies and/of trusts with which you are "involved". See Involvement and Control.

The process of identifying where value has been added to a collective investment over a period.

Value is normally added (or subtracted) by asset allocation, stock selection and currency management.

Licenses which commenced to be issued in January 2002 and are mandatory from March 2004 for the provision of financial product advice.

The government body responsible for the financial soundness of banks, deposit taking institutions, insurers (life and general but not health) and superannuation funds (except excluded funds). Visit its site at www.APRA.gov.au.

The Government body responsible for consumer protection in respect of investment and insurance matters and registration of companies.  It superseded the Australian Securities Commission. Visit its site at www.asic.gov.au.

The Government authority charged with the administration of the Australian tax system and the regulation of excluded superannuation funds.   Visit its site.

On the DIOA site, investments are distinguished by their availability to new subscriptions.   Most are O)pen to new investors, some are open to new investments from E)xisting investors and some are C)losed to any new investment.

The process whereby many amounts used in the calculation of tax on ETPs and some pensions are increased in July to reflect increases, if any,  in the Average Weekly Ordinary Time Earnings published by the Australian Bureau of Statistics over the year ended at the previous March.

The actual index used, in relation to a quarter, is the amount of the full-time adult average weekly ordinary time earnings first published by the Australian Statistician for the middle month of that quarter.  It is contained in Table 3 of ABS 6302.0.

When AWOTE indexation is used to adjust previously received Eligible Termination Payments, Section 140ZA(4) of the ITAA 1936 requires that the previous payment be multiplied by the index in the second last quarter (related to the current quarter) and divided by the index in the quarter of payment.

Current rates and parameters are shown in the rates and parameters section.  Some entries in this glossary have links to specific parts of this section.  For the others, please click to the opening page of that section.

Click to view detailed indexation formulae for various situations.

B

See Binding Financial Agreement.

A neutral asset allocation adopted by the manager of a collective investment as the standard by which to measure its performance and the long term average asset allocation that it considers appropriate for the investment.

The extent to which the manager of a collective investment is prepared to back its judgement and diverge from the investment's benchmark.  The greater the divergence the greater the chance of returns diverging (either way) from the benchmark return. It is influenced by an investments' tracking error.

The divergence ascribed to an investment on the DIOA site is a DIOA opinion often, but not always, formed after discussion with the manager.

The return that would have been achieved by investing in the benchmark asset allocation.  It is a combination of the returns that have been achieved by the accumulation indices of the asset classes included in the benchmark.

The combination is in proportion to the proportions of the asset classes in the investment's benchmark.

Money paid to you by Centrelink on attaining a specified status.   The difference between an allowance and a benefit is that the circumstances giving rise to an allowance are possibly temporary.  For example, sickness, unemployment, study and children's allowances.  Benefits are paid in permanent situations such as age and permanent disability.

Benefits have different means tests from allowances. 

See Alpha.

See Financial Agreement.

An instruction that you give the trustees of your superannuation fund concerning your death benefit.  Unless a binding nomination is in force, the trustees have unfettered discretion in determining to whom a death benefit should be paid.  If the superannuation fund's trust deed permits a binding nomination, you can give such a nomination.  The nomination must be renewed every three years (earlier if the fund's rules require) and must be signed in front of two disinterested adult witnesses.

The requirement for three year renewals does not apply to excluded funds.  For such funds some people suggest "hard wiring" the nomination into the Trust Deed to ensure that the nomination does not become lost.

The difference between the amount that an investment fund will charge for an incoming investor to buy a unit and the amount the fund will pay to buy a unit back from an outgoing investor.  The difference reflects the brokerage and stamp duty costs that the manager incurs in buying and selling investments.

C

Tax that applies to profits on sale of most assets acquired after 19 September 1985.   It excludes your family home for the period that it was your family home.  For assets acquired before 2 October 1999, you have a choice of paying tax at full rates on the gain from the indexed cost base at 30 September 1999 or paying tax at your normal rate on half (two thirds for superannuation funds) of the gains.  The five year averaging that applied before 1999 no longer applies. 

On death, capital gains tax liability is triggered.  Assets passing on death are deemed to have been acquired at the date of death and for the value at the date of death.

On divorce or Family Law property settlements, capital gains tax is not triggered but the person acquiring the assets takes over the assets history for CGT purposes.

The proceeds of the sale of a small business, up to $500,000 and under strict conditions can be rolled over to a superannuation fund.  This amount does not attract capital gains tax but is included in determining whether you have excess benefits.  It also suffers lump sum tax.  It does not suffer superannuation contributions tax nor is it surchargable.  As the income is not received by the taxpayer, it is not part of any other definition of income.   It is essential to plan usage of this very carefully.

Investments in which the return of the amount you have invested and the interest you have earned is guaranteed by an organisation such as a life insurance office.

The price you pay for the capital guarantee is often lower return.

Click here for more information on risk and return (including DIOA's unique personal risk angle).

See investment choice for commentary on suitability.

Investments of a lower risk, lower return nature.

These generally aim but do not promise to avoid loss of capital over one year periods. Over shorter periods, losses are possible. The price you pay for capital stability is often lower return.

Click here for more information on risk and return (including DIOA's unique personal risk angle).

See investment choice for commentary on suitability.

DIOA classifies capital stable investments as "composite low equity". This classification reflects the fact that stability comes from having a low proportion of equity investments.

You may get Carer Payment if you provide constant care, in the home of the person under care, to:

• a person aged 16 or over with a severe disability or medical condition, or
• an adult with moderate care needs and supervision of their dependent child if this child is:
  • under six years of age, or
  • between six and 16 years of age and attracts payment of Carer Allowance, or
• a child under the age of 16 with a profound disability or medical condition, or
• two or more children under the age of 16 with severe disabilities or medical conditions
  
  AND
  
  
• you meet the income and assets tests
• you are an Australian resident or allowed to live here permanently (a two year waiting period may apply for recently arrived migrants).

The person you care for needs to:

• be over 16 and getting an income support payment from Centrelink, a Veterans' Affairs Service Pension or Partner Service Pension, or
• be unable to get any of these payments because they have not lived in Australia long enough to qualify, or
• meet the special care receiver income and assets limits, and
• be an Australian resident.

Carer's payment is subject to assets and income tests related to the carer and the caree.  See Centrelink website.

The Government agency charged with the administration of the Social Security legislation.   Visit its site.

See Capital Gains Tax.

The ability of  people  to choose after June 2005, the superannuation fund to which their employer makes Superannuation Guarantee Charge contributions on their behalf is established by Part 3A of the Superannuation Guarantee Administration  Act available at AustLII.  This ability does not apply to members of State or Federal Government superannuation schemes nor to people subject to certain industrial awards.  Nor does it apply to people whose employer offers defined benefit superannuation.

As a general rule, DIOA considers people are best served to be members of industry or corporate funds.  The reason is that these funds have available the same investment opportunities as public offer funds but have lower administration costs.  These lower fees come from the fact that these funds generally pay no commissions.  They may also be subsidised by the employer.

Choice of funds is an issue different from that of member investment choice wherein you have the opportunity to choose within your fund, not between funds.

The superannuation industry body, ASFA, has a useful web page called super guru for information of individuals and employers.

An arrangement under which the Government subsidises undeducted contributions by low income people.   The arrangement commenced in the 2003/04 financial year.  When introduced, it provided that the Government would match contributions up to a maximum of $1,000 for people whose assessable income plus grossed up reportable fringe benefits was $27,500 or less.  As income exceeded the lower threshold, the maximum subsidy fell by 8 cents per dollar of excess income finally phasing out at $40,000.  The co contribution will be effected by an automatic deposit to your fund in the financial year after you make the contribution.  From July 2004, the subsidy is $1.50 to $1.00 for assessable income plus grossed up reportable fringe benefits   greater than $28,000 with a maximum of $1,500 and a 5 cents per dollar of income phaseout concluding at $58,000.

Investments in which the savings of a large number of people are collected and managed by a manager.  Your entitlement to the income and assets of the "scheme" is in proportion to the number of units you hold.  Collective investments are regulated by the Australian Securities and Investments Commission.

The conversion of an income stream back to a lump sum.  Complying income streams  cannot be commuted except within the first six months or to arrange another complying income stream.  From October 2003, you cannot use the six months rule to withdraw cash from an income stream which itself was purchased from a commutation.

A comparative rate of interest on a loan which allows you to compare the true costs of borrowing allowing for fees and charges and reversion to normal rates after an introductory period.  The manner of calculation is set out in Regulation 12 of the the Queensland Credit Regulations which forms the basis of the nationwide Uniform Credit Code.

An  income stream drawn from an insurance office which more or less precludes you from ever regaining control of your capital.  That is, you must commit to receiving a lifetime income with possible loss on early death and gain on late death. 

From 20 September 2004, market linked income streams are regarded as complying.

The word "complying" originally related to compliance for superannuation reasonable benefit limit (RBL) purposes but is now extended to include "Tier 3" compliance for Social Security purposes (see Tiers for Social Security Purposes).

Generally, the income stream must be payable for your lifetime and may be payable for your partner's lifetime but your partner cannot get more than you would have received.  It can not be payable beyond the maximum term certain  if you and your partner both die within that time and it must not be decreased unless to reflect a reduction in the CPI. 

