Financial terminology and definitions

ABN (Australian Business Number)

A unique 11-digit identifier that connects businesses with the Australian government, making it easier to navigate tax and business obligations.

Accident only insurance

Life, TPD and income protection insurance that would provide a benefit in the event of death, permanent or temporary disablement caused by an accident. 

Accumulation Fund

A superannuation structure where retirement benefits grow based on contributions and investment returns.

Aged based variable premium (Stepped premiums)

Premiums rates are recalculated each year at renewal based on the age of the policy holder, this structure costs less when younger but increases with age.

Agreed value income protection

Agreed value means that the insured monthly benefit is agreed with the policy owner at time of application and is based on the life insured’s income at that time. At the time of claim the monthly benefit is guaranteed regardless of income at the time. This definition is no longer available under new policies.

Amortisation

The process by which the value of something is reduced over time. Amortisation is often used to describe the outstanding balance of a loan that reduces over time according to scheduled repayments.

Application Fee

A fee charged to cover or partially cover a lender’s internal costs of considering and processing a loan application. This fee sometimes needs to be paid upfront, but is generally paid from the loan funds at settlement. The fee is generally not refundable unless the loan is refused.

Arrears

A payment which has not been made by the due date and is therefore overdue.

Asset Allocation

The strategy of dividing investments among different asset classes (e.g., equities, fixed income, property) to balance risk and reward.

Assets

What an individual currently owns, including but not limited to: properties, savings, cars, home contents, superannuation and investments.

Assessable Income

This is your total income before tax deductions are applied. In Australia, if you are a resident for tax, your assessable income will include income from anywhere in the world.

B

BAS (Business Activity Statement)

Typically filed quarterly buy business owners with the ATO, it typically includes our quarterly income, expenses, associate GST collected or paid, tax withheld for employees wages and amounts due for PAYG instalments.

Basic Variable Rate Loan

A home loan with an interest rate that fluctuates based on market conditions. It typically offers a lower rate than a standard variable loan but may have fewer features and flexibility.

Benefit period

The amount of time that an income protection benefit would continue to be paid if the policy holder is unable to return to work.

Binding Death Benefit Nomination (BDBN)

A legal document that directs who will receive superannuation benefits upon the member’s death. This is often overlooked and leads to complications when executing a person’s will.

Business Succession Planning

A strategy for transferring ownership of a business upon retirement, death, or disability.

Break Costs

Fees charged when a fixed-rate loan is repaid early or when extra repayments exceed the allowed limit during the fixed-rate period. Also known as early exit fees.

Bridging Finance

Short-term funding used to cover the gap between purchasing a new property and selling an existing one.

C

Cash Flow

The lifeblood of your business! It tracks all the money moving in and out, ensuring you have enough to cover expenses and invest in growth. Accountants will often prepare a cashflow forecast to help clients understand their tax liabilities into the future.

Cash Flow Forecast

A financial projection outlining expected income and expenses over a specific period.

Caveat

A legal claim registered on a property title to indicate an outstanding financial interest or obligation.

Certificate of Title (C/T)

An official document confirming property ownership, including land details and any registered encumbrances, such as mortgages or caveats.

Code of Banking Practice

A set of industry standards outlining the rights and responsibilities of banks and their customers.

Collateral

An asset pledged as security for a loan. If the borrower defaults, the lender can seize the collateral to recover the outstanding debt.

Comparison Rate

A percentage that combines the loan’s interest rate with applicable fees to reflect the true cost of borrowing. Required by law to be displayed when advertising regulated loans.

Concessional Contributions

Superannuation contributions made before tax, including employer contributions and salary sacrifice.

Conditions Precedent

Requirements that must be met before a loan is approved or funds are disbursed.

Construction Loan

A loan designed to finance the building or major renovation of a property, typically released in stages as construction progresses.

Contract of Sale (COS)

A legally binding document outlining the terms and conditions of a property sale.

Conveyancing

The legal process of transferring property ownership from seller to buyer.

Credit Limit

The maximum amount a borrower can access under a credit facility.

Credit Report

A record of an individual’s credit history, including past loans, repayment behavior, outstanding debts, and credit inquiries.

Credit Score

A numerical rating based on a person’s credit history, used by lenders to assess creditworthiness.

