The words nobody explains

How these entries are written

Every entry below says what a word means. None of them says whether the thing the word names is useful, or whether it applies to you. That is deliberate. This site gives factual information only, and one stray adjective would turn a definition into something else.

You will also notice that caps, rates and thresholds are missing. Those numbers change, sometimes annually, and a page carrying them goes out of date quietly — it looks exactly the same as it did when it was right. So each entry describes the mechanism and names the body that publishes the figure.

The terms are grouped by where you are most likely to meet them rather than listed alphabetically.

Words on loan documents

**Comparison rate.** A comparison rate is a single percentage that folds a loan's interest rate together with certain fees and charges. The National Consumer Credit Protection Regulations set out which fees are counted, which are excluded, and the standard example — a fixed loan amount over a fixed term — that the figure is calculated on. Because that example is fixed, the rate shown in an advertisement is not calculated on the loan any particular person is applying for.

**Loan-to-value ratio (LVR).** LVR is the amount borrowed divided by the lender's assessed value of the property securing the loan, expressed as a percentage. The figure used is the lender's own valuation, which can differ from a sale price or an agent's appraisal. Lenders apply LVR inside their credit policies, including in setting the point at which lenders mortgage insurance is required, and each lender sets its own thresholds.

**Offset account.** An offset account is a transaction account linked to a loan account. Interest on the loan is calculated on the loan balance reduced by the balance sitting in the offset account, rather than on the full loan balance. The money in the offset account remains available to withdraw, and the reduction applies only while the balance is there. Whether an account offsets in full or in part is set out in the loan contract.

**Redraw.** Redraw is the withdrawal of money that was paid into a loan above the required repayments. Payments above the minimum reduce the balance; a redraw takes some of that amount back out, and the balance rises again by the amount taken. The contract sets whether the facility exists, any minimum amount or fee, and when the lender can change or remove access.

Words on super statements

**Preservation age.** Preservation age is the age, set in superannuation law, at which preserved super can be released, provided a condition of release such as retirement is also met. It is worked out from date of birth. It is a separate thing from Age Pension age, and from any retirement age written into an employment contract.

**Ordinary time earnings (OTE).** OTE is the defined term in the superannuation guarantee legislation for what an employee earns for their ordinary hours of work. Employer super contributions are calculated as a percentage of OTE, so the definition sets the base the percentage is applied to. The Commissioner's ruling SGR 2009/2 lists what falls inside it — over-award payments, shift loading, commission, some allowances — and what falls outside, including pay for hours worked outside ordinary hours.

**Concessional contribution.** A concessional contribution is money that enters super from income that has not had personal income tax taken out of it first: employer contributions, salary-sacrificed amounts, and personal contributions for which a tax deduction is claimed. Contributions of this kind are taxed inside the fund and counted against an annual cap. The rate and the cap are both set by law and both change, so they sit on the ATO's site rather than on this page.

**Consolidation.** Consolidation is the transfer of balances from more than one super account into a single account. Each account closed in the process stops charging its own fees, and any insurance cover attached to that account ends at the same time. The ATO's online services list the super accounts recorded against a person's tax file number and provide the mechanism for transferring between funds.

Words that turn up at tax time

**Franking credit.** When an Australian company has paid company tax on its profits and then pays a dividend out of them, it can attach a franking credit to that dividend representing the tax already paid on that share of the profit. The shareholder includes both the dividend and the credit in assessable income, and the credit is then applied against the tax assessed on it. The arrangement is called the imputation system, and the dividend statement shows whether a credit is attached.

**Capital gain.** A capital gain is the amount by which what you receive for disposing of an asset exceeds its cost base — broadly, what the asset cost you, plus certain costs of acquiring, holding and disposing of it that the tax law lists. Where the amount received is less than the reduced cost base, the difference is a capital loss, which is applied against capital gains rather than against other income. A gain is included in assessable income for the year the CGT event happens. Discounts and exemptions apply in circumstances the law defines.

**Effective rate.** An effective rate is a rate worked out from an actual total rather than read off a schedule. An effective tax rate is total tax divided by total income for a year, as a percentage, which is a different figure from the marginal rate — the rate applying to the last dollar earned. In lending, an effective interest rate restates a quoted annual rate to account for how often interest is compounded within the year. The phrase alone doesn't say which of the two is meant; the document it sits in does.

Words about amounts that move

**Indexation.** Indexation is the adjustment of an amount over time in line with a published index, following a rule written into legislation or a contract rather than a decision taken each time. The rule names the index — often the Consumer Price Index or a wage measure published by the Australian Bureau of Statistics — the period measured, and how the result is rounded. It is why some tax thresholds, government payments and super figures change on a set date each year without a separate announcement for each one.

The same word has a narrower use in capital gains tax, where indexation names an older method of adjusting the cost base of assets acquired before a date set in the law.

Where these definitions come from

None of this wording is ours. Comparison rate is defined in the National Consumer Credit Protection Regulations 2010. Ordinary time earnings comes from the superannuation guarantee legislation and the Commissioner's ruling on it. Preservation age, concessional contribution, capital gain and franking credit are all terms the ATO publishes its own definitions for. The indexes behind indexation are published by the Australian Bureau of Statistics.

The links below go to those pages, each with the date it was checked. Every one of them carries its own update date, and that is where the current wording sits, along with any figure attached to it.

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