Generally, these income streams cannot be reduced.   For lifetime income streams annual increases at least at the rate of increase of CPI are required   [SIS Regulation 1.06(2)].

Fixed term income streams can not be increased faster than at the greater of 5% per annum and CPI inflation plus 1%. [SIS Regulation 1.06(7)]

The income stream cannot be commuted except within the first six months or to arrange another complying income stream and you cannot use it as security for borrowings.     From October 2003, you cannot use the six months rule to withdraw cash from an income stream which itself was purchased from a commutation.

The income stream cannot have a residual capital value.

If you are beyond pension age, an income stream with a fixed term of your life expectancy rounded up to the next whole year is regarded as compliant for RBL and social security purposes.

If your rounded up expectancy is more than 15 years, any term between 15 years and the expectancy is compliant.

Complying  pensions parallel complying  annuities except pensions are provided by superannuation funds.

For information on its tax and Social Security treatment, see income streams.

An  income stream drawn from a superannuation fund (including a DIY or excluded fund) which more or less precludes you from ever regaining control of your capital.  That is, you must commit to receiving a lifetime income with possible loss on early death and gain on late death.  You can however use a DIY fund to preserve capital for your family but with the risk of insufficiency if you live too long. See Lurks and Loopholes.

Note that unless legislation is changed, DIY or SMSF funds will not be able to offer defined benefit complying income streams after June 2005 and can only offer such income streams to people who either retire after age 55 or turn 65 before 1 July 2005, were members of the fund on 11 May 2004 and became entitled to the pension after 11 May 2004 but before July 2005.   Income streams complying on or before 11 May 2004 are still complying.  People who join a SMSF after 11 May 2004 cannot receive a complying income stream.

The word "complying" originally related to compliance for superannuation reasonable benefit limit (RBL) purposes but is now extended to include "Tier 3" compliance for Social Security purposes (see Tiers for Social Security Purposes).

From 20 September 2004, market linked income streams are regarded as complying.

Generally, the income stream must be payable for your lifetime and may be payable for your partner's lifetime but your partner cannot get more than you would have received.  It can not be payable beyond the maximum term certain  if you and your partner both die within that time and it must not be decreased unless to reflect a reduction in the CPI. 

Generally, these income streams cannot be reduced.  For lifetime income streams annual increases at least at the rate of increase of CPI are required  [SIS Regulation 1.06(2)]. 

Fixed term income streams can not be  increased faster than at the greater of 5% per annum and CPI inflation plus 1%. [SIS Regulation 1.06(7)]

The income stream cannot be commuted except within the first six months or to arrange another complying income stream and you cannot use it as security for borrowings.     From October 2003, you cannot use the six months rule to withdraw cash from an income stream which itself was purchased from a commutation.

The income stream cannot have a residual capital value.

If you are beyond pension age, an income stream with a fixed term of your life expectancy rounded up to the next whole year is regarded as compliant for RBL and social security purposes.

If your rounded up expectancy is more than 15 years, any term between 15 years and the expectancy is compliant.

Complying annuities parallel complying pensions except annuities are provided by insurance offices.

For information on its tax and Social Security treatment, see income streams.

A condition of release is a condition that must be met before funds can be released from a superannuation fund.  This can occur when you reach age 65, retire on or after reaching your preservation age,  when you die, if you are incapacitated in the terms of the superannuation law definition, if you can prove financial hardship or you commence a transition to retirement income stream.

See Superannuation Contributions Taxation.

See Involvement and Control for Social Security implications of controlling a private company or trust.

A quarterly index of consumer prices released by the Australian Bureau of Statistics indicative of the general cost of living frequently used to increase pensions.

A superannuation fund sponsored by an employing corporation.  It is generally run by a board of trustees drawn equally from the employing corporation and the members of the fund and may have its administration costs subsidised by the employer.  See Choice of funds.

The process whereby many amounts used in the calculation of tax and Social Security benefits are increased to reflect increases, if any, in the Consumer Price Index published by the Australian Bureau of Statistics. Click to view CPI numbers. Click to view detailed indexation formulae for various situations.

The extent to which the manager of a collective investment with foreign assets exposes the investment to the risks of changes in value occasioned by changes in currency values and the processes used to do this.

The manager can do nothing about currency management in which case the investment is regarded as "unhedged". Alternatively, the manager can fully hedge the investment. 

In some cases, managers actively manage currencies so that the proportions of the investment denominated in various currencies bears no particular relationship to the proportions invested in the currencies' countries.

D

The code assigned by an Investment Manager to DIOA. Use of this code on an application form identifies an application as DIOA sponsored and gets you savings.

The benefits paid to your estate or dependents on your death.  Unless your superannuation fund allows and you have effected a binding nomination, the Trustees of your fund determine to whom your benefit will be paid.

If the death benefits exceed your pension RBL, the excess is taxed at the highest marginal tax rate. To the extent that other funds go spouses (legal or de facto), children under age 18, financial dependents, to people in domestic and financial "interdependency relationship" with the deceased (eg   homosexual partners, aged parent, siblings living together), they are tax free.   To the extent that the other funds go to other people, they are subject to normal lump sum tax of 15% for funded benefits and 30% for other benefits.  In both cases the Medicare levy applies.  

If there are any unused undeducted contributions or undeducted purchase price, they are withdrawn tax free.

The amount by which your taxable income or tested income for Social Security   purposes will be reduced to reflect the fact that some of the payments in an income stream represent a return of your own capital. 

It is calculated as

(Undeducted purchase price - Residual capital value)
Expected term of payments

The expected term of the payments  called the "relevant number".   It is your life expectancy if the income stream is a lifetime annuity with no reversion to any other person.   If there is a reversion the longer of your and the reversioner's life expectancies is used.  If the income stream is for a specified number of years, that number of years is used.

If you commute a complying income stream or withdraw undeducted contributions from an allocated income stream, your deductible amount is recalculated as

(Undeducted purch price - Res capital value - Deductible amnts  used- withdrawn undeducted)
(Original expected term of payments - time since commencement)

Where Deductible amnts used = deductible amount * years paid.

For example, ignoring residual capital values, if you originally had $100,000 undeducted and a life expectancy of 20 years, your annual deductible amount would be $5,000.  If you used this for 3.5 years and then withdrew $10,000 undeducted contributions, you would have used up $17,500 of undeductible contributions (3.5 x $5,000).  You would have 16.5 years of the original expectation  remaining.   Your new annual deductible amount would therefore be

($100,000- $17,500 - $10,000) 
16.5

or $4,394.

Note that while a deductible amount is available regardless of how long you live, if you live beyond the expected term of payments and for any reason recalculate your undeducted contributions or undeducted purchase price, you will have used up all of your undeducted funds and no longer benefit from the deductible amount.

Click here to see how your death effects your deductible amount.

Click here to see the treatment of undeducted amounts if your spouse "takes over" your  income stream.

The process whereby Centrelink deems you to have received a certain income on financial assets regardless of the actual income and capital growth you receive.  Two different deeming rates apply - a lower rate up to a limit (which is different for couples and singles) and a higher rate thereafter.  Click for current details.

Fees charged by operators of retirement villages and aged care facilities on vacation.   Also known as deferred facilities fees.  These allow retired people to enjoy a standard of accommodation that might not be possible on their capital assets.  As a skin process, it needs careful consideration.

Be warned that some DMFs are triggered by a change to a higher level of care.  This can be a serious problem and needs careful investigation.

A superannuation fund structure under which your benefits are defined in terms of your final salary or final average salary.  In these funds, the members share the risk of promotion, salary inflation and investment performance.  They contrast with defined contribution or accumulation funds where the balances of individuals' accounts determine benefits.  There are restrictions on DIY funds offering defined benefits.  Click for details.  Fixed term income streams are regarded as defined benefits.

A superannuation fund structure under which your benefits are defined in terms of the accumulation at interest of your contributions and  those of your employer.  In these funds, the members individually bear the risk of promotion, salary inflation and investment performance.  They contrast with defined benefit funds.

Also known as accumulation funds and in the pension phase as account based benefits.

In most of these funds you can choose your own investment strategy.

Social Security provisions that allow Centrelink to deem that you still have assets that you have given away or sold for less than their true value.   They apply if you (as an individual or couple) give away more than $10,000  in a financial year (pension year before July 1999) and they last for five years.

Be warned that these provisions can go back to before you started on the allowance or benefit.

People often give assets to children at the rate of  no more than $5,000 per year to avoid these provisions.

Investment contracts which derive their value from the value of another investment, currency, price , interest rate or index. Derivative instruments are generally available only on a wholesale basis.

Examples are "futures" and "options".

Derivative investments are generally highly geared or leveraged and carry the risk of losses more than the value of the investment.

Not for the faint hearted or unsophisticated investor.

For the purposes of Social Security benefits, you are deemed to be disabled if you have a physical, intellectual or psychiatric impairment of 20% or more and a continuing inability to work. That is if your impairment prevents you, within a 2 year period, from doing any work or undertaking education or vocational or on-the-job training likely to re-skill you for work.

For superannuation purposes, you are deemed to be disabled if two medical practitioners certify that your health is such as would make it unlikely that you will ever be able to engage in any occupation for which you are reasonably qualified by education, training and experience.

