Definition of Income Splitting

Income Splitting

This is a tax planning strategy of arranging for income to be transferred to family members who are in lower tax brackets than the one earning the income, thus reducing taxes. Even though attribution rules limit income splitting, there are still a number of legitimate ways to do so, such as through the use of spousal RRSPs.

Accrued Income

income that has been earned but not yet received. For instance, if you have a non-registered Guaranteed Investment Certificate (GIC), Mutual Fund or Segregated Equity Fund, growth accrues annually or semi-annually and is taxable annually even though the gain is only paid at maturity of your investment.

Gross Household Income

Gross household income is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.

Life Income Fund

Commonly known as a LIF, this is one of the options available to locked in Registered Pension Plan (RPP) holders for income payout as opposed to Registered Retirement Savings Plan (RRSP) holders choice of payout through Registered Retirement income Funds (RRIF). A LIF must be converted to a unisex annuity by the time the holder reaches age 80.

Registered Retirement Income Fund (Canada)

Commonly referred to as a RRIF, this is one of the options available to RRSP holders to convert their tax sheltered savings into taxable income.

Gross Debt Service (GDS) Ratio

The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

A/C Condenser

The outside fan unit of the air conditioning system. It removes the heat from the freon gas, "turns" the gas back into a liquid, and pumps the liquid back to the coil in the furnace.

A/C Disconnect

The main electrical ON-OFF switch near the A/C condenser.

Account Value

The sum of all the interest options in your policy, including interest.

Agreement of Purchase and Sale

A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).

Allowance

A sum of money set aside in the construction contract for items which have not been selected and specified in the construction contract. For example, selection of tile as a flooring may require an allowance for an underlayment material, or an electrical allowance which sets aside an amount of money to be spent on electrical fixtures.

Area Walls

corrugated metal or concrete barrier walls installed around a basement window to hold back the earth.

aterial used to cover the interior framed areas of walls and ceilings

Attribution Rules

Legislation under which interest, dividends, or capital gains earned on assets you transfer to your spouse will be treated as your own for tax purposes. Interest or dividends relating to property transferred to children under 18 also will be attributed back to you. The exception to This rule is that capital gains relating to property transferred to children under 18 will not be attributed back to you.

Awning Windows

Single level windows that tilt outward and up.

Ballast

A transformer that steps up the voltage in a florescent lamp.

Balloon

A loan that has a series of monthly payments with the remaining balance due in a large lump sum payment at the end.

Balloon Framed Wall

Framed walls (generally over 10' tall) that run the entire vertical length from the floor sill plate to the roof. This is done to eliminate the need for a gable end truss.

Bay Window

A window that projects outward in a curve.

Building Code

A comprehensive set of laws that controls the construction or remodeling of a home or other structure.

Bull Nose Drywall

Rounded drywall corners.

Canada Mortgage and Housing Corporation (CMHC)

The National Housing Act (NHA) authorized Canada mortgage and Housing corporation (CMHC) to operate a mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.

Canadian Deposit Insurance Corporation

Better known as CDIC, This is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and Mutual Funds.

Canadian Life and Health Insurance Association (CLHIA)

An association of most of the life and health insurance companies in Canada that conducts research and compiles information about the life and health insurance industry in Canada.

Central Air Conditioning

A system which uses ducts to distribute cooling and/or dehumidified air to more than one room or uses pipes to distribute chilled water to heat exchangers in more than one room, and which is not plugged into an electrical convenience outlet.

Certificate of Location or Survey

A document specifying the exact location of the building on the property and describing the type and size of the building including additions, if any.

Certificate of Search or Abstract of Title

A document setting out instruments registered against the title to the property, e.g. deed, mortgages, etc.

Closed Mortgage

A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.

Closing Costs

Various expenses associated with purchasing a home. These costs can include, but are not limited to, legal/notary fees and disbursements, property land transfer taxes, as well as adjustments for prepaid property taxes or condominium common expenses, if any.

CMHC or GEMICO Insurance Premium

mortgage insurance insures the lender against loss in case of default by the borrower. mortgage insurance is provided to the lender by CMHC or GEMIco and the premium is paid by the borrower.

Co-insurance

In medical insurance, the insured person and the insurer sometimes share the cost of services under a policy in a specified ratio, for example 80% by the insurer and 20% by the insured. By This means, the cost of coverage to the insured is reduced.

Coach home

one of a group of homes in a two-story building, with own garage and entrance.

