Financial Dictionary
financialtools.ca started with a simple idea: give Canadians free, accurate calculators for the money decisions that matter. The Financial Dictionary is the next tool in that mission.
Here you will find clear, jargon-free definitions of the words Canadians actually encounter, from RRSPs to amortization to the OAS clawback. Everything is written for Canada, not adapted from American content that gets our rules wrong, and available in both official languages. Understanding the words is the first step to understanding your money, so every definition connects to a calculator where you can see the concept in action.
This section grows continually, and every definition is reviewed by a CFP® professional.
A
- ACB (Adjusted Cost Base)Your investment's cost for tax purposes: what you paid, averaged across purchases and adjusted for events like return of capital.
- Accelerated Biweekly PaymentsPaying half your monthly payment every two weeks. The 26 half-payments equal 13 months a year, quietly shortening your amortization.
- Accounts PayableMoney you owe suppliers for what you have already received: free short-term financing when managed well, burned bridges when managed badly.
- Accounts ReceivableMoney customers owe you for work already delivered. Sales you have earned but cannot spend yet, and the classic small-business cash trap.
- Accrued InterestThe interest a bond has earned since its last coupon payment. A buyer pays it to the seller on top of the quoted price.
- AmortizationPaying off a debt gradually through scheduled payments that cover both interest and principal, or spreading an asset's cost over its useful life.
- Amortization PeriodThe total time it would take to pay off your mortgage completely at the current payment level, commonly 25 years in Canada.
- Angel InvestorA wealthy individual investing personal money in very young companies, usually before institutions will: cheques, advice and connections.
- AnnuityA contract with a life insurer that converts a lump sum into guaranteed income, often for life. The other path for retirement savings besides a RRIF.
- APR vs Effective Annual RateTwo ways to state the same loan: the advertised annual rate, and what you actually pay once compounding frequency does its work.
- AssetAnything you own that has value: cash, investments, property, a business. One half of the net worth equation.
- Asset AllocationYour split between stocks, bonds and cash: the decision that drives most of your portfolio's risk and return, before any individual pick matters.
- AssurisThe not-for-profit that protects Canadian policyholders if a life insurer fails: annuity income, death benefits, cash values and more.
- Attribution RulesThe rules that tax investment income back to you when you gift or lend money to your spouse or minor children to invest.
- Average (Effective) Tax RateYour total income tax divided by your total income: what you actually pay overall, always lower than your marginal rate.
B
- Balance SheetA snapshot of what a business owns, owes and is worth on one date: assets on one side, liabilities and equity on the other, always in balance.
- Bank of Canada Policy RateThe overnight interest rate the central bank sets eight times a year. It steers prime, variable mortgages, savings rates, and the economy.
- BankruptcyThe legal process that clears most unsecured debts in exchange for surrendering non-exempt assets, administered by a Licensed Insolvency Trustee.
- Basic Personal AmountThe amount of income every Canadian can earn before paying federal income tax, delivered as a non-refundable tax credit.
- Bear MarketA decline of 20% or more from a peak. Normal, recurring, survivable: the price long-term investors pay for long-term returns.
- Beneficiary (Insurance)Who receives the payout when you die: a designation that bypasses probate, with revocable and irrevocable flavours and special Quebec default rules.
- Benefit PeriodHow long an insurance policy keeps paying once a claim starts. On disability insurance the choice between 2 years and to age 65 is the difference between an inconvenience and a solved problem.
- BitcoinThe first and largest cryptocurrency: fixed supply, no issuer, held directly or through the spot ETFs Canada listed first in the world.
- BlockchainA shared ledger maintained by many computers instead of one institution: the record-keeping technology underneath cryptocurrencies.
- Blue Chip StockShares of large, established, financially solid companies with long operating histories. Steadier than most, guaranteed by nothing.
- BondA loan you make to a government or company in exchange for regular interest and your money back at maturity.
- Bond DurationA measure of how sensitive a bond's price is to interest rate moves: roughly, the percentage price change for a 1% rate change.
- Bond LadderSplitting money across bonds or GICs maturing in successive years, so something matures regularly no matter where rates go.
- Break-Even PointThe sales level where revenue covers all costs and profit starts: the first number every business plan should be able to state.
- Bridge FinancingA short-term loan that covers the gap when you buy your next home before the sale of your current one closes.
- BudgetA plan for where your money goes before it goes there. The foundation every other financial decision stands on.