Corporate Trustee

A company appointed as trustee of a trust. Advisors will often suggest having two directors of the company as a strategy to protect assets.

Corporate Beneficiary

A company that receives beneficial distributions from a trust.

Concessional Superannuation Contributions

From 1 July 2024 you can contribute up to $30,000 of pre-tax income to your super. If your employer contributes less than this, you can contribute extra amounts up to the cap and claim a tax deduction for these extra amounts. It’s a smart way to boost your retirement savings!

D

Debt Recycling

A process of swapping non-deductible debt for deductible debt.

A strategy that converts non-deductible debt (e.g., home loans) into tax-deductible investment debt.

Debt Structure

Proactively structuring and managing your borrowings to significantly reduce your overall cost of debt.

Decline

During the underwriting process depending on your health and lifestyle factors an Insurer may deem you too high a risk to insurer, if this is the case cover will be declined.

Default

Failure to meet a loan repayment or other contractual obligation.

Defined Benefit Fund

A type of superannuation fund where retirement benefits are based on a formula, usually considering salary and years of service.

Deposit

An upfront payment toward the purchase price of a property, typically paid when signing the contract.

Discharge

The process of removing a mortgage from a property’s title once the loan is fully repaid.

Discretionary Trust

A trust structure where a trustee has the discretion to distribute income and capital to beneficiaries, often for tax and asset protection options.

Typically receives income and incurs expenses of which 100% of profits are distributed to beneficiaries at year end and at the trustee’s discretion.

Diversification

Spreading investments across various financial instruments, industries, and asset classes to reduce risk. This reduces risk by minimising your exposure to downturns in individual stocks or assets.

Dividend Imputation (Franking Credits)

A tax credit system in Australia that prevents double taxation of dividends by allowing investors to claim back corporate tax paid.

E

Equity

The difference between a property’s market value and the amount still owed on the mortgage. For example, if a property is worth $500,000 and the outstanding loan balance is $150,000, the equity is $350,000.

Ownership in a company, typically through shares, representing a claim on assets and earnings.

Establishment Fee

A one-time charge by the lender to process and set up a loan. Also called an application fee.

Exchange-Traded Fund (ETF)

A fund that trades on the stock exchange like a share, offering diversified exposure to different asset classes.

Exclusion

During the underwriting process depending on your health and lifestyle factors some conditions may not be covered; these are called exclusions. You would be informed of any exclusions and you would need to agree to these before a policy is completed.

F

Family Trust

A discretionary trust that typically manages family investments, has a family trust election and has family members beneficiaries.

Financial Year

The 12-month period you use for accounting and tax purposes, typically from July 1 to June 30 in Australia. Understanding this timeline helps you plan ahead.

First Home Owner Grant (FHOG)

A government grant available to eligible first-home buyers to assist with the cost of purchasing a property.

Fixed Interest Rate

An interest rate locked in for a specific period, providing repayment certainty. After the fixed term ends, the rate may revert to a variable rate or be re-fixed at the lender’s current rates.

Fixed Interest Securities

Investments such as bonds that pay a fixed rate of return over time, offering lower risk than equities.

Fringe Benefits Tax (FBT)

A tax on non-cash benefits provided by employers, such as cars, entertainment, or salary packaging for employees.

G

Gearing

Borrowing money to invest, which can amplify returns but also increase risk.

Genuine Savings

Savings that have been accumulated or held over a set period (typically at least three months) to demonstrate financial discipline when applying for a home loan.

GST (Goods and Services Tax)

A 10% tax imposed in addition to the provision of most goods and services in Australia, collected by businesses on behalf of the ATO. Businesses remit this to the ATO as part of their Business Activity Statement (BAS)

H

Hedging

A strategy to reduce investment risk, often by using derivatives like options or futures.

I

Income Tax

Calculated from the taxable income at an individuals or entities marginal rate. Understanding marginal tax rates is crucial for smart financial planning.

Income Protection

Insurance which replaces lost income in the event that you are unable to work for a period of time due to illness or injury.

Indemnity income protection

An indemnity definition policy requires the policy holder to provide evidence of income at the time of claim. If income has reduced since you applied for cover, you may be paid a monthly benefit based on this reduced income level.

Interest

The cost of borrowing money, calculated as a percentage of the loan balance and included in repayments.