Coffered Ceiling

A ceiling with recessed square panels, bordered with trim for ornamental purposes.

COLA

cost of living adjustment.

Collar Beam

A horizontal tie beam in a roof truss that connects two opposite rafters at a level considerably above the wall plate.

Commercial Business Loan (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.

Compound Interest

Interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.

Concrete Block

A hollow concrete 'brick' often 8" x 8" x 16" in size. Often used in low rise commercial and some residential construction. The original design and use is attributed to the architect Frank Lloyd Wright.

Conditional Offer

An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.

Conduction

conduction is the direct flow of heat through a material resulting from physical contact. The transfer of heat by conduction is caused by molecular motion in which molecules transfer their energy to adjoining molecules and increase their temperature.

Conduit

A tube or duct for enclosing electric wires or other cables.

Construction Documents

all drawings, specifications and addenda associated with a specific construction project.

Contingencies

events that are possible, but may or may not happen. Premium rates and acceptance of certain risk are based on contingencies.

Contingency

A condition that must be satisfied before a contract is binding. Inspection and obtaining financing are the two most common.

Contingent Beneficiary

This is the person designated to receive the death benefit of a life insurance policy if the primary beneficiary dies before the life insured. This is a consideration when husband and wife make each other the beneficiary of their coverage. Should they both die in the same car accident or plane crash, the death benefits would go to each others estate and creditor claims could be made against them. Particularly if minor children could be survivors, then a trustee contingent beneficiary should be named.

Contingent Owner

This is the person designated to become the new owner of a life insurance policy if the original owner dies before the life insured.

Contribution Principle

This is the principle which specifies the factors that must be taken into account when calculating dividends. At Canada Life, the key factors are: interest earnings, mortality, and operating expense.

Convection

convection is the transfer of heat in fluid or air, caused by the movement of the heated air or fluid itself. In a building space, warm air rises and cold air settles to create a convection loop and is termed free convection. convection can also be caused mechanically by a fan and is termed forced convection.

Conventional Mortgage

A mortgage that does not exceed 80% of the purchase price of the home. mortgages that exceed This limit must be insured against default, and are referred to as high-ratio mortgages (see below).

Conversion

The act of changing from one type of life insurance policy to another, without having to give evidence of insurability.

Conversion Right

Term life insurance products are offered as non-convertible or convertible to a certain time in the future. The coversion right has a time limit, usually to the policy holder's age 60 or possibly even age 70. This right means that the policy holder has the right to convert their existing policy to another specific different plan of permanent insurance within the specified time period, without providing evidence of insurability. there is a slightly higher cost for a term policy with the conversion priviledge but it is a valuable feature should a policy holder's health change for the worst and continued insurance coverage becomes a necessity.
Most often This right is also granted to individuals covered under employee group benefit policies where individuals leaving the employee group have a limited amount of time, usually anywhere from 30 to 90 days, to convert to a specific permanent individual policy without evidence of insurability.

Cornice

Overhang of a pitched roof, usually consisting of a fascia board, a soffit and appropriate trim moldings.

Cost of Insurance

The cost of insuring a particular individual under the policy. It is based on the amount of coverage, as well as the underwriting class, age, sex and tobacco consumption of that individual.

Courtyard home

A home with a courtyard as its main entrance.

Deed (Certificate of Ownership)

The document signed by the seller transferring ownership of the home to the purchaser. This document is then registered against the title to the property as evidence of the purchaser's ownership of the property.

Dollar Cost Averaging

A way of smoothing out your investment deposits by investing regularly. Instead of making one large deposit a year into your RRSP, you make smaller regular monthly deposits. If you are buying units in a Mutual Fund or Segregated Equity Fund, you would end up buying more units in the month that values were low and less units in the month that values were higher. By spreading out your purchases, you don't have to worry about buying at the right time.

Dormer Windows

dormers are located on the second floor and project or extend out through the roof to provide window space.

Earnest money

A deposit made by potential home buyers during negotiations with the seller. The sum shows a seller that a buyer is serious about purchasing the property. The money usually is counted toward the down payment.

Endowment

Life insurance payable to the policyholder, if living on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date. For example, some Term to age 100 policies offer the option of taking the face amount of the policy as a cash payout at age 100 if the policyholder is still alive and paying all required Income taxes on the amount received or leaving the policy to pay out upon death whereupon the payout is tax free.