- Bull MarketA sustained market rise, conventionally 20% or more off a low. Wonderful for portfolios, dangerous for judgment.
C
- Canada Disability Savings Bond (CDSB)Up to $1,000 a year of free RDSP money for lower-income beneficiaries, $20,000 lifetime, no contributions required.
- Canada Disability Savings Grant (CDSG)RDSP matching of up to 300% on contributions, up to $3,500 per year and $70,000 lifetime, depending on family income.
- Canada Learning Bond (CLB)Free RESP money for children from modest-income families: up to $2,000 per child with no contribution required.
- Capital Cost Allowance (CCA)The tax system's version of depreciation: writing off equipment, vehicles and buildings over the years at CRA-set class rates.
- Capital GainThe profit from selling something for more than it cost you. In Canada, only half of it is taxed, and only once you actually sell.
- Capital Gains Inclusion RateThe fraction of a capital gain that is taxable: 50% in Canada. The proposed 2024 increase to two-thirds was cancelled.
- Capital Gains TaxThe tax on profit from selling an investment or property. In Canada, half the gain is added to your income and taxed at your marginal rate.
- Capital LossSelling for less than you paid. Painful, but useful: losses offset gains, carry back three years, and carry forward for life.
- Cash FlowThe money actually moving in and out. Profit is an opinion; cash is a fact, and businesses die from running out of it, not from bad accounting.
- Cash Flow StatementThe statement that tracks actual cash moving through operations, investing and financing: the truth-teller of the three financial statements.
- CCB (Canada Child Benefit)The tax-free monthly payment for families with children under 18: up to $8,157 per young child for 2026-27, shrinking as family income rises.
- CDIC (Canada Deposit Insurance Corporation)The federal Crown corporation that insures eligible bank deposits up to $100,000 per category if a member institution fails.
- CESG (Canada Education Savings Grant)The 20% federal match on RESP contributions: up to $500 a year and $7,200 lifetime per child, plus extra for modest incomes.
- Charitable Donation Tax CreditA non-refundable credit returning part of what you gave to registered Canadian charities, at a low rate on the first $200 each year and a much higher rate above it.
- CIPF (Canadian Investor Protection Fund)Protection for your investment accounts if a brokerage fails: up to $1 million per account category for missing property, not market losses.
- CIRO (Canadian Investment Regulatory Organization)Canada's self-regulatory body overseeing investment dealers, mutual fund dealers and advisors, formed from the 2023 IIROC-MFDA merger.
- Clean Price vs. Dirty PriceA bond's quoted (clean) price excludes accrued interest; the dirty price you actually pay includes it.
- Closed MortgageThe standard Canadian mortgage: a lower rate in exchange for limits on prepayment and a penalty if you break the term early.
- CMHC (Canada Mortgage and Housing Corporation)The federal Crown corporation behind most mortgage default insurance in Canada, housing programs, and market research.
- CollateralThe asset a lender can seize if you stop paying. For mortgages, how the charge is registered (standard vs collateral) affects switching lenders.
- Common ShareThe standard form of company ownership: voting rights, dividends when declared, last claim if things go wrong, unlimited upside if they go right.
- Commuted ValueThe lump sum today that replaces your future defined benefit pension if you leave the plan. It moves inversely with interest rates.
- Compound InterestInterest earned on both your original money and the interest it has already earned. The engine behind long-term investment growth.
- Compounding FrequencyHow often earned interest is added to your balance so it starts earning interest itself. At the same posted rate, more frequent compounding produces a higher return.
- Consumer Price Index (CPI)Statistics Canada's monthly measure of the price of a fixed basket of goods and services: the yardstick behind inflation, indexed benefits and tax brackets.
- Consumer ProposalA legally binding deal to repay creditors part of what you owe, keeping your assets. Canada's main alternative to bankruptcy.
- Contribution RoomThe maximum amount you are allowed to contribute to a registered account like a TFSA or RRSP without penalty.
- CorporationA separate legal person that owns the business, shields its shareholders, files its own taxes, and unlocks the small business rate at a cost in paperwork.
- CouponThe fixed interest a bond pays, named for the paper coupons investors once clipped. A 4% coupon on $1,000 face pays $40 a year.
- CPP (Canada Pension Plan)Canada's contributory public pension. You and your employer pay in during your working years; it pays a monthly benefit from as early as 60.
- CPP EnhancementThe 2019-2025 expansion of the Canada Pension Plan: higher contributions, a second earnings ceiling (CPP2), and a target pension of a third of covered earnings.