Interest-Only (IO) Loan

A loan where only interest payments are made for a set period, after which principal and interest repayments typically commence.

Investment Loan

A loan used to purchase a property intended for rental income rather than owner-occupation.

Investment Trust

Typically a family trust, colloquially known as an investment trust as a family might utilise the discretionary trust to own investments with a view to managing tax planning.

J

K

L

Land Titles Office

A government authority responsible for maintaining property ownership records and legal documentation.

Lenders’ Mortgage Insurance (LMI)

An insurance policy that protects the lender—not the borrower—against financial loss if the borrower defaults on a high-LVR loan. The borrower pays the premium as a one-off cost.

Liabilities

A person’s financial obligations, including loans, credit card debt, and other outstanding payments.

Life Insurance

Insurance policy which provides a lump sum payout in the event of the death of the insured.

Line of Credit

A flexible loan that allows the borrower to access funds up to an approved limit and repay them as needed. Also called an equity or all-in-one loan.

Loan Term

The agreed period over which a loan must be repaid.

Loan-to-Value Ratio (LVR)

The percentage of a loan amount compared to the property’s market value. For example, a $270,000 loan on a $300,000 property results in a 90% LVR.

M

Managed Funds

Investment funds managed by professional fund managers that pool money from multiple investors to invest in a diversified portfolio.

Margin Lending

A form of gearing where investors borrow against their share portfolio to increase investment exposure.

Medical Services Trust

An entity that manages all the operation expenses and commitments of a medical practitioner’s sole trader business. This might include employing staff, rent, insurances, billing services, patient management, advertising etc.

Monthly benefit

The amount that would be paid each month while on income protection claim. As this is seen as an ongoing income tax is payable on the benefit.

Mortgage

A legal agreement where a lender provides funds to purchase property and retains the right to claim the property if the borrower fails to meet repayment obligations.

National Consumer Credit Protection Act (NCCP)

Legislation governing consumer credit in Australia, ensuring responsible lending practices. Applies to loans used primarily for personal or residential purposes.

N

Negative Gearing

A strategy where investment expenses exceed income, creating a tax-deductible loss that can offset other taxable income.

NOA (Notice of Assessment)

Following the lodgment of your tax return, the ATO will issue you an official statement, identifying your taxable income and subsequent calculation determining your tax position i.e. what you owe or are owed for the year. It’s like the tax world’s report card!

Non-Concessional Contributions

After-tax contributions made into a super fund, which are subject to contribution limits.

O

Off-the-Plan Purchase

Buying a property before construction is complete, typically based on architectural plans.

Offset Account

A transaction account linked to a home loan, where the balance offsets the loan principal, reducing interest costs and potentially shortening the loan term.

Overdraft

A facility allowing an account to be drawn below zero up to an approved limit, providing short-term access to extra funds.

P

Payroll

Describes the function for paying employees. It includes salaries, superannuation, PAYG withholding, reimbursements and leave. Payroll is now administered through you accounting software and submitted to the Australian Taxation Office via the Single Touch Payroll system.

Pay As You Go Withholding (PAYGw)

An amount of tax an employer withholds from an employee’s salary each pay and remitted to the ATO each quarter. It’s a simple way to prevent a big tax bill for the employee at year.

Pay As You Go Installment (PAYGi)

PAYGi is completely different to, and in no way related to, PAYGw. Think of this as prepaying your next years’ income tax based on your past earnings. In the first instance, you’ll enter the PAYGi system if your notional tax liability from non-salaried income is greater than $500.

Personal Risk Insurance

Financial protection policies such as income protection, life insurance, and total and permanent disability (TPD) insurance.

Portfolio Management

The selection and ongoing management of an investment mix that aligns with a client’s financial goals and risk tolerance. This requires regular reviews and updates to keep your strategy in-line with the movement of the markets, as well as your own changing circumstances.

Power of Attorney (POA)

A legal document that allows an individual to appoint someone to make financial or legal decisions on their behalf. This could be used if a person becomes incapable of making decisions for themselves.

Premium Loading

During the underwriting process depending on your health and lifestyle factors if you are seen as a greater risk to the insurer they may increase the premium of your cover, this is referred to as a premium loading. You would be informed of any premium loadings and you would need to agree to these before a policy is completed.