Trusts in which the distribution of income is at the discretion of the trustee. Contrasts with unit trusts. There are important tax implications of these trusts.

The interest rate used in calculating the present value of a payment or series of payments.

The extent to which you avoid having all "eggs in one basket".  The "baskets" involved are classes of asset (e.g. shares, property, fixed interest investments), regions, the organisations which manage the investments and the organisations that have custody of and accounting responsibility for the investments.

Money paid to you from a share or unit trust. In the case of shares, it represents your proportion of the earnings of a company that the directors choose to distribute. In the case of a unit trust, it represents your proportion of the earnings of the trust.

Dividends can carry imputation credits, in which case they are called "franked".

See excluded superannuation funds.

See deferred management fees.

E

A payment from a superannuation fund or another benefit paid as a result of termination of employment excluding accrued leave.

A legal authority for other person(s) to act on your behalf when you are incapable of doing so. Strongly recommended for everyone.

See Taxation and Social Security Environments.

Investments that involve the ownership of assets rather than the lending of money. Examples are shares in companies, property and collective investments that themselves invest in equity investments.

Collective investments that prohibit investment in companies deemed socially undesirable by some people (for example, alcohol, tobacco, forestry, munitions & nuclear industry involved companies). Definitions will vary between investments. See the particular investments' prospectuses.   Also known as Socially Responsible Investments.

That part of your eligible termination payment which is in excess of your reasonable benefit limit. Your total ETP excluding only undeducted contributions and capital gains tax exempt rollover is tested against your RBL.  This is regardless of what proportion is pre 1983.  Excess benefits are taxed at your marginal tax rate and are, unlike other superannuation benefits, available to your creditors if you are bankrupt. 

Superannuation funds with less than five members, none of which are employees (except working directors). Also known as "DIY funds" or self managed funds.

These are subject to lighter disclosure and reporting requirements than larger funds.  This reflects the fact that they are often family funds with no unrelated employees needing consumer protection.

They can choose to be regulated by the Australian Tax Office, not APRA.

They need to have a trust deed and a trustee, prepare an annual tax return, be audited annually and, if they are paying income streams other than account based income streams, have an actuarial certificate every year.  If the pensions are lifetime pensions, the actuarial certificate must be annual and must certify whether there is a 70% probability of the fund being adequate.  Actuarial certificates for allocated pensions are required triennially to cover up to and including the 2003 - 04 year.

They are used by people who want to make their own investments and conduct their own affairs.

They used to have the advantage that you could use franking credits to offset contributions tax. However, now that unused rebates are paid out, this advantage no longer applies. See Franked Dividends.

They are also useful if you have a larger balance.  These funds can use cheaper wholesale investments and more than offset the costs of running the funds by these savings.

To justify their costs, you need to have at least $200,000 invested in these funds.

All members must be trustees and all trustees must be members. The exception is in the case of single member funds.  These can have any person other than the fund member's employer or a person associated with the  employer as a trustee.

Fees charged by fund managers to investors leaving an investment.  These fees have two components - buy / sell spreads and commission recoveries.  On the DIOA site, only investments which have commission recovery exit fees are described as having exit fees.  Exit fees make it difficult to ensure clients get the benefit of DIOA's commission waiver.  For this reason, DIOA's investment search allows you to filter out those investments with exit fees.

F

Agreement between parties before during or after a marriage. It can deal with assets and superannuation issues.   If both parties have separate independent advice before signing, the agreement becomes a "Binding Financial Agreement" which can only be varied on application to the Family Court.

Assets held by you which are in the nature of cash and marketable securities. Centrelink deems these assets to have earned a particular rate of income regardless of their actual earnings. Click for current details.

Real estate, and physical assets such as collections, vehicles and furniture are not financial assets.

A document that must be provided before you engage the services of a holder of an Australian Financial Services License.  It must detail the licensee's service, remuneration and dispute resolution procedures.

An income stream with a fixed term of year life expectancy rounded up or any period between 15 years and your life expectancy rounded up if that is greater than 15 years.  If purchased after your pension age, it is a complying pension or annuity for tax and Social Security purposes.

Fixed term pensions generally may not fall and may not increase faster than the lesser of 5% and CPI + 1%.

A fixed term income stream is a defined benefit income stream and subject to restrictions for self managed or DIY superannuation funds.

See Morningstar ratings.

Dividends on shares with imputation credits attached. A company is able to declare that a percentage of a dividend is "franked" depending on the amount of tax the company has already paid. If a company pays the full company tax rate, the dividends are fully franked.

Your income is imputed to be the dividend plus the tax already paid by the company and your tax payments are imputed to be included in the tax paid by the company.

Your taxable income is increased by the amount of imputation credits and your tax is reduced by the same amount.  Since 1 July 2000, individuals and superannuation funds can get a refund of imputation credits if the credits exceed their tax due.

Non cash benefits provided to you by your employer.  If these exceed $1,000, they are "grossed up"  and included in your statement of earnings.

Grossed up fringe benefits are added to your income for the purposes of the Superannuation surcharge, the Family Tax Benefit, the Medicare levy, Higher Education Contributions Scheme, Spouse contribution rebate, Superannuation contribution taxation and for the purposes of the Child Support Act.  See more income definitions.

See Financial Services Guide.

For superannuation purposes, "full time" employment is defined as not less than thirty hours per week.

Most superannuation funds pay a tax of 15% on any contributions for which you or your employer have claimed a tax deduction and 15% tax on investment earnings. 

Some superannuation funds (primarily those for some employees of Federal and some State Governments) do not pay the contribution tax.

These two situations are distinguished by calling the funds which pay tax "Funded" and those which don't pay tax "Unfunded".

You can also get eligible termination payments (ETPs) directly from your employer.   These are generally regarded as "unfunded" as no contributions tax has been paid.

All tax treatment of everything to do with superannuation involves adjustments to recognise tax already paid in the "funded" situation or collect that not paid in the "unfunded" situation.

The purpose of Funeral Bonds/Funds is to enable you to accumulate benefits to meet the cost of your funeral expenses. Funeral Bond/Fund investments are payable on death and must be used towards meeting your funeral expenses. Once invested, withdrawals are not permitted (some funds provide a 14 day cooling-off period where you can withdraw your funds should you wish to).

Investments up to $5,000 into Funeral Bonds/Funds are exempt under Centrelink’s Income and Assets Test, including the deeming rules. This is also true for any growth in the investment amount.

Investments into a pre-paid funeral plan sponsored by a funeral director are exempt from Centrelink’s Income and Assets Tests and the limit of $5,000 for a funeral does not apply.

From 1 July 2002, there are proposed changes in taxation of investments in Funeral Funds/Bonds. Growth will be subject to fund tax at 30%, but with a full refund of Fund tax when benefits are assessed in the hands of the estate (unless interest in the Funeral Bond/Fund has been transferred to a funeral director. Where a pre-paid funeral plan has been purchased, the benefits will be assessed in the hands of the funeral director (who will also be entitled to claim a credit for the fund tax paid).

G

The process whereby investment returns are magnified by the use of borrowed funds.   The term derives from the concept of gearing as it relates to motor vehicles, bicycles and other machinery.  When the returns that are magnified are positive, gearing is advantageous.  When the revers is true, gearing is disadvantageous.   If a portfolio is 80% geared and its value falls 20% the investor has lost ALL of his or her capital.  Gearing is thus quite risky.

An alternative term is "leveraging".  In this context, it is normally pronounced with a hard "e" as in "egg".

A special case is negative gearing.

Gearing can be achieved through margin loans.

"Grossing up" is the process by which the costs of employer provided fringe benefits (over a limit) are converted to the amount you would have to earn if your suffered the maximum Marginal tax rate and Medicare levy to get the same after tax amount.   Algebraically it is

Grossed up fringe benefits effect several issues listed in description of fringe benefits and in the list of income definitions.

See Market linked income stream.

See minimum term certain.

H

See preservation.

See Higher Education Contribution Scheme

Collective investments that are primarily involved in simultaneously buying and selling in similar markets.  For example, a hedge fund may sell stock it does not own of Company A in the transport sector as it considers it poor value in comparison to other stocks in the same sector.  To "hedge" against the risk of the sector as a whole rising in price, it would buy other stock in the sector or buy the sector's index.  These transactions would typically use derivative instruments.

Hedge funds are benchmarked in absolute terms rather than in terms of an index.  They seek to make money regardless of whether markets are rising or falling.  This contrasts with funds benchmarked to an index which, while performing well, relative to the index may nevertheless lose money.

Most hedge funds employ a number of different managers operating a number of different strategies.

Be warned hedge funds, by investing in  derivative instruments, have the risk of complete loss of capital.  

The process of using derivative instruments to protect a foreign investment portfolio against currency  movements. 

The term is also used for other protection gained from using derivative instruments. A further use is as a general word for protection as in "property is a hedge against inflation".

A stock which exaggerates market movements.  See alpha.

Under HECS, you have to pay part of the cost of your higher education which is funded by the Commonwealth Government and offered at:

• a higher education institute
• the Australian Defence Force Academy
• the National  Institute of Dramatic Arts
• the Australian Film,  Television and Radio School

Higher education award courses  include degrees, diplomas, associate diplomas,   graduate diplomas, graduate certificates, masters qualifying courses,  masters courses and PhDs.