- Credit ReportYour detailed borrowing history at Equifax and TransUnion: accounts, balances, payments, inquiries. Free to check, and worth checking.
- Credit ScoreA number between 300 and 900 that tells lenders how reliably you repay debt. It shapes your mortgage rate, credit limits, and approvals.
- Critical Illness InsuranceA tax-free lump sum paid on diagnosis of a covered serious illness: money for recovery on your terms, whatever the medical system covers.
- CrowdfundingRaising many small amounts from many people online: rewards, donations, loans or actual equity, each with very different rules and risks.
- CryptocurrencyDigital assets recorded on blockchains. The CRA treats them as property, not currency: most disposals are taxable events Canadians must track themselves.
- Currency RiskThe chance that exchange-rate moves help or hurt your foreign investments independently of the investments themselves. Hedged and unhedged funds handle it differently.
D
- Debt ConsolidationRolling several high-interest debts into one lower-rate loan: one payment, less interest, but only if the spending that built the debt stops.
- Debt Service Ratios (GDS and TDS)The two percentages lenders use to decide how much mortgage you can afford: housing costs (GDS) and all debts (TDS) as shares of gross income.
- Debt-to-Income RatioYour monthly debt payments as a share of gross income: the number lenders read first, and the cousin of the GDS and TDS ratios.
- Defined Benefit PensionA workplace pension that promises a set lifetime income based on your salary and years of service. The employer carries the investment risk.
- Defined Contribution PensionA workplace pension where contributions are fixed but the retirement income depends on how the investments perform. You carry the risk.
- Demand LoanA loan the lender can call in full at any time, for any reason. Common in business banking, and a clause worth reading twice.
- DepreciationSpreading an asset's cost over its useful life on the books. The accounting version; the CRA's tax version is capital cost allowance.
- DerivativeA contract whose value derives from something else: a stock, an index, a currency, a barrel of oil. Powerful for hedging, dangerous for guessing.
- DIME MethodA shorthand for sizing a life insurance need: add Debt, Income replacement, Mortgage and Education, then subtract the coverage and liquid assets you already have.
- Disability InsuranceReplaces part of your income if illness or injury stops you from working: protection for your largest asset, and the most underinsured risk in Canada.
- DiversificationSpreading money across many holdings, sectors and countries so no single failure sinks you: the closest thing investing has to a free lunch.
- DividendA company's cash payment to its shareholders, usually quarterly. In Canada, eligible dividends come with a tax credit that makes them lightly taxed income.
- Dividend Gross-UpThe inflation applied to a Canadian dividend before it enters taxable income, 38% for eligible and 15% for non-eligible, estimating the pre-tax corporate profit behind it.
- Dividend Tax CreditThe credit that offsets the corporate tax already paid on Canadian dividends, making them one of the most tax-efficient forms of investment income.
- Dividend YieldAnnual dividends per share divided by the share price: the income a stock pays at today's price, and a number that can mislead when it looks too good.
- Dollar-Cost AveragingInvesting a fixed amount on a fixed schedule regardless of prices: you buy more units when markets are down, fewer when they are up, and never have to time anything.
- Down PaymentThe cash you put toward a home purchase: minimum 5% on the first $500,000, 10% above that, and 20% for homes of $1.5 million or more.
- DRIP (Dividend Reinvestment Plan)Automatically turning each dividend into more shares instead of cash: compounding on autopilot, with one bookkeeping catch in taxable accounts.
E
- EBITDAEarnings before interest, taxes, depreciation and amortization: a rough gauge of operating cash generation, and a number famous for flattering.
- EI (Employment Insurance)The federal program that replaces part of your income when you lose a job, have a child, or fall ill, funded by payroll premiums.
- Eligible vs. Non-Eligible DividendsThe two tax classes of Canadian dividends: eligible (public companies, better credit) and non-eligible (small business income, smaller credit).
- Elimination PeriodThe waiting time between becoming disabled and the first benefit payment. Nothing is paid during it, and a longer one buys a meaningfully cheaper premium.
- Emergency FundThree to six months of essential expenses in a safe, liquid account: the buffer that keeps a job loss or car repair from becoming credit card debt.
- Estate FreezeA corporate planning move that locks in today's value of a business for the owner and passes future growth, and its tax bill, to the next generation.
- ETF (Exchange-Traded Fund)A fund that trades on an exchange like a stock, usually tracking an index at a fraction of mutual fund fees.
