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Approved Deposit Fund (ADF): A type of rollover fund, which can accept your ETP. An ADF can hold your ETP until you are ready to withdraw it (eg upon retirement).

After-tax benefit: Your superannuation or income stream benefit after any tax is deducted.

Allocated annuity
An income stream similar to an allocated pension but offered by a life office, rather than paid from a superannuation fund.

Allocated pension: A type of income stream paid from a superannuation fund. The income stream can be varied each year within government-prescribed minimum and maximum limits. Your pension payments are a mixture of investment earnings and the return of your capital (purchase price of the pension). You can buy an allocated pension only with eligible termination payments that are 'unrestricted non-preserved benefits'.

Annuity: An income stream that pays a regular income, either for a fixed term (usually called a 'term certain' annuity), or for life. A complying annuity is a special type of annuity that complies with specific conditions that enable you to qualify for the pension RBL.

Approved early retirement scheme: A scheme approved by the Australian Taxation Office where the services of employees of a particular age and/or occupation are terminated to enable reduction in the number of employees or replacement of these employees with younger employees. Payments made under an Approved Early Retirement Scheme are treated for tax purposes in the same way as bona fide redundancy payments.

Assessable income: The amount of income that is assessed for taxation, before any tax deductions are taken into account. Assessable income includes your regular income (such as salary) plus other amounts specifically included by the Income Tax Assessment Act (such as capital gains and ETPs) but doesn't include income exempted under the Act.

Assets test: A test on your assets to determine your social security entitlements. Under this test there is a certain amount of assets you can have before your full entitlement to social security is reduced or cuts out. The level at which your pension begins to be reduced varies depending on whether you are single or married and whether you own your home.

Average Weekly Ordinary Time Earnings: A measure of the average wage and salary level of employees in Australia. Used to index various dollar thresholds such as your RBLs

Beneficiary: In terms of your income stream investment, this is the person who will receive your income or remaining capital when you die. Your beneficiaries may be one or more of the following:

1. your spouse
2. your children
3. any individual who is financially dependent on you
4. your legal personal representative (executor of your estate)

Benefit: A broad term used to describe a superannuation entitlement that is paid to you and/or your beneficiaries. It can be in the form of a lump sum or an income stream.

Bona fide redundancy payment: Money paid to an employee who has been laid off because his/her services are no longer required. Part of such a payment, based on the number of whole years' service with the employer, is tax free, not counted for RBL purposes and cannot be rolled over into a superannuation fund or ADF. For a redundancy payment to be 'bona fide', certain conditions must be met, essentially to ensure that a particular position is terminated and not filled by another person.

Capital gain: The increase in the value of an asset, such as shares or property, over its cost price. A capital gain is 'realised' when an asset is sold, or 'unrealised' when an asset has increased in value but has not been sold.

Capital loss: The decrease in the value of an asset, such as shares or property, in relation to its cost price. A capital loss is 'realised' when the asset is sold, or 'unrealised' when the asset has not been sold. .

Capital Gains Tax (CGT): Tax on capital gains. For superannuation funds, CGT applies to assets sold since 30 June 1988. For other entities and individuals, CGT applies to assets acquired after 19 September 1985. If an asset has been held for more than 12 months, a lower rate of CGT may apply to any realised gain on the asset.

Capital Gains Tax exempt component: An ETP component comprising a capital gain arising from the sale of small business assets. A CGT exempt component may be retained by the individual who derived it, or rolled over into a superannuation fund. The CGT exempt component is exempt from CGT and contributions tax when rolled over into a superannuation fund. It is also exempt from CGT in the hands of the individual. If the individual is aged less than 55, he/she must roll it over to maintain its exempt nature.

Commutation: The process of converting all or part of your income stream into a 'lump sum'.

Complying pension or annuity: An income stream that satisfies certain rules so that it is assessed for tax purposes under the pension RBL instead of the lump sum RBL. By being assessed under the pension RBL, a greater portion of the pension/annuity will be taxed at concessional rates.

Conditions of release: Grounds upon which you can withdraw all or part of your superannuation benefits:

1. Retirement after reaching your preservation age
2. Death
3. Temporary or Permanent incapacity
4. Severe financial hardship
5. Attaining age 65
6. Compassionate ground
7. Leaving an employer who has contributed to your superannuation fund.

