PLAIN ENGLISH / DEFINITIONS

Money words,
plainly explained.

A growing glossary of essential Australian financial terms. For formal definitions, check the relevant legal or official source.

Asset

Something of value that a person or entity owns.

Budget

A plan recording money coming in, money going out and its timing.

Capital gain

The difference between proceeds and relevant cost-base amounts on disposing of an asset, subject to tax rules.

Compounding

Returns being applied to a value that can include earlier returns.

Concessional contribution

Certain superannuation contributions that have special tax treatment and legislated caps.

Diversification

Spreading exposure across holdings, sectors or asset types. It cannot remove all risk.

ETF

Exchange-traded fund: a fund with units that generally trade on an exchange.

Effective tax rate

Total tax expressed as a percentage of the relevant taxable income.

Franking credit

A tax credit associated with eligible Australian franked dividends; rules and eligibility matter.

HELP

Higher Education Loan Program; repayments depend on current Australian legislation.

Inflation

A rise in the general price level over time that reduces purchasing power of a dollar.

Interest-only loan

Loan structure where scheduled payments may not reduce the principal during an interest-only period.

LITO

Low income tax offset; eligibility and amounts are income-year specific.

Liquidity

How quickly and reliably an asset can be converted into spendable money.

Managed fund

Pooled investments managed according to a stated mandate.

Marginal tax rate

Tax applied to an additional dollar within the relevant taxable-income bracket, before other complexities.

Medicare levy

An Australian tax levy whose rules and concessions depend on income and circumstances.

Offset account

Eligible bank account whose linked balance can reduce the loan principal used to calculate interest.

PAYG withholding

Tax amounts withheld from wages and other payments under ATO schedules.

Product Disclosure Statement

Document describing features, risks, costs and terms of a regulated financial product.

Return

Change in investment value plus relevant income over a period, depending on how measured.

Salary sacrifice

Agreement where an employee forgoes part of pre-tax salary for certain benefits, subject to rules.

Sequence risk

Risk that the order of gains and losses affects financial outcomes, particularly during withdrawals.

Super guarantee

Employer contributions for eligible workers calculated under Australian superannuation rules.

Taxable income

Income after applicable deductions determined under tax law.

Volatility

Extent to which an asset’s value or returns vary over time.