Some courses are exempt form HECS (Ask your educational institute).

I

See Franked Dividends

For the purposes of Social Security benefits, you are deemed to be incapacitated if you have a physical, intellectual or psychiatric impairment of 20% or more and a continuing inability to work. That is, if your impairment prevents you, within a 2 year period, from doing any work or undertaking education or vocational or on-the-job training likely to re-skill you for work.

For superannuation purposes, you are deemed to be incapacitated if two medical practitioners certify that your health is such as would make it unlikely that you will ever be able to engage in any occupation for which you are reasonably qualified by education, training and experience.

The following table shows the income definitions used in major calculations.

If you get payments in lieu of leave on ceasing work, you cannot get activity tested  allowances until you have exhausted the leave paid.  From September 2006, this applies to all income support payments except carers payment.

An investment arrangement involving a formal contract that gives you a  regular income or annuity in return for paying a lump sum to a provider such as an insurer or superannuation fund. 

Investment earnings on funds held to meet income streams are generally not taxed in the hands of the superannuation fund or insurer.  But the income is  taxed when you receive it.   You get a deduction for the fact that some of the payment is a return of your capital.  This is called your deductible amount.

Note that reserves held to meet the 70% certainty test and any other reserves are not supporting pensions and do not benefit from tax exemptions.

Note that the Social Security authorities have their own method of valuation of income streams provided by DIY superannuation funds.  Any surplus is deemed deprivation.

If you buy your income stream using an Eligible Termination Payment (ETP) or it comes from a superannuation fund that has already paid contributions tax (i.e. has a funding status of  "funded"), your tax is reduced by 15% of your income stream less its deductible amount.  This recognises that your superannuation fund has already paid 15%  tax on the money as it went in and 15% tax on investment earnings. These income streams are known as "rebatable".

The rebate does not apply if the purchase price of the income stream (excluding its Undeducted purchase price (UPP) exceeds your reasonable benefit limit. See rebatable income streams.

Allocated income streams after an undeducted purchase price allowance are deemed as income for the Social Security income test and the balance from time to time of your allocated pension is subject to the Social Security assets test.

Social Security treatment of income streams depends on the tier of the income stream as follows

Examples of income streams include allocated pensions, allocated annuities, annuities, market linked income streams and complying pensions.

"The Ralph Committee" has proposed limiting the tax exemption to the amount actually paid in pensions or administration expenses.

An arrangement under which your Social Security payments are reduced by a proportion of the amount by which   your income exceeds a threshold.  The threshold depends on your conjugal status and the allowance or benefit you are receiving. The income test is not subject to any formal indexation. This means it will gradually become harsher.   See also assets test and deeming.

Your income includes income controlled by you. See Involvement and Control.

The grossed up value of fringe benefits is included in this test for certain family benefits.

Indices are measures of movement in an economic concept  such as cost of living or a market such as all shares.

Indices are set to a base of an arbitrary number such as 100, or 1,000 at a particular date.  If the concept or market doubles, the index moves to 200 or 2,000 as appropriate.

There is never any amount such as the cost of living or the share market value - the indices only measure changes in the concept or value.

A market index is a measure of the value of an investment in all of the investments contained in an asset class.  Indices can be price indices (which measure only the value of the asset class) or accumulation indices (which recognise the effect of reinvesting income from the asset class back into the asset class).

Examples are the Standard & Poors/Australian Stock Exchange (S&P/ASX) All Ordinaries index which since April 2000 has measured the value of the largest 500 ordinary shares listed on the exchange and the Dow Jones index of the largest thirty stocks on the New York Stock Exchange.

The process by which payments or tax and social security parameters are amended to reflect changes in an index of an economic variable such as wages and prices.

Often, a fall in the index is ignored in the amendment.

The amendments normally take place annually but social security pensions are indexed half yearly to the Consumer Price Index published by the Australian Bureau of Statistics. Click to view CPI numbers. Click to view detailed indexation formulae for various situations.

The publication of index numbers is delayed after the period to which the index relates.  This means delays are built into indexation formulae.  Some of the detailed formulae follow.

The cost of an asset less any depreciation claim as a tax deduction adjusted for Consumer Price Index inflation.  It is used in determining capital gains tax.  See indexation factors.

Investments which seek to closely follow the performance of a nominated index.

Their proponents justify their existence by pointing out that investments which seek to beat indices often do not do this (particularly after allowing for fees charged).

Indexed funds aspire only to mediocrity but hope that with their lower fees, they produce better after charges returns than other funds.

The indexed funds contrast with active funds.

A superannuation fund sponsored by employers and unions and available to people working in an industry.  It is generally run by a board of trustees drawn equally from the employers' association and the members of the fund.  See Choice of funds.

The process by which a private company solicits funds from the general public and becomes listed on a Stock Exchange. It requires the issue of a comprehensive prospectus or Product disclosure statement. Abbreviated to IPO.

The measure of the investor's return implicit in a series of payments.  It is usually used by large companies to make investment decisions.  It can be used in real estate and project decisions.  The higher the IRR, the better the investment.   But remember risk is important too.

You can regard the IRR as the interest rate that would need to apply for a bank to break even  if you deposited money that you will spend on a project with the bank and it then paid you the income you expect from the project.

Formally, it is the discount rate at which the net present value of a series of payments is zero.

Your ability, with many defined contribution superannuation funds, to choose investment strategy. The strategies have different names in different funds.

Typical names are:

The choice of the strategy best suited to you depends on your personal situation and attitude to risk. Click here for commentary on risk and return, including DIOA's unique personal risk angle.

A general rule is that if the funds are to be spent, rather than invested, within the next three years a lower or no risk option may be better.

In other circumstances, at least moderate and, for people with a seven year or more time horizon, higher or highest risk and return is appropriate.

The major groupings into which investments can be placed.  These groups have their own risk, return and liquidity characteristics. See the sectors DIOA uses.

The sub groupings into which investments within each sector can be placed.  See the DIOA subsectors.

Assets and income of private companies or trusts in which a one is involved and which one controls are taken into account for Social Security means test purposes.

A person is involved in and controls a private company/trust if they or their partner:

• are a shareholder, director or other officeholder of the company or trustee company
• are the appointor, guardian, principal or trustee of the trust
• are able to benefit from the trust or company
• are a unit holder, a beneficiary or included among the categories of beneficiaries of a trust
• are owed money by the company/trust
• have provided, for less than market value, property or services to the company/trust since 9 May 2000
• can expect the director(s), governing director or manor shareholder of the company to act in accordance with their wishes
• can expect the trustee or appointor of a trust to act in accordance with their wishes.

See Initial Public Offer.

See internal rate of return.

J

K

L

Arrangement by a lending institution to lend funds up to a specified amount.  The funds do not have to be drawn down.  This may provide assets test advantages.  While undrawn funds do not suffer interest costs, other costs may nevertheless apply.

United States of America term for gearing.  In this context, it is normally pronounced with a hard "e" as in "egg".

The term derives from the engineering concept of levers under which a small movement at the end closest to the fulcrum is magnified by movement at the end furthest from the fulcrum.

An organisation previously licensed by the Australian Securities and Investments Commission to provide investment or financial planning advice or go to manage collective investments.  Replaced by   Australian Financial Services Licenses.

The average period that you are expected to live having regard to your age and sex.   The taxation treatment of most income streams depends on your life expectancy when you start them. The life expectancies  used in tax calculations are based on the population as a whole and are updated some time after each census.

Income Tax Regulation 9(d) requires that the life expectancy used in determining a deductible amount is that derived from the Australian Life Tables "most recently published before the year in which the annuity first commences to be payable".  Click for your own life expectancy.

The life expectancy is the mean average time people will live, not the time the average (median) person will live.   Slightly more than half the population passes the life expectancy and some go well beyond it. Check your and your partner's situation.

An arrangement whereby an income stream is drawn from an insurer generally until the death of the primary beneficiary and the nominated reversioner. 

You can buy a lifetime annuity from an ETP or from other funds.   If you use ETP funds, the annuity must meet the requirements for complying annuities to get the tax benefits of  pension reasonable benefit limits.

Tax and Social Security treatments are described with income streams.

Generally, the income stream must be payable for your lifetime and may be payable for your partner's lifetime but your partner cannot get more than you would have received.  It can not be payable beyond the maximum term certain if you and your partner both die within that time and it must not be decreased unless to reflect a reduction in the CPI. 

For lifetime income streams, annual increases at least at the rate of increase of CPI are required   [SIS Regulation 1.06(2)]. 

Fixed term income streams can not be increased faster than at the greater of 5% per annum and CPI inflation plus 1%. [SIS Regulation 1.06(7)]

Click for full conditions of lifetime income streams.

Income streams payable for your lifetime and/or your reversioner's lifetime.  They may have up to 100% Spouse Reversion and a  term certain up to the your maximum term certain.  If they are provided from an Excluded or DIY fund, the fund must be actuarially certified as to whether they are 70% certain of being adequate.   Reserves held above those needed for 50% certainty are not free of tax on their investment earnings.  Reserves established above those required by a Social Security formula are subject to Social Security deprivation rules.  .