Contributions surcharge: An additional tax on employer and personal tax-deductible superannuation contributions. Levied on high-income earners.

Contributions tax: A common term that describes the tax that a superannuation fund pays and deducts from your employer and personal tax-deductible contributions. The current contributions tax rate is 15%.

Consumer Price Index (CPI): The 'All Groups Consumer Price Index' is a measure of the annual inflation rate. It is based on the prices of certain goods and services and represents changes in the cost of living. It is used to increase various payments and thresholds in the superannuation system to ensure they keep pace with the cost of living.

Deductible amount: The annual tax-free component of a pension or annuity payment. It is calculated by dividing the undeducted purchase price of the pension/annuity by the 'relevant number'.

Deductible contributions: Superannuation contributions, which are claimed as a tax deduction.

Deeming: A method of assessing your entitlement to social security benefits under the Income Test for the Social Security Pension. Deeming assumes that certain financial investments are earning a specified rate of interest regardless of whether they are. Current deeming rates for singles are 3.5% on the first $31,600 of financial investments plus 5.5% on the balance. The threshold for pensioner couples is $52,600 combined. For non-pensioner couples, the threshold is $26,300 for each person.

Dividend: The distribution of part of a company's net profits to shareholders, i.e. what you earn for investing in shares.

Eligible service period: The period of service and/or superannuation fund membership as it relates to an ETP. Where your ETP has been rolled over, your ESP includes the time you are invested in the rollover fund.

Eligible Termination Payment (ETP): ETPs are lump sum payments from a superannuation fund, approved deposit fund or deferred annuity. They also include CGT exempt components and some employer payments such as 'golden handshakes'. ETPs are concessionally taxed and can be used to purchase an income stream.

Excess (Excessive) benefits: The part of any retirement benefit you receive which is in excess of your RBL. An excess benefit received as a lump sum is taxed at the highest personal rate of income tax plus the Medicare levy. An excess benefit received as a pension or annuity is not eligible for the 15% tax rebate on pension and annuity payments.

Franking credits: See ?imputation credit?.

Fringe benefits: Non-cash remuneration provided by an employer to an employee. Fringe benefits may include the provision of motor vehicles, discounted loans, company shares or health insurance. The value of the fringe benefits may be subject to Fringe Benefits Tax, at a rate of 48.5%.

Imputation credit: Under the dividend imputation system, an investor in shares may earn a tax credit (usually known as an imputation credit but sometimes known as a franking credit) for dividends received from a company that has already paid Australian company tax. The tax credit can be used to reduce the tax payable on these dividends or as an offset against tax payable on other income.

Income stream investments: An umbrella term used to describe investments that provide regular payments, such as: allocated pensions, allocated annuities and fixed term pensions and annuities.

Income test: A test on your total income to determine your entitlement to social security benefits. The amount of income allowed before your benefits are reduced also depends on such factors as your marital status and number of children.

Key Features Statement (KFS): A summary of the key features of a superannuation fund. This statement must be given to an applicant before becoming a member of a public offer superannuation fund, or within three months after becoming a member of a non-public offer superannuation fund. A KFS must also be given to prospective employer sponsors before they become standard employer sponsors of a public offer superannuation fund.

Life expectancy: The number of years that, on average, people of a particular age are expected to live, based on statistical results from the Australian population. These statistics are published in the Australian Life Tables prepared by the Australian Government Actuary.

Lump sum: A single payment, as apposed to a stream of payments. An ETP is a type of lump sum.

Managed investment
A form of investment where individual investors pool their funds in a unit trust, which is managed by a professional investment manager on behalf of those investors. Investors acquire units in that trust which are assigned a value based on the underlying assets of the trust.

The pooling of funds, which is typical of managed investments, can allow investors to achieve diversification by investing across different asset classes such as shares, fixed interest and property, through the one vehicle. Managed investments also allow investment in assets not otherwise accessible to individual investors (eg major property, overseas investments).