Preservation Age

The minimum age at which an individual can access their superannuation, currently between 55 and 60 in Australia (as of 2025).

Principal

The original loan amount borrowed, excluding interest and fees.

Principal and Interest Loan

A loan where each repayment covers both the interest due and a portion of the principal, gradually reducing the loan balance.

Q

R

Redraw Facility

A feature that lets borrowers withdraw extra repayments they have made on their loan if needed.

Refinancing

Replacing an existing loan with a new one, either with the same lender or a different lender, often to secure better terms.

Risk Profile

An assessment of an individual’s willingness and ability to take financial risks when investing. This can be increased or decreased based on your own personal preference for risk vs reward.

S

Security

An asset pledged as collateral for a loan, commonly real estate, shares, or savings.

Settlement

The final step in a property transaction where legal and financial arrangements are completed, and ownership is transferred.

Self-Managed Super Fund (SMSF)

A private superannuation fund that individuals manage themselves, offering flexibility but requiring compliance with regulatory obligations.

Sole Trader

If you’re running a business in your own name, this is you! As a sole trader, delivers a personal service or product, collects income in their own bank account and incurs expenses in their own name (including employee staff and renting premises). You enjoy control over your operations and simplified tax reporting, though you also take on personal liability.

Stamp Duty

A government-imposed tax on property transactions. Concessions may be available for first-home buyers, depending on the state and property value.

Standard Variable Loan

A home loan with an interest rate that fluctuates with market conditions, often offering flexible features such as redraw and offset facilities.

Superannuation Contributions Cap

The maximum amount individuals can contribute to super each year without incurring extra tax.

Superannuation Guarantee (SG)

The compulsory contributions employers must make to employees’ super funds, currently at 11% in Australia (as of 2025).

T

Taxable Income

This is your assessable income less any tax-deductible expenses, and what the ATO uses to calculate your final tax liability. Understanding this helps you plan better for tax time.

Tax Return Due Date

That date in which your tax return is due. Tax Agents are afforded a delayed lodgement schedule for their clients and typically include 31 October, 31 March and 15 May in the period following the Financial Year end.

Tax Structure

Organizing your income and assets in a way that minimizes your tax liabilities. A well-thought-out tax structure can save you money and help you reach your financial goals.

Term

The length of time over which a loan or financial arrangement applies.

TFN (Tax File Number)

This special number from the Australian Taxation Office (ATO) ensures that your income is accurately reported and taxed. Any individual or entity required to lodge an income tax return will have a unique tax file number.

Title Search

An official check of property records to confirm ownership details and identify any encumbrances, restrictions, or claims on the title.

Total and permanent disability insurance (TPD)

Insurance which provides a lump sum payout in the event that the insured is unable to ever work again, policies can either protect against the ability to work in either your own or any occupation.

Transition to Retirement (TTR) Strategy

A strategy that allows individuals over a certain age to access their superannuation while still working.

Trauma insurance

Often also referred to as Critical illness insurance this policy provides a lump sum payout in the event of being diagnosed with an insured medical condition.

U

Underwriting

The assessment completed by the insurer when applying for insurance. This assessment is based on an individual’s personal, employment and health information. This assessment will determine the amount and type of insurance cover that the insurer is prepared to offer, and the cost of the insurance is based on the level of risk associated with each individual. Once the underwriting process has been completed, the insurer will be able to decide whether to provide insurance cover, what type, and how much it will cost.

Unencumbered

A property that is free from any financial claims, such as mortgages or liens.

V

Valuation

An assessment of a property’s market value, typically conducted by a licensed valuer for lending purposes.

Variable Interest Rate

An interest rate that can increase or decrease based on market conditions over the life of the loan.

Variable premiums (Level premiums)

Premiums rates are based on the age that the policy holder took out the cover, this structure is more expensive to start with but increases each year shouldn’t be as significant year on year. Additional cover such as CPI increases are priced at the age they are applied to the policy.

W

Waiting period

The amount of time that you must be off work before an income protection benefit would begin to be paid. For example 30, 60 or 90 days.

X

Y

Z

Disclaimer: These terms are presented purely as a glossary of terminology. The information contained in this site is general and is not intended to serve as advice as your personal circumstances have not been considered.

DPM Financial Services Group recommends you obtain personal advice concerning specific matters before making a decision.