If a lifetime pension fund falls below 70% certainty there is no tax consequence.  However, if  the recipient is a Social Security Beneficiary, the pension must be commuted and a new (lower) pension from another pension fund is established.

Note that the value ascribed to a pension for Reasonable Benefit Limits is less than its cost.  For this reason, to benefit from the Pension RBL, you must commit more than half of your ETP (eligible termination payment) to this type of pension.

On death of the principal and reversionary member, any remaining funds can stay in the fund or if permitted by the Trust Deed be distributed to dependents.

A lifetime income stream drawn from a superannuation fund.

For information on its tax and Social Security treatment, see income streams.

Generally, the income stream must be payable for your lifetime and may be payable for your partner's lifetime but your partner cannot get more than you would have received.  Lifetime pensions generally must increase at least as fast as CPI.  It can not be payable beyond the maximum term certain if you and your partner both die within that time and it must not be decreased unless to reflect a reduction in the CPI. 

For lifetime income streams annual increases at least at the rate of increase of CPI are required   [SIS Regulation 1.06(2)]. 

Fixed term income streams can not be increased faster than at the greater of 5% per annum and CPI inflation plus 1%. [SIS Regulation 1.06(7)]

In the Social Security context, assets which are readily (within 28 days) convertible into cash.

You cannot get an activity tested allowances until the liquid assets waiting period has expired.

The period (in weeks) is calculated as

See current thresholds and divisors

The Liquid Assets Waiting Period is never more than 13 weeks.

The speed with which you can turn an investment into cash.  Some investments can be quickly turned into cash but there is no guarantee that the amount of cash will be the same as the purchase price. 

Jargon for holding shares.  This contrasts with short. 

The tax applied to the Post 1983 component of an eligible termination payment.  Click for rates.

The amount below which lump sum tax on an eligible termination payment is not paid or in the case of an unfunded benefit, paid at a reduced rate. The threshold is subject to AWOTE indexation.

M

The organisation responsible for the selection of particular investments within a collective investment arrangement. Properly called the "Responsible entity".

A loan generally from a financial institution to support an investment portfolio.  The loan is generally a proportion of the value of the underlying investments.  If the value of the underlying assets falls, the borrower may be required to reduce the loan by selling investments or introducing new capital.  This is called a margin call.  Typically, a margin loan will specify a maximum loan to value ratio for each investment or class of investment that it takes as security.  It will not lend to take the borrowings above that ratio.  Loans where the LVR is above the maximum but still within a small buffer are allowed to continue without a margin call.   The suitability of a margin loan to each investor is a function of the interest rate, the LVR for particular investments and the buffer. 

You can use DIOA's statement of introduction and sponsorship to save on margin loan commissions.

Margin loans are devices for gearing and exhibit all of the benefits and risks thereof.

The tax rate that applies on the next additional dollar of your income.  This is distinct from your average tax rate which is your total tax rate divided by your total taxable income. Click here for general rates.

Investment arrangements in which you place funds with an administration manager of your choice and that manager makes investments in funds managed by other managers. They have the advantage of easy administration and access to funds with large minimum subscriptions. In some cases, you can access investments with very large minima by using master trusts.

Master Trusts used in the above context are also referred to as "wrap accounts".

Master Trusts are also superannuation arrangements where employees of a number of companies participate in subschemes of the whole scheme. They are managed by the trustees but individual companies' people have some decision power through their own "policy committees". They are a very efficient arrangement but are only available if your employer participates in the trust.

Income stream investments that cannot be commuted.   They are regarded as Tier 3 investments for compliance purposes. They are fixed term income streams.  Their term is chosen at the outset and must be between the primary beneficiary's life expectancy if he or she were aged five years younger and his or her life expectancy.  Alternatively, the term can be within the corresponding range for the spouse.  All life expectancies are rounded up and the term can only be a whole number.

Each 1 July, the permissible payment is set having regard to the remaining term (rounded down for July to December commencements and up otherwise.  The balance is divided by a remaining term factor and rounded to the nearest $10.

The remaining term factors are based on a 3.5% real earning rate and payment annually in arrears.  See the factors.

A substantially minority of couples can expect their market linked income stream to be exhausted before the death of the last survivor.  Check your situation.

The maximum period for which a lifetime income stream can be continued after early death.  A pension can be promised for the lesser of twenty years (before 20 September 2004 ten years) and the primary beneficiary's life expectancy at commencement.  (SIS Regulation  1.06(2)).   The life expectancy used is that taken from the appropriate Australian life table.  It does not have to be rounded down and can not be rounded up.

An average obtained by adding a parameter (such as weekly earnings) for each individual and dividing by the number of individuals.  It contrasts with the less commonly used median.

The process by which Centrelink reduces your entitlements to Social Security payments to take account of your wealth. The test has two components, an assets test and an income test. The one which results in the largest reduction applies. Full explanations available on the Centrelink site. You can calculate your own situation.

From January 2002, your wealth may include assets controlled by you.   See Involvement and Control.

An average in the sense that half the population falls below it and half falls below it.  Most commonly used in the Real Estate Institute's median price publications.  It contrasts with the more commonly used mean.   The contrast is often seen in the fact that fewer than half of the people earn more than the published (mean) Average Weekly Earnings.

The process of making a choice between investment styles within a superannuation fund as distinct from between funds.  See Investment choice to help make your own choice.

The minimum amount that must be lodged at each investment transaction.   Separate minima can apply for initial and subsequent investments and where regular periodic investments are made. DIOA's investment search process allows you to view only those investments with a minimum that suits your situation.

Remember that if you invest through a master trust, the minimum of the trust, not the underlying investment, applies.

In an income stream,  the minimum time for which the pension is guaranteed even if you and your reversioner die before the term expires.  For  a complying income stream, this minimum must not exceed your maximum term certain.

In practice, your estate can negotiate a lump sum instead of continued payments.

See Market linked income stream.

Morningstar Star Ratings provide an independent quality assurance ratings of managed investment companies and their investments (products) compared with similar companies and products. Morningstar ratings range from one star (a poor quality company or product) to five stars (an excellent quality company or product).

The absence of an Morningstar ratings implies no comment, positive or negative, about the manager or investment.

Morningstar star ratings accompanied by an exclamation mark (!) indicate that the Morningstar star rating is limited by short performance history.

Morningstar company ratings are an asset-weighted average of the ratings of all of the company's investments.

Visit the Morningstar web site at www.morningstar.com.au

N

Gearing where the cash flow is negative. That is the costs of borrowing and other costs associated with the investment are more than its annual income.   This gives you a tax loss. 

To compensate for the tax loss, the investment must provide substantial capital gains.

Negative gearing is more attractive when interest rates are low relative to inflation and is more attractive to higher taxed individuals.

While often referred to in the context of residential property investments, it can apply to all classes of investments.

The total of the present values of all payments (including purchase price, income, outgoings, interest, taxation and final sale proceeds) associated with a project or investment.  In totalling the payments, income is regarded as positive and outgo negative. Often abbreviated to NPV.

If you calculate the NPV of two projects at a particular discount rate, the project with the higher NPV is the better at that discount rate.  But remember there may be different risks involved.

NPV is normally used to compare projects by calculating their internal rates of return. 

An allowance paid by Centrelink if you are unemployed.  The allowance is subject to an assets test and an income test.  It is also subject to an activity test and if you are young, "work for the dole".  If you are female and over age 60 but under the pension age, you are eligible for the Newstart Mature Age Allowance. This is similar to the Newstart Allowance but you do not have to participate in job searches.

See Net Present Value.

P

Pay As You Go.  The process by which income tax payments are made periodically.  The rates of withholding are usually in accordance with the tax tables published by the Commissioner of Taxation.  PAYG instalments may be paid quarterly or annually depending on certain criteria.

See Product Disclosure Statement..

An income stream normally paid by a superannuation fund on a regular basis at least once per year.

Tax and Social Security treatments are described with income streams.

The age at which you are entitled to a pension from Centrelink. If you have war service, it is age 60. Otherwise, if you are male the pension age is 65 years. If you are female without war service, your pension age is in the table below.  

Factors used to determine the value of  pensions for Reasonable Benefit Limit purposes. 

The factors as they relate to lifetime pensions are published in Schedule 1B of the Superannuation Industry Supervision Act.   Section 140V of the Income Tax Assessment Act 1936 requires the Commissioner of Taxation to promulgate a standard indexation rate to be used where there is CPI indexation.  Taxation Determination TD 96/33 set this at 7% per annum. 

Where a fixed term pension is provided from a source other than arms length purchase, the factors of Taxation Determination 2000/28 apply.  A source other than arms length purchase is generally a DIY superannuation fund.

This a DIOA innovation used to allow you to interpret risk / return charts against the background of your personal risk preference. More details are contained in the investment search help page.

Under the Division 6.5 of the SIS Regulations (Available at www.austlii.edu.au), you have the right to transfer funds from a superannuation account that has been dormant for six months to a fund of your choice.  This only applies to balances in excess of $5,000.

The proportion of an eligible termination payment associated with post June 1983 service.  This   element less undeducted contributions suffers lump sum tax.

That proportion of an eligible termination payment associated with pre July 1983 service. Five percent of this component is taxed as income.