Medicare levy: A tax of 1.5% on your taxable income, used to fund Australia's Medicare system. High-income earners who do not have private health cover may have to pay a higher rate. Low-income earners may be exempt from the Medicare levy, or eligible for a lower rate. The Medicare levy cannot be offset by tax rebates.

Ordinary savings: This term is commonly used to differentiate accumulated personal savings from Eligible Termination Payments and superannuation monies.

Pension: A regular periodic payment to a person, such as the Social Security Pension or a superannuation pension. A superannuation pension is paid out of superannuation benefits accumulated in a superannuation fund.

Pension age: The age at which you are entitled to receive Social Security or Department of Veteran Affairs (DVA) benefits.

The current pension age for a Social Security pension is 65 years for males and between 60 and 65 years for females depending on their date of birth (see table below).

Date of birth Pension age
before 1 July 1935 60 years
1 July 1935 - 31 December 1936 60 years, 6 months
1 January 1937 - 30 June 1938 61 years
1 July 1938 - 31 December 1939 61 years, 6 months
1 January 1940 - 30 June 1941 62 years
1 July 1941 - 31 December 1942 62 years, 6 months
1 January 1943 - 30 June 1944 63 years
1 July 1944 - 31 December 1945 63 years, 6 months
1 January 1946 - 30 June 1947 64 years
1 July 1947 - 31 December 1948 64 years, 6 months
1 January 1949 onwards 65 years

The current pension age for DVA benefits is 60 years for males and between 55 and 60 years for females depending on their date of birth (see table below).

Date of birth Pension age
before 1 July 1940 55 years
1 July 1940 - 31 December 1941 55 years, 6 months
1 January 1942 - 30 June 1943 56 years
1 July 1943 - 31 December 194 56 years, 6 months
1 January 1945 - 30 June 1946 57 years
1 July 1946 - 31 December 1947 57 years, 6 months
1 January 1948 - 30 June 1949 58 years
1 July 1949 - 31 December 1950 58 years, 6 months
1 January 1951 - 30 June 1952 59 years
1 July 1952 - 31 December 1953 59 years, 6 months
1 January 1954 onwards 60 years

Post-June 1983 component: Part of your superannuation benefit that relates to employment service or fund membership after 30 June 1983

Pre-July 1983 component: Part of your superannuation benefit that relates to employment service or fund membership before 1 July 1983.

Preservation: Generally, this means having to keep your money in the superannuation system until you have satisfied a 'condition of release' (e.g. reaching age 65; permanently retired after reaching your preservation age).

Preservation age: Your preservation age depends upon your date of birth, as follows:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 ? 30 June 1961 56
1 July 1961 ? 30 June 1962 57
1 July 1962 ? 30 June 1963 58
1 July 1963 ? 30 June 1964 59
After 30 June 1964 60

Preserved benefits: Benefits that must be kept in the superannuation system and cannot be withdrawn until you have satisfied a 'condition of release' (e.g. reaching age 65; permanently retired after reaching your preservation age).

Product Disclosure Statement (PDS): This is the equivalent of the Key Features Statement under the Financial Services Reform Bill.

Purchase price: The lump sum payment used to buy an income stream. It can be either 'ordinary savings' or an 'ETP'. Although allocated pensions can only be purchased or commenced with ETPs, annuities can be purchased with either ordinary savings or ETPs.

Qualifying portions: Portions of any benefits (ETPs, pensions or annuities) previously received by you that are to be taken into account in determining whether your current benefit is to be assessed against your lump sum RBL or pension RBL.

Reasonable benefit limit: A limit on the amount of certain retirement benefits you can receive that are taxed at concessional rates. It applies to ETPs, superannuation pensions/annuities, and CGT exempt components.

There is a lump sum RBL, which applies to ETPs and CGT exempt components and a pension RBL, which applies to pensions and annuities. These are generally dollar amounts, which are indexed each financial year.

The part of any benefit you receive, which is in excess of your RBL, is known as an excessive benefit.

Relevant number: The number by which you divide the 'undeducted purchase price' of an income stream investment to calculate the annual 'deductible amount'

For income streams payable for life, the relevant number is the life expectancy of the income stream recipient at the date of purchase. Where there is a reversionary beneficiary, the relevant number is the longer of the life expectancies of the two recipients.