- Exchange RateThe price of one currency in another. For Canadians, the CAD/USD rate quietly moves grocery bills, travel budgets and portfolios.
F
- Face Value (Par Value)The amount a bond repays at maturity and the base its coupon is computed on, normally $1,000 or quoted per $100.
- Fee-Only vs Commission AdvisorHow your advisor gets paid shapes the advice you get: flat fees, asset percentages, or commissions on products sold. Know which one you are talking to.
- FHSA (First Home Savings Account)A registered account for first-time buyers: contributions are tax-deductible like an RRSP and withdrawals for a first home are tax-free like a TFSA.
- Fiduciary DutyThe legal obligation to put the client's interest first. In Canada, most advisors owe suitability and fair treatment instead; true fiduciaries are specific.
- Financial Planner (F.Pl. / CFP)A professional who builds the whole picture: taxes, retirement, insurance, estate. In Canada the title is now protected in several provinces; credentials matter.
- First-Time Home Buyer ProgramsThe federal and provincial help available to first-time buyers: the FHSA, the Home Buyers' Plan, the GST rebate, tax credits and land transfer tax rebates.
- Fixed CostsCosts that stay the same whether you sell nothing or everything: rent, insurance, salaries. The bills that make slow months dangerous.
- Fixed-Rate MortgageA mortgage whose interest rate is locked for the entire term, so your payment never changes until renewal.
- Fund FactsThe plain-language two-page disclosure Canadian sellers must give you before you buy a mutual fund: fees, risk, performance.
- Future ValueWhat today's money grows into at a given return over time: the compound interest formula pointed forward.
G
- GDPGross domestic product: the value of everything an economy produces in a period. The headline scoreboard for growth and recessions.
- GDS Ratio (Gross Debt Service)Housing costs as a share of gross income. Insured mortgages cap it at 39%: the first gate your mortgage application must pass.
- GIC (Guaranteed Investment Certificate)A deposit that guarantees your principal and pays a set interest rate for a fixed term. Insured by CDIC up to $100,000 per category.
- GIC LadderSplitting one amount into equal pieces across staggered GIC terms, so a portion matures every year while the rest keeps earning longer-term rates.
- GIS (Guaranteed Income Supplement)A non-taxable monthly top-up to OAS for lower-income seniors. The amount shrinks as your other income grows.
- GoodwillWhat a buyer pays for a business beyond its identifiable assets: reputation, customers, momentum. Real value, invisible until a sale prices it.
- Gross MarginRevenue minus the direct cost of what you sold, as a share of revenue: what is left to pay for everything else.
- GST and HSTCanada's value-added sales taxes: the 5% federal GST everywhere, harmonized with provincial tax into HST in five provinces.
- GST/HST CreditThe tax-free quarterly payment that offsets sales tax for lower-income households. Automatic when you file your return.
- GST/HST New Housing RebateRecovers part of the GST or HST paid on a new or substantially renovated home; first-time buyers can now get 100% of the GST back on homes up to $1 million.
H
- HBP (Home Buyers' Plan)A program letting first-time buyers withdraw up to $60,000 from an RRSP tax-free for a down payment, repaid over 15 years.
- Hedge FundLightly regulated private investment pools using strategies mutual funds cannot: shorting, leverage, derivatives. For accredited investors, with famous fees.
- HELOC (Home Equity Line of Credit)A revolving credit line secured by your home equity, usually at prime plus a spread. Interest-only minimums make it flexible and risky.
- High-Interest Savings Account (HISA)A savings account paying well above big-bank rates, ideal for emergency funds and short-term goals; cousin products include HISA ETFs and brokerage savings funds.
- Home EquityYour home's market value minus everything you still owe on it: the part you actually own, and the base for HELOCs and refinancing.
- Home InsuranceCovers your home and belongings against fire, theft and liability. Lenders require it, floods usually need an add-on, and the details decide everything.
I
- Income SplittingLegally shifting income from a higher-taxed family member to a lower-taxed one, within the limits set by the attribution rules and TOSI.
- Income StatementThe story of a period: revenue at the top, costs subtracted in layers, profit or loss at the bottom. Also called the P&L.
- Index FundA fund that simply holds everything in a market index instead of picking stocks. Low fees, and it beats most active managers over time.
- InflationThe general rise in prices that erodes what each dollar buys. The Bank of Canada targets 2% a year; savers and retirees feel it most.