Agreement between parties before a marriage.   In respect of financial matters, it is a special class of  (click to see details) Financial Agreement.

A way of allowing for the fact that money paid in the future is less valuable than money paid now.

For example, if you can earn 8% per annum, $100 payable in one year is equivalent to $92.60 now because $92.60 can earn interest to take it up to $100 one year hence.

In general, if the interest rate is i per annum, the payment is P and is payable N years hence, the present value is

P / [(1 + i) ^ N]

Present values depend on the interest rate used.  This is often called the discount rate.

The prohibition on withdrawing funds from the superannuation environment. From July 1999 the only funds permitted to be withdrawn before preservation age are your own contributions accumulated to that date. All other funds must remain in superannuation funds until a conditions of release occurs or you commence a transition to retirement income stream.

The ages at which you can normally take preserved funds from the superannuation environment. These depend on your date of birth and are as follow.

If you have never been in paid employment and your only superannuation funds are funds created by your spouse's contributions on your behalf, you must wait until pension age to withdraw them.

Jargon for investment or insurance service.  When used as financial product, it refers to core services provided under the Corporations Act.

A document offering a financial product to the public. It must tell you all that you could reasonably expect to know before deciding whether to make the investment or effect the insurance and must disclose all fees and payments to people who manage or sell the products to you.

PDSs for retail investments must be registered with the Australian Securities and Investments Commission.

You should read PDSs before investing or insuring.

A ruling issued by the Australian Tax Office setting out the taxation status of a particular managed investment (normally an investment claiming tax advantages) and the conditions that must be met for this taxation status to apply.  Investors in tax minimisation investments should not invest without reading and understanding the product ruling

A document offering an investment to the public. Now known as a Product Disclosure Statement.  It must tell you all that you could reasonably expect to know before deciding whether to make the investment and must disclose all fees and payments to people who manage or sell the investment to you.

Prospectuses for retail investments must be registered with the Australian Securities and Investments Commission. In some contexts, the term refers to registered prospectuses.  In other contexts it is a generic term for any document offering information about an insurance or investment regardless of whether it is registered with the ASIC.

You should read prospectuses before investing.

Jargon for the organisation providing an investment or similar service.  Providers may be insurers, investment managers or superannuation funds.

A collective investment available to the general public.  DIOA will soon have a page "How to exercise superannuation choice."

R

See Reasonable benefit limit.

See Residual Capital Value.

After allowing for inflation or indexation.  For example, 7% earnings after allowing for 3% inflation gives a real return of approximately 4%.

The exact formula is real rate = (1 + earnings rate) / (1+ inflation rate) - 1

The maximum superannuation benefit which you can get and still keep full tax benefits.

There are two types of limits, pension (applicable when half or more of your entitlements are taken in a form that commits you irrevocably to an income stream in the form of a complying pension or complying annuity) and lump sum (in other cases).  The half or more applies to that part of   your Pre and Post 1983 elements and any capital gains tax exempt rollover that is below the pension RBL.  This includes amounts previously received adjusted for AWOTE indexation.  Click for details of adjustment.

As part of a transition from a former more generous RBL regime, some people have transitional RBLs.  These are ATO approved limits specific to their circumstances. These limits are subject to AWOTE indexation.

That part of a superannuation benefit in excess of the RBL is termed an "excess benefit". More information.

Note that the value that is ascribed to a lifetime pension for the purposes of testing whether half of the entitlement is paid as a pension is less than its cost.   Therefore, you must commit more than half of your entitlement to such a pension. See details on pension valuation factors.

See the Current Rates.

If you buy your income stream using an Eligible Termination Payment (ETP) or it comes from a superannuation fund and the superannuation fund has already paid contributions tax (i.e. has a funding status of   "funded"), your tax is reduced. The reduction is 15% of your income stream less its deductible amount. 

This tax reduction recognises that your superannuation fund has already paid 15%  tax on the money as it went in and 15% tax on investment earnings. These income streams are known as "rebatable" with a rebate percentage of 15%.

You only get the full rebate if  the amount you pay for your income stream less your undeducted purchase price is within your reasonable benefit limit (RBL). In other cases you only get a proportion of the rebate.  Often people with excess benefits apply their RBL to the purchase of a rebatable income stream and use their excess to purchase a non rebatable stream.  This effectively gives a proportionate rebate by a simple process.

The lump sum RBL applies for allocated income streams and the pension RBL applies for complying pensions and complying annuities.

If you bought your income stream between 1988/89 and 1991/92, the rebate percentage is lower.

The process by which commission which would normally be paid to an AFSL holder is not paid but instead applied to increase the amount invested.  For example, an investment of $10,000 might involve an initial fee of 5% of which 4% is payable as commission.  Without rebating, only $9,500 would be invested for your benefit with $400 being paid as commission and $100 retained by the investment manager.  With rebating, the $400 would be applied to your benefit making $9,900 invested for you.  In some cases, the manager’s $100 can also be rebated meaning that the full $10,000 can be applied for your benefit. Savings using DIOA are shown in the investment search.

A strategy whereby you withdraw funds at a low tax rate from superannuation funds and then recontribute them to the fund as undeducted contributions.  This reduces the tax you pay on income streams such as pensions an annuities. 

You can only use this strategy if you are eligible to contribute to superannuation.  In particular, be careful of the employment and age requirements.    Click for an example.

This particular strategy is the subject of an ATO review.  The outcome of the review is likely to be a closure of this loophole.  The date of closure is not known but the industry has been on notice since late in 2003 - 04.  Must be now regarded as a dangerous strategy.

The geographic area in which investments of a collective investment arrangement are held.

The extent to which the manager of a collective investment is prepared to back its judgement in determining the proportions of its portfolio in particular investments.  The greater the relative size of its holdings, the greater the chance of returns diverging (either way) from the benchmark return.

The relative holding size ascribed to an investment on the DIOA site is a DIOA opinion often, but not always, formed after discussion with the manager.

It influences an investment's tracking error.

The expected term of the payments of an income stream.  It is your life expectancy if the income stream is a lifetime annuity with no reversion to any other person.   If there is a reversion the longer of your and the reversioner's life expectancies is used.  If the income stream is for a specified number of years, that number of years is used.

For superannuation purposes, Subregulation 6.01(7) of the Superannuation Industry (Supervision) Regulations defines retirement as the cessation,after the preservation age, of an arrangement under which a person is gainfully employed.  If the person is aged less than 60, the Trustee must be reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time basis.

The amount, if any, that is contracted to be paid back to you as capital at the end of the term of an income stream which has a fixed term.

The organisation responsible for the investment and custody of the assets of a collective investment.

Investments that are not wholesale investments.   They must register a prospectus or PDS with the ASIC. They  generally have higher fees and offer initial and ongoing commissions to  AFSL holders and the opportunity for you to save through DIOA's service.

A low risk / low return superannuation investment offered by banks to the general public. 

A loan by a lending institution to older people against the security of their home.  Interest and charges are not payable until the loan is terminated.   The loan is terminated on the death of the last survivor of the borrowing couple, the sale of the property or its vacation.  Many people are surprised at the high chances of last survivors enduring for a long time.  Check your situation.

This means the loan becomes repayable if you choose or have to go to a smaller home, retirement village or aged care facility.  This needs careful consideration.

The amount lent may vary with the age of the borrower, (typically the youngest in the case of a couple) and may range between 15% and 25% of the value of the property.  The lending institution may restrict the debt to the "proceeds of the home sale".  You need to be careful how the definition of "proceeds" treats selling costs.

Note that Centrelink treats funds derived from a reverse mortgage as assets (with a transition period) with no offset for the debt.  However, if the institution simply grants a line of credit, no asset is created until funds are drawn.

Click here to invoke an Excel spreadsheet to see how your equity erodes with time.

Effecting a reverse mortgage is a skin process.

The  income stream   that is paid to the reversioner after the death of the primary beneficiary (the person who received the initial payments).

The income stream is taxed as income subject to the same rebate entitlement as the primary income stream and a deductible amount.  The deductible amount is calculated by dividing the unused undeducted purchase price by the spouse's life expectancy.

Note however that since the spouse's lump sum is tax free (Click for reason), it is possible to use a recontribution strategy to ensure that the full cost of the spouse's income stream is regarded as undeducted.   This strategy is also attributable to complying income stream which can be commuted by a spouse within the first six months. 

If you want to use this strategy you, the reversioner must be eligible to contribute to a superannuation fund in your own right.  In particular, be careful of the employment and age requirements.

Also, watch the fact that the new spouse's pension has to be based on the recontributed amount, and is not necessarily the reversionary proportion of the primary pension

The proportion of an income stream that would be paid to the primary beneficiary (the person who received the initial payments) if he or she were alive that is paid to the reversioner following the death of the primary beneficiary.

The person(s) to whom the payment of an income stream is made on the death of the primary beneficiary (the person who received the initial payments). This person normally needs to be nominated at the start of the primary payments.  Normally, it is your spouse.

People whose employment carries the risk of law suit. Examples are self employed health professionals, engineers and auditors.

These people often arrange their families' financial affairs so that they hold very few assets in their own names instead having other family members or a trust own them.

Be warned, legislators are looking at this protection.