For income streams payable for a fixed term, the relevant number is the actual term.

Residual capital value (RCV): The capital amount that is paid back to you at the end of the term of your pension or annuity. Complying pensions and annuities do not have a residual capital value.

Restricted non-preserved benefits: Benefits that can only be withdrawn from the 'superannuation system' when you have met the 'condition of release' where you leave an employer who has made contributions to a superannuation fund on your behalf.

Reversionary beneficiary: The person who you have nominated to automatically receive your income stream upon your death. Once nominated, a reversionary beneficiary generally cannot be changed.

Risk: The probability that an investment will perform worse than its expected outcome.

Rollover: The process of transferring ETPs into a rollover fund, or superannuation fund prior to retirement. Rolling over allows for deferral of tax that would have been payable had the ETP been retained by the individual.

Rollover fund: An umbrella term used to describe investments such as Approved Deposit Funds and deferred annuities into which you can invest ETPs and other superannuation benefits prior to retirement.

Salary sacrifice: A tax-effective arrangement in which your employer contributes to a superannuation fund on your behalf instead of paying you the equivalent in salary.

Substantially self-employed: If you are self-employed but also perform some work as an employee, you will be 'substantially self-employed' if no more than 10% of your income comes from your salary as an employee.

Superannuation fund: An investment fund that provides benefits generally for retirement purposes. Complying superannuation funds are those that satisfy the conditions specified under the Superannuation Industry (Supervision) Act or "SIS" in order to attract a concessional rate of tax (currently 15%).

Superannuation Guarantee: The Superannuation Guarantee Administration Act ('Super Guarantee' or 'SG') was introduced in 1992 to make it compulsory for employers to contribute to superannuation for their employees. The minimum level of contribution is expressed as a percentage of each employee's salary (8% in 2001/2002, 9% for subsequent financial years).

Superannuation system: The network of entities that hold superannuation monies:

1. Superannuation funds
2. ADFs
3. Annuities
4. Deferred annuities
5. RSAs
6. The Tax Office as holder of ?unclaimed money?
7. State or Territory authorities as holders of ?unclaimed money?
8. Tax-exempt public sector superannuation schemes.

Tax deduction: An outgoing or expense that can be used to reduce taxable income. Generally, in order to be claimed as a tax deduction, an expense must have been incurred in the course of producing assessable income, or be specifically allowed as a deduction under the Income Tax Assessment Act.

Tax rebate: An amount that reduces dollar-for-dollar the tax you have to pay. A tax rebate can only offset the amount of tax payable and generally won't result in a tax refund.

Tax payable: Taxable income multiplied by the applicable tax rate(s), reduced by any tax rebates and tax credits available.

Taxable income: Assessable income (including net capital gains) less tax deductions.

Unclaimed money: Superannuation benefits that have become payable to a member because the member has satisfied a 'condition of release', but cannot be paid because the member cannot be located by the fund's trustee.

Undeducted contributions: Superannuation contributions made out of your after-tax income and not claimed as a tax deduction. These contributions are not subject to contributions tax, are not taxed when withdrawn and do not count towards your RBL. There is no limit on the amount of undeducted contributions you can make.

Undeducted purchase price (UPP): The UPP is that portion of the purchase price of a pension or annuity for which no deduction has been claimed.

Each year, a portion of the purchase price of your pension or annuity is returned to you as part of your pension or annuity payments. This portion is deductible from your pension or annuity for income tax purposes (i.e. 'deductible amounts') and correspondingly reduces your UPP. The remaining part of the purchase price that you have yet to claim as a tax deduction is your 'unused undeducted purchase price' (UUPP).

The UPP of a superannuation income stream is the sum of the 'Undeducted Contributions', 'Post-June 1994 Invalidity' and 'CGT-exempt' components of the purchase price. The undeducted purchase price for a non-superannuation income stream is its full purchase price.

Unit trust: An investment that allows individual investors to pool their funds, by purchasing units, to enable the trustee of the trust to invest in shares, fixed interest and property (e.g. a property unit trust) on their behalf.

Unrestricted non-preserved benefits: Benefits that have previously met a 'condition of release' and therefore can be withdrawn as an ETP from the superannuation system at any time.

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