- Insurance PremiumThe price of the promise: what you pay, monthly or annually, to keep coverage in force, set by risk, coverage size and the insurer's math.
- InterestThe price of money: what borrowing costs you, and what lending (or saving) pays you. Every rate on this site starts here.
- Interest Rate Differential (IRD)The penalty formula for breaking a closed fixed mortgage: the rate gap on your remaining balance for the remaining term.
- Interest-Only PaymentA payment that covers the period's interest and nothing else, so the balance never falls. It is the standard minimum on a Canadian home equity line of credit.
- Invoice FactoringSelling unpaid invoices to a factor for immediate cash at a discount: fast liquidity for businesses whose customers pay slowly, at a real price.
- IPOA company's first sale of shares to the public: private owners cash out or raise capital, and a new ticker starts trading.
L
- Land Transfer TaxThe provincial (and sometimes municipal) tax you pay when you buy a property, due in cash at closing on top of your down payment.
- LeverageUsing borrowed money to control more assets than your own capital allows. Every mortgage is leverage; so is every margin call.
- LiabilityAnything you owe: mortgage, loans, credit card balances. The half of the net worth equation you want shrinking.
- Licensed Insolvency Trustee (LIT)The only professional licensed by the federal government to administer consumer proposals and bankruptcies in Canada.
- LIF (Life Income Fund)The locked-in version of a RRIF: your LIRA converts to it in retirement, with the same minimum withdrawals plus an annual maximum.
- Life AnnuityAn annuity that pays guaranteed income for as long as you live, however long that is. Insurance against outliving your money.
- Line of CreditRevolving credit you draw on as needed, repay, and draw again, paying interest only on what you use. Flexible by design, dangerous by habit.
- LiquidityHow quickly an asset converts to spendable cash without losing value. Chequing accounts are liquid; houses are not.
- LIRA (Locked-In Retirement Account)Where money from a former employer's pension goes: it grows like an RRSP but stays locked until retirement, then converts to a LIF.
- LLP (Lifelong Learning Plan)A program letting you withdraw up to $20,000 from an RRSP tax-free to fund full-time education for you or your spouse, repaid over 10 years.
- Loan-to-Value (LTV)The amount owed against a property divided by the property's value. It is the number Canadian lenders use most to decide what you can borrow and on what terms.
- Locked-In Account UnlockingThe legal ways to get money out of a LIRA or LIF early: small balances, financial hardship, shortened life expectancy, non-residency and one-time 50% unlocking.
M
- Margin AccountA brokerage account that lets you borrow against your holdings to buy more. Amplifies gains, amplifies losses, and can force sales at the worst moment.
- Marginal Tax RateThe tax rate you pay on your last dollar of income. It determines how much of any raise, bonus, or RRSP deduction you keep.
- Market CapitalizationShare price times shares outstanding: what the market says a whole company is worth, and how indexes decide each stock's weight.
- Market CorrectionA drop of 10% to 20% from a recent high: sharp enough to make headlines, common enough to be background noise over a lifetime.
- MER (Management Expense Ratio)The annual percentage a fund quietly deducts for management, operations and taxes. Canada's mutual fund MERs are among the world's highest.
- Money MarketThe market for short-term, high-quality debt: treasury bills, bankers' acceptances and the funds that hold them. Where cash goes to earn something safely.
- Mortgage Default InsuranceInsurance required when your down payment is under 20%. It protects the lender if you stop paying, not you or your family.
- Mortgage Life InsuranceBank-sold coverage that pays off your mortgage balance if you die: a declining benefit for a level premium, usually beaten by term life insurance.
- Mortgage RefinancingReplacing your mortgage with a bigger or restructured one, up to 80% of your home's value, to access equity or better terms.
- Mortgage RenewalSigning a new term when your current one ends. Your rate resets to market, and it is your best window to renegotiate or switch lenders.
- Mortgage Stress TestTo qualify for a mortgage, you must prove you could afford payments at the greater of your rate plus 2% or 5.25%, not just your actual rate.
- Mortgage TermThe length of your current mortgage contract, often 5 years in Canada. When it ends, you renew, renegotiate, or pay off the balance.
- Mutual FundA professionally managed pool of investors' money, priced once a day. Still Canada's most widely held investment, and often its most expensive.
N
- NAV (Net Asset Value)A fund's assets minus liabilities divided by units outstanding: the per-unit price mutual funds transact at once a day.