Rule to determine the period to double a sum at compound interest.  Divide 70 by the interest rate expressed as a percentage to get the time to double.  For example, at 7%  per annum, money will double in about ten (70/7) years. A more precise formula but harder to do in one's head is to divide 72 by the interest percentage.

Its derivation is an example of the elegance of mathematics and the central place of natural logarithms.

With an interest rate of i, an amount of $1 will accumulate to (1 + I )^ n in n years

for the amount to double, (1+i) ^ n = 2

Taking natural logarithms

n* Ln(1+i) = Ln(2)

or Ln(1+i) = 0.6931 / n

Now Ln(1+i) = i -(1/2)i^2 + (1/3)i^3 - (1/4)i^4 + .....

As an approximation, ignore the second and higher powers of i and one has

Ln(1+i) ~= i

So

i ~=0.6931 / n

n ~=0.6931 / i

In the above, i is a number say .06 not a percentage 6%. To express it as a percentage changes the formula to

n ~= 69.31 / p

Say 70 / rate of interest expressed as a percentage.

Hence the rule of 70.

Source Donald DWA "Compound Interest & Annuities Certain"  Cambridge University Press

The term "rule of 72" is used in the Australian Financial Review dictionary of investment terms and derives from the fact that it takes 10 years to double a sum at 7.2% interest.

A method of approximating the interest paid on a loan used before computers were common in consumer finance calculations.

The rule of 78 derives from the fact that the sum of all of the numbers 1 to 12 is 78. In a twelve month contract, it was assumed that 1 /78 of the interest was paid in the first month, 2/ 78 in the second month, 3/78 in the third month and so on. Thus, the proportion of interest deemed to be paid was the sum of all of the numbers from one to the month of termination of the contract divided by the sum of all of the numbers from one to the number of months in the contract term.

S

The process by which your employer provides you with a motor vehicle, laptop computer or pays some of your bills before it pays your salary.  In some cases, your employer pays Fringe Benefits Tax based on a formula.  In other cases, the tax is based on the cost.

Salary packaging motor vehicle leases and laptop computers are generally advantageous if you suffer the top marginal tax rates.

Public Benevolent Institution Employers are exempt from FBT up to a grossed up value of $30,000  for each employee.

Non Profit Hospital Employers are exempt from FBT up to a grossed up value of $17,000.

Rebatable Employers pay a lower rate of FBT up to a grossed up value of $30,000.

For details of your particular case, speak to your employer's Human Resource people or email DIOA.

The process whereby you reduce your salary and your employer pays the reduction to a superannuation fund.  There are two levels of salary sacrifice, offsetting superannuation contributions and further sacrifice.

Offsetting superannuation contributions works if you are paying superannuation contributions out of after tax income.  If you suffer a marginal tax rate of 48.5%,  you need to earn $1.94 to have $1 available to make a superannuation contribution.  If your employer pays this contribution for you, it will generally be taxed at 15% as it enters the superannuation fund.  For the fund to be no worse off, the employer will have to pay $1.18 (1 / (1-.15)).  If this happens, the employer will reduce your salary by the same amount - reducing your take home pay by $0.61.  So you are $0.39 better off for every $1 you salary sacrifice to pay your contributions.  For unfunded superannuation funds, there is no tax on entry.

The next stage is to sacrifice salary not earmarked for superannuation contributions. 

If  you have your salary reduced by $1,942 and your employer contributes that amount extra to your superannuation fund, your after tax income will fall by $1,000.

Superannuation contributions tax of 15% will apply so only $1,650 will be invested in the superannuation fund. Also when you finally retire, you will not get the benefit of the undeducted contributions so that you will pay an extra 15% lump sum tax. Leaving aside any investment earnings, you will take $1,403 from the superannuation fund compared with $1,000 from the old arrangements.

The situation is improved the longer you leave the funds earning in the superannuation fund.

If you suffer the superannuation surcharge, the savings are smaller.  

Be warned if you exceed your Reasonable Benefit Limit the strategy can lose your money.

If you have pre 1983 service, the strategy may not work as well for you because you lose the benefits of changing your pre and post proportions.

Be warned that blatant salary sacrificing can be seen as tax avoidance.  Industry conventional wisdom is that it is safer to salary sacrifice by not taking increases in salary rather than by arranging reductions although some reasonable "packaging" is acceptable. 

Be further warned that you need to check the impact of the changed salary on any salary related benefits that you might get from your employer or superannuation fund.  Generally, you will not be disadvantaged in this regard but it pays to check that this is so.

The extent to which you benefit from salary sacrifice depends on your marginal tax rate, the period for which funds are invested in superannuation, the funding status of your superannuation fund, whether you suffer the superannuation surcharge and the earnings rates involved.

The following tables show the improvement in annual after tax return by using salary sacrifice rather than taking salary and investing the proceeds in a fully taxed environment.  They are based on investment in typical portfolios.

The tables assume one off contributions,rather than annual contributions and withdrawal of funds on retirement.  In practice, they are likely to be taken as income streams rendering the advantage of salary sacrifice greater.

Marginal tax rate 48.5%, 12.5% surcharge and Funded fund

Marginal tax rate 48.5%, No surcharge, Funded Fund

Marginal tax rate 44.5%, No surcharge, Funded Fund

Marginal tax rate 31.5%, No surcharge, Funded Fund

Marginal tax rate 48.5%, 12.5% surcharge, Unfunded Fund

Marginal tax rate 48.5%, No surcharge, Unfunded Fund

Marginal tax rate 44.5%, No surcharge, Unfunded Fund

Marginal tax rate 31.5%, No surcharge, Unfunded Fund

The process of selling stocks one does not own.  If the price of a short sold stock falls, the investor can buy it at less than it was sold and make a profit.  If it rises, the investor has to buy it at a higher price in order to meet its commitment to deliver the stock.  If one has short sold a particular stock, one is "short"  that stock.   This contrasts with long. 

Short selling is effected by derivative instruments and carries significant risk.

A small superannuation fund managed by its members.  They are also called excluded funds and DIY funds. Click for details of benefits of and restrictions on such funds

The Superannuation Industry Supervision Act and Regulations of the Federal Government.  Administered by APRA, this legislation controls much of what superannuation funds do.  For DIY funds, the regulator is the Australian Tax Office.

A process under which assets are consumed during retirement thereby reducing funds available for inheritance by children.  Examples include complying income streams, reverse mortgages and deferred management fees.   Some families find it useful to discuss skin processes before they are invoked.

See self managed superannuation fund.

See Ethical Funds.

See Superannuation contribution splitting.

A measure of the extent that an investment's individual monthly returns vary from the long term average monthly return.  Sometimes standard deviations are expressed as a per annum rather than per month figure.  This never applies to any figures on the DIOA site. 

The standard deviation is generally shown on the horizontal axis of a risk / reward chart. The DIOA investment search help page shows how you can use this to your advantage.

Statement given by your employer to show your total income earned in the financial year from 1 July to 30th of June or part thereof.  Replaces "group certificates".

The process by which an investment manager selects individual stocks from within an asset class for inclusion within the portfolio of a collective investment.  It is a noun when describing the assets of the investment and a verb when discussing the value added (conducting an attribution analysis).

From July 2006, it will be permissible to split superannuation contributions between members of a couple.

Generally, your personal superannuation contributions are not tax deductible.

If you are substantially self employed (with  less than 10% of your income attracting employer superannuation support), you can claim a tax deduction of the lesser of

• the first $5,000  plus 75% of the remainder of your contributions and
• the age based limits referred to below. 

Until 30 June 2003, you could get a tax rebate of 10% of your contributions (up to a maximum of $1,000 - i.e. $100 rebate) if your taxable income is less than $27,000.  The maximum rebatable contribution decreased by 25% of the excess of your taxable income over $27,000 cutting out at $31,000 taxable income.  This was replaced by the co contribution with effect from  1 July 2003.

Both of the above require inclusion of grossed up fringe benefits if your fringe benefits exceed $1,000 per year.

The maximum that can be claimed by an employer as a tax deduction is subject to AWOTE indexation.  It  depends on your age (at the time of the last contribution of the financial year) with different maxima applying below age 35, between 35 and 49 and thereafter. Details

You can claim a tax rebate for contributions for your low income spouse.  The definition of low income and the basis and limits on the rebate are available on our rates and parameters section.

Most superannuation funds pay a tax of 15% on contributions for which you or your employer have claimed a tax deduction. Click here for more information. 

A further superannuation surcharge tax applies to higher income people.

Overriding all of this is the fact that if you are aged 70 or over, you are not entitled to a tax deduction for superannuation contributions unless the contribution has been made within 28 days of the end of the month in which you turned 70 ITAA 1997 Subsection 28(80).

A federal Government requirement that employers contribute a proportion of their employees' ordinary time wages and salaries to superannuation. The proportion is 9%.

Exemptions include

• Those under 18  working less than 30 hour per week
• Those aged 70 or more
• Those earning less than a $1,350 per quarter
• That part of your earnings over the quarterly maximum contributions base and
• Those people who have already reached their pension Reasonable Benefit Limit
• Have ceased gainful employment due to ill health or
• Are on authorised child rearing leave of less than seven years.

Superannuation contributions can be made by you or your employer provided you are aged less than 65  regardless of your work status.