- Net Profit MarginWhat is left of each revenue dollar after every cost, including tax: the bottom line as a percentage.
- Net WorthEverything you own minus everything you owe: the single best scoreboard of financial progress, and simpler to track than it sounds.
- Nominal vs Real ReturnThe return on your statement versus the return after inflation. Only the real number buys anything, and taxes apply to the nominal one.
- Non-Registered AccountA taxable investment account with no contribution limits: interest, dividends and capital gains are taxed yearly, so it usually comes after the TFSA and RRSP.
- Norbert's GambitA do-it-yourself technique for converting CAD to USD (or back) at near-institutional rates by buying a dual-listed security and journaling it across.
- Notice of Assessment (NOA)The CRA's summary of your filed return: what you owe or get back, and where your official RRSP room appears.
O
- OAS (Old Age Security)Canada's residence-based public pension, paid monthly from age 65 and funded from general tax revenue. No work history required.
- OAS ClawbackA 15% recovery tax that reduces Old Age Security payments once your net income passes an annual threshold ($95,323 for 2026).
- OAS DeferralDelaying Old Age Security past 65 raises the pension 0.6% per month, up to 36% more at age 70. Worth it for some, costly for others.
- Ontario SurtaxA tax on Ontario's provincial tax: 20% above one threshold, another 36% above a second, quietly raising real marginal rates.
- Open MortgageA mortgage you can pay off in full at any time without penalty, in exchange for a noticeably higher interest rate.
- Options (Calls and Puts)Contracts giving the right, not the obligation, to buy (call) or sell (put) at a set price by a set date. Insurance for some, leverage for others.
- Over-Contribution PenaltyThe 1% per month tax on amounts above your TFSA, RRSP (beyond the $2,000 buffer), or FHSA room, until the excess comes out.
- OverheadThe costs of keeping the doors open that no single sale can be blamed for: admin, rent, software, insurance. Necessary, and prone to creep.
P
- P/E RatioShare price divided by earnings per share: how many dollars the market pays for one dollar of profit, and the most quoted valuation shorthand.
- PartnershipTwo or more people carrying on business together: profits flow through to each partner's return, and each general partner answers for the whole.
- Payday LoanA small short-term loan against your next paycheque, capped at $14 per $100 borrowed. The most expensive legal credit in Canada.
- Payroll DeductionsWhat comes off every paycheque before it reaches you: income tax, CPP and EI, remitted by the employer to the CRA on a strict schedule.
- Pension Adjustment (PA)The value of what your workplace pension earned you this year. It is deducted from next year's RRSP room, which is why pension members have little.
- Pension Income SplittingMoving up to half of eligible pension income onto your spouse's tax return, often saving thousands when your incomes differ.
- Permanent Life InsuranceCoverage for life rather than a set number of years, usually building a cash value alongside the death benefit. It costs several times more per dollar of coverage than term.
- Personal GuaranteeYour personal promise to repay a business debt if the business cannot: the clause that quietly pierces the corporate shield.
- PortfolioEverything you hold across every account, viewed as one whole. Most decisions make sense only at this level, not account by account.
- Posted RateThe bank's sticker mortgage rate that almost nobody pays. It exists mostly to inflate penalty math and anchor negotiations.
- Power of AttorneyA legal document naming someone to act for you on finances or personal care, especially if you become incapable; Québec uses the protection mandate.
- Preferred ShareA hybrid between a stock and a bond: fixed dividends paid before common shareholders, little upside, and a distinctly Canadian rate-reset variety.
- Premium and Discount BondsA bond trading above face value (premium) or below it (discount), depending on how its coupon compares to current rates.
- Prepayment PenaltyThe fee for breaking a closed mortgage early: usually three months' interest or the interest rate differential, whichever is greater.
- Prepayment PrivilegeHow much extra you may pay on a closed mortgage each year without penalty, typically 10% to 20% lump sum plus payment increases.
- Prescribed RateThe CRA's quarterly interest rate, currently 3%, that powers family income-splitting loans and sets the cost of owing the taxman.
- Present ValueWhat a future sum of money is worth today, once you discount it at an interest rate. The math behind bond prices and pension buyouts.
- Prime RateThe reference rate banks charge their best customers. Variable mortgages, HELOCs, and many loans are priced as prime plus or minus a spread.
- PrincipalThe amount you actually borrowed (or invested), as opposed to the interest it generates. Every loan payment splits between the two.
- Private EquityBuying whole companies outside public markets, improving or restructuring them, and selling years later. Long lockups, high minimums, institutional territory.
- ProbateThe court process that validates a will and the executor's authority, with provincial fees ranging from zero in Manitoba to about 1.7% in Nova Scotia.
- Property TaxThe annual municipal tax on real estate, set by applying a mill rate to your assessed value, which is not the same thing as your market value.
- PRPP (Pooled Registered Pension Plan)A low-cost, pooled workplace retirement plan for employees and the self-employed without a company pension, sharing the RRSP contribution limit.
- Purchasing PowerWhat your money actually buys. Inflation erodes it year after year, which is why cash that feels safe quietly loses ground.
Q
R
- 4% RuleThe retirement rule of thumb: withdraw 4% of your portfolio in year one, index to inflation, and historically the money lasted 30 years. Canada adds wrinkles.
- 50/30/20 RuleA simple budget template: 50% of after-tax income to needs, 30% to wants, 20% to savings and extra debt payments.
- RDSP (Registered Disability Savings Plan)A registered account for people with the Disability Tax Credit, with government grants and bonds that can far exceed your own contributions.
- Real Return BondA Government of Canada bond whose principal and coupons rise with inflation. New issuance stopped in 2022, but they still trade.
- RebalancingSelling what grew and buying what lagged to restore your target mix: systematic discipline that forces you to buy low and sell high.
- RecessionA broad, sustained contraction in economic activity: output, jobs and incomes shrinking together, with rates and markets reacting.
- RESP (Registered Education Savings Plan)A registered account for a child's education where the government matches 20% of contributions through the CESG, up to $7,200 per child.
- Retained EarningsEvery profit the business has ever kept instead of paying out: the accumulated fuel for growth, sitting in equity on the balance sheet.
- Risk ToleranceHow much portfolio decline you can endure, financially and emotionally, without selling at the bottom. The honest input every plan depends on.
- RL-1 SlipQuébec's provincial counterpart to the T4: employment income and deductions reported to Revenu Québec. Québec workers get both slips.
- Robo-AdvisorAn online service that builds and automatically rebalances a low-cost ETF portfolio matched to your goals, for a fraction of traditional advice fees.
- RRIF (Registered Retirement Income Fund)What your RRSP becomes in retirement: investments keep growing tax-deferred, but you must withdraw a minimum amount every year.
- RRIF Minimum WithdrawalThe percentage of your RRIF you must withdraw each year starting the year after you open it. The rate rises with age.
- RRSP (Registered Retirement Savings Plan)A registered account where contributions reduce your taxable income and investments grow tax-deferred until withdrawal, usually in retirement.
- Rule of 72Divide 72 by your annual return to estimate how many years your money takes to double. Mental math that is surprisingly accurate.
S
- Second MortgageAn additional loan secured against your home behind your main mortgage. Higher rates because the second lender gets paid second.
- Seed CapitalThe first outside money into a startup: enough to build the early version and prove someone will pay for it. High risk, high dilution stakes.
- Segregated FundA mutual-fund-like investment wrapped in an insurance contract, adding maturity and death guarantees, creditor protection, and higher fees.
- Semi-Annual CompoundingCanadian fixed mortgages compound interest twice a year by law, so a quoted 5% costs slightly less than a US-style monthly-compounded 5%.
- Sequence of Returns RiskThe danger that bad market years early in retirement, combined with withdrawals, permanently damage a portfolio that averages would call fine.
- Short SellingBorrowing shares to sell now and rebuy later, profiting if the price falls. The one trade where losses have no ceiling.
- Simple InterestInterest calculated only on the original principal, never on accumulated interest. Rare in savings, common in short-term lending.
- Small Business DeductionThe reduced 9% federal rate on a CCPC's first $500,000 of active business income: the core tax advantage of incorporating in Canada.
- Smith ManoeuvreA strategy that uses a readvanceable mortgage to gradually convert non-deductible mortgage debt into a tax-deductible investment loan. Higher risk than it looks.
- Sole ProprietorshipThe simplest way to run a business: you and the business are legally the same person, income lands on your T1 via form T2125, and so does the liability.
- Spousal RRSPAn RRSP you contribute to for your spouse: you take the deduction, they own the account. A tool for evening out retirement income.
- StablecoinA cryptocurrency designed to hold a fixed value, usually one US dollar, backed by reserves. Stability is a promise, and promises vary in quality.
- Stock (Share)A unit of ownership in a company: a claim on its profits and a vote on its future, with returns from dividends and price growth.