If you are under 70 your spouse can make contributions on your account regardless of your spouse's age and either of your employment situations.

If you are over age 65  but under 70, superannuation contributions by you, your spouse or your employer are permissible provided you worked at least 40 hours in any period of 30 consecutive days during the financial year of contribution.  If you are aged 70 or more but less than 75, your superannuation fund can accept your personal contributions provided that you meet the same work test. 

Your employer can make Superannuation Guarantee Charge payments on your behalf regardless of your age.

You cannot keep funds in the superannuation environment (except if they are supporting an income stream) beyond age 65  unless you are worked at least 240 hours in the preceding financial year  and are aged less than 75. 

For those aged 75 at 30 June 2004, the former 30 hours per week test applies.   For others aged 75 and more, funds can only remain if they are supporting an income stream.

The legislation requires payout or commencement of an income stream action as soon as practicable.  This allows a small period of grace to organise matters.

A tax levied on contributions made to superannuation funds on behalf of people with high incomes.  The superannuation fund, not you or your employer pays the tax.   But your superannuation benefit is normally reduced to allow for the tax.  So, in the end, it really is you who pays. The tax phases in if your adjusted taxable income exceeds a lower threshold.  The full tax applies from an upper threshold. See Current Rates.  The rate of surcharge tax was 15% until and including 2002/3 and reduced by 0.5% in each of the succeeding three years.

The tax applies to superannuation contributions, eligible termination payments received directly from employers and surplus distributions within defined contribution superannuation funds.

T

The income on which your are taxed.  If your assessable income is less than your deductions, see what is determined by your taxable income.

The way in which investment income and capital gains of a collective investment arrangement are taxed both before and after the income and gains are distributed amongst individual investors and the Social Security treatment of the investment for the purposes of both income and assets tests.

If you derive less than 10% of your assessable income from employment, you are deemed to be self employed for the purposes of getting a rebate on superannuation contributions.   In this context, assessable income includes grossed up fringe benefits tax if your fringe benefits exceed $1,000.

See market linked income stream.

See minimum term certain.

A trust created by your will on your death or by your executor to deal with your estate.  If the trust is established within a year of your death, taxation treatment of income paid to child beneficiaries is lighter than would otherwise be the case.

Testamentary trusts can also be used to protect your assets left to your beneficiaries from their creditors particularly if the beneficiaries are risk professionals.

They may also provide some protection in the event of your beneficiaries divorcing.

They do not protect from Social Security means tests.

Classifications of income streams for Social Security purposes.

Tier 1 is an income stream that had, at purchase, a duration of less than five years.  

Tier 3 is an income stream for your lifetime or, if you purchased it after your pension age, an income stream with a fixed term of  your life expectancy (rounded up to the next higher year) or a market linked income stream. If your rounded up expectancy exceeds 15 years, any term between 15 years and the expectancy is permissible.  If you buy an income stream after pension age, it can have a ten year minimum term certain.

Tier 2 is anything that is not tier 1 or tier 3.

Details of income and assets test treatments are shown with income streams.

A statistical measure of the extent to which the performance of an investment diverges from its benchmark's performance.

The ex post (retrospective or hindsight) tracking error is the annualised standard deviation of monthly divergences from the performance of the benchmark.

The ex ante (prospective or anticipated) tracking error of an investment is the expected standard deviation of the divergence of the portfolio's performance from that of its benchmark. The expected standard deviation is determined having regard to the individual investments in the portfolio.

The ex poste tracking error is a fact; the ex ante tracking error is simply a theoretical number.

Managers of collective investments regularly calculate their ex ante tracking errors to avoid the risk of producing a performance too far from the benchmark's performance.

The tracking error (both ex ante and ex post) is influenced by the investment's benchmark divergence and relative holding size.

From 1 July 2005, people who have reached their preservation age but are still employed can commence a transition to retirement income stream.  This can be an allocated income stream or an unallocated  income stream.  The income stream cannot be commuted until a condition of release has occurred.  It may be suspended prior to a condition of release provided it is not cashed out.

See Transitional Reasonable Benefit Limit.

When Reasonable Benefit Limits were changed in 1994, some peoples' limits were already above the changed limits.  To protect their situation they were allowed to apply for a higher transitional reasonable benefits.

These benefits were determined individually and are subject to AWOTE indexation.

If you do not already have a transitional RBL, you can not get one now.

An arrangement under which a person has responsibility for custody and investment of assets to benefit other people (possibly including themselves) often called "beneficiaries".

Examples include family trusts and unit trusts (both public and private).

Trusts can be used to isolate your assets from creditors.  The involvement and control Social Security provisions prevent their use to shelter assets from the means test.

If you divorce, trusts controlled by you (your former partner) will not help shelter your (your former partner's) assets from your former partner (you).

You might find them useful if you are a risk professional.

Note that loans from trusts to beneficiaries must attract market rates of interest and from July 2004, loans from beneficiaries to trusts may attract market rates of interest.

Person or company responsible for administration of a Trust.

The legal document that establishes a trust and sets out the rules under which it operates.

U

An income stream under which the funds supporting each individual contract are pooled in what is really an insurance arrangement.  This contrasts with arrangements for allocated income streams  and market linked income streams where funds for all payees are allocated to individual payees. 

With an unallocated  income stream your benefits continue while the conditions of the contract are still relevant.  For example, they may continue while ever you or your nominated reversioner are alive or for a specified period.   Thus while you have protection against living too long, you may lose money if you die too soon. This is, of course, the essence of insurance.

If  the investments of an unallocated income stream perform well or poorly, you do not notice it as the provider has taken investment risk as well as any longevity risk.

Unallocated income streams contrast with allocated income streams under which the provider does not bear any risk of longevity or investment performance.

Undeducted contributions that have been made or you have made to a Superannuation Fund which have not attracted any tax deduction.  Undeducted contributions are removed from the Post 1983 element of eligible termination payment before calculation of Lump sum tax and excluded from the amount subject to  RBL testing.

If you receive an income stream, undeducted contributions are "used up" at the annual rate of the deductible amount.   If, because of income stream alteration, withdrawal or death, it is necessary to recalculate the undeducted contributions, those used up will no longer be available for removal from eligible termination payments or exclusion from  RBL testing. 

The amount that you spend in buying an income stream that is your own money on which tax has already been paid or which could have been taken tax free in a lump sum from a superannuation fund.  This is used to get your deductible amount.

In the context of the Social Security income test, the UPP is generally the full cost of the income stream, not just the part which has not had a tax deduction. 

However, if you are getting a pension from your employer's defined benefit superannuation fund, the UPP for Social Security Purposes is the same as for tax purposes.

If you receive an income stream, undeducted purchase price is "used up" at the annual rate of the deductible amount.   If, because of income stream alteration, withdrawal or death, it is necessary to recalculate the undeducted purchase price and deductible amount, that used up will no longer be available.  See deductible amount for details of the calculation of the new deductible amount.

Share dividends paid by companies which are not subject to Australian tax. Recipients of unfranked dividends are subject to tax at the normal marginal rate.

Contrasts with franked dividends.

Fully exposed to the effects of currency fluctuations.  While the term is generally used in respect of currency risks, it can be used in connection with other risks that can be removed by the use of derivative instruments.

It is the absence of hedging.

An agreement between the States on the regulation of credit to individuals.  Under the agreement, the Queensland Consumer Credit Act and Regulations for the template for all States legislation.

Collective investment which take the form of a trust wherein your share of the assets, income and tax liabilities is determined by the number of units you hold.

Unit trusts normally regularly distribute their income and capital gains to you. Because they distribute the capital gains the amount you get from year to year can change markedly.

You can withdraw money from unit trusts by surrendering units. Remember that the price you get when you surrender units depends on the value of the trust's investments and can fall as well as rise.

Some unit trusts have restrictions on the timing of withdrawals.

Unit trusts pay no tax in their own right. They are obliged to distribute all of their income and profits or losses to unit holders and the tax consequences of the income, profits and losses automatically flow through to individual unit holders.

After backing down on previous intentions to reduce the tax avoidance usage of these trusts in 2002, the Government has shown reserved interest in this issue.

V

Jargon for the extent to which a collective investment produces a return better than its benchmark return.

Value is normally added (or subtracted) by asset allocation, stock selection and currency management.

W

Investments intended for investors with large amounts of money.  These investments do not require the issue of a prospectus.

Generally, they have lower annual fees and do not have initial entry fees.  So there is no initial commission for you to save.  Wholesale investments do not pay trailing commissions so DIOA gets absolutely nothing from your investment.

While they are not separately identified in DIOA lists, they can be recognised by large minimum subscriptions and fee and commission characteristics as described above.

There is no advantage to you or DIOA in your using DIOA's service to order wholesale investments. Nevertheless, they  are shown on the DIOA site to give a complete service.

DIOA's quick prospectus ordering system does not distinguish between wholesale and retail investments so you must use the refined prospectus ordering system to get these prospectuses or request the managers direct to get prospectuses sent to you.     If you select wholesale investments from the site, perhaps you could consider acknowledging DIOA's help to you by spreading the word.

Arrangement in which all of one's investments are held in a single facility rendering easier the preparation of portfolio valuations, reports and taxation calculations.   See also Master Trusts