- Strip BondA bond with its coupons stripped away, sold at a deep discount and paying only face value at maturity. Taxed annually despite paying nothing.
- Successor HolderA spouse or common-law partner who takes over your TFSA at death, keeping it tax-free without using their own contribution room.
- Superficial Loss RuleThe CRA rule that denies a capital loss if you (or your spouse, RRSP or TFSA) rebuy the same investment within 30 days.
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- T3 SlipThe tax slip trusts, including most mutual funds and ETFs, use to report the income they flowed out to you: interest, dividends, capital gains and return of capital.
- T4 SlipThe slip your employer files each February showing your pay, deductions and pension adjustment: the backbone of your tax return.
- T5 SlipThe slip banks and companies issue for investment income over $50: interest, dividends and certain other amounts, reported whether or not you receive a slip.
- Tax BracketThe income ranges that each get their own tax rate. Only the income inside a bracket is taxed at that bracket's rate.
- Tax Credit vs. Tax DeductionA deduction reduces the income you are taxed on (worth more at higher brackets); a credit reduces the tax itself, usually at a fixed rate.
- Tax-Loss HarvestingSelling losing investments in a taxable account to realize capital losses that offset gains, without falling into the superficial loss trap.
- Taxable IncomeThe number your tax is actually computed on: total income minus deductions like RRSP contributions and childcare expenses.
- TDS Ratio (Total Debt Service)Housing costs plus all other debt payments as a share of gross income. Insured mortgages cap it at 44%.
- Term DepositMoney locked with a bank for a fixed term at a fixed rate. In Canada the household name for the same idea is the GIC.
- Term Life InsurancePure life insurance for a set period at a level premium: the most coverage per dollar, and the default answer for most families.
- Term LoanA lump sum borrowed once and repaid on a fixed schedule over a set term: the standard structure for equipment, vehicles and expansion.
- TFSA (Tax-Free Savings Account)A registered account where investments grow tax-free and withdrawals are never taxed. The 2026 contribution limit is $7,000.
- Time Value of MoneyThe principle underneath all of finance: a dollar today is worth more than a dollar tomorrow, because today's dollar can be invested.
- Title InsuranceA one-time-premium policy protecting against defects in your home's ownership title: fraud, liens, survey issues and errors in public records.
- Trailing CommissionThe ongoing slice of a mutual fund's MER paid to the selling dealer, banned on do-it-yourself discount platforms since 2022.
- Treasury Bill (T-Bill)Short-term Government of Canada debt sold at a discount and repaid at face value within a year. The safest yield in Canadian dollars.
- Trigger RateThe rate level where a fixed-payment variable mortgage's payment no longer covers the interest, so the balance starts growing.
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- UnderwritingHow insurers size up your risk before saying yes: health, lifestyle, finances. The reason honest applications matter and cheap policies ask no questions.
- Universal Life InsurancePermanent insurance with flexible premiums and an investment account growing tax-sheltered inside the policy. Powerful for some, oversold to many.
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- Variable CostsCosts that rise and fall with each unit sold: materials, shipping, transaction fees. They decide how much each sale actually contributes.
- Variable-Rate MortgageA mortgage whose rate moves with your lender's prime rate. Payments may float, or stay fixed until the trigger rate is hit.
- Venture CapitalFinancing for young companies with big ambitions and no profits, in exchange for equity. Most bets fail; a few pay for everything.
- VolatilityHow widely an investment's price swings. The market's admission fee: uncomfortable, unavoidable, and different from permanent loss.
- VRSP (Voluntary Retirement Savings Plan)Québec's automatic-enrolment workplace savings plan, mandatory for employers with 10 or more eligible employees and no other retirement plan.
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- Whole Life InsurancePermanent coverage that lasts for life and builds cash value, at premiums many times the term-life price. A tool for lifelong needs, not a default.
- Withholding Tax on Foreign DividendsThe tax foreign governments skim off dividends before they reach you: 15% for US stocks under treaty, avoidable in an RRSP but not in a TFSA.
- Working CapitalCurrent assets minus current liabilities: the cushion that pays suppliers and staff while you wait for customers to pay you.
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- Yield CurveGovernment bond yields plotted from short to long maturities. Its shape moves your mortgage rate, and its inversions make economists nervous.
- Yield to Maturity (YTM)The total annual return you earn if you buy a bond at today's price and hold it until it matures, with all coupons reinvested.