Equity

The interest of the owner in a property over and above all claims against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

Equity

The value of a homeowner's unencumbered interest in real estate. Equity is the difference between the home's fair market value and the unpaid balance of the mortgage and any outstanding liens. Equity increases as the mortgage is paid down or as the property appreciates.

Equity-based insurance

Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an Equity portfolio.

Equity investment

through Equity investment, investors gain part ownership of the corporation. The primary type of Equity investment is corporate stock.

Escrow account

Most lenders set up This account that receives monthly payments from home buyers to pay for obligations such as insurance, taxes and assessments.

Estate Planning

An insurance program designed to provide Funds for insured's dependents upon death of the insured, and to also conserve, as much as possible, the personal assets that the insured wants to bequeath to heirs.

Fiat Money

Fiat Money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into This category.

First To Die Coverage

This means that there are two or more life insured on the same policy but the death benefit is paid out on the first death only. If two or more persons at the same address are purchasing life insurance at the same time, it is wise to compare the cost of This kind of coverage with individual policies having a multiple policy discount.

Fixed-Rate Mortgage

A mortgage for which the rate of interest is fixed for a specific period of time (the term).

Fuse

A device often found in older homes designed to prevent overloads in electrical lines. See Circuit Breakers.

Gable End Wall

The triangular end of an exterior wall above the eaves formed under a gable roof.

Gross Debt Service (GDS) Ratio

The percentage of Gross Income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your Gross (before tax) monthly Income.

Guaranteed Interest Annuity (GIA)

Interest bearing investment with fixed rate and term.

Guaranteed Interest Certificate (GIC)

Interest bearing investment with fixed rate and term.

Guaranteed Renewal

A promise that a life insurance policy will be renewed without penalty or medical examination after the term has expired. The renewal rate can also be Guaranteed.

High Ratio Mortgage

If you don't have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a mortgage Insurer, such as CMHC.

Home Equity

The difference between the price for which a home could be sold (market value) and the total debts registered against it.

Incontestable Clause

This clause in regular life insurance policy provides for voiding the contract of insurance for up to two years from the date of issue of the coverage if the life insured has failed to disclose important information or if there has been a misrepresentation of a material fact which would have prevented the coverage from being issued in the first place. After the end of two years from issue, a misrepresentation of smoking habits or age can still void or change the policy.

Insured Mortgage

An insured mortgage protects only the mortgage lender in case you do not make your mortgage payments. This coverage is provided by CMHC [Canada mortgage and Housing corporation] and is required if a person has a high-ratio mortgage. [A mortgage is high-ratio if the amount borrowed is more than 75% of the purchase price or appraised value, whichever is less.]

Knee Wall

A wall-like structure that supports roof rafters.

Last To Die Coverage

This means that there are two or more life insured on the same policy but the death benefit is paid out on the last person to die. The cost of This type of coverage is much less than a first to die policy and it is generally used to protect estate value for children where there might be substantial capital gains taxes due upon the death of the last parent. This kind of policy is also valuable when one of two people covered has health problems which would prohibit obtaining individual coverage.

Life Income Fund

commonly known as a LIF, This is one of the options available to locked in registered Pension Plan (RPP) holders for Income payout as opposed to registered Retirement Savings Plan (RRSP) holders choice of payout through registered Retirement Income Funds (RRIF). A LIF must be converted to a unisex annuity by the time the holder reaches age 80.

Load-Bearing Wall

Includes all exterior walls and any interior wall that is aligned above a support beam or girder. Normally, any wall that has a double horizontal top plate.

Maturity

The time when a policy or annuity reaches the end of its span.

Maturity Date

Last day of the term of the mortgage agreement.

Money Laundering

This is the process by which "dirty money" generated by criminal activities is converted through legitimate businesses into assets that cannot be easily traced back to their illegal origins.

Mortgage broker

An independent individual (or company) who brings together borrowers and lenders together. Unlike a mortgage banker, a mortgage broker does not Fund the loan. Instead, the broker originates and processes the loan, and places it with a Funding source, such as a bank or thrift. Brokers typically require a fee or a commission for their services.

Mortgage (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for purposes of purchasing a loan secured by a home.

Mortgage Critical Illness Insurance

mortgage Critical Illness Insurance is available as an enhancement to mortgage Life Insurance. It is usually underwritten by the Assurance company. complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your mortgage -- up predefined limit -- if you are diagnosed with life-threatening cancer, heart attack or stroke.

Mortgage Insurance

commonly sold in the form of reducing term life insurance by lending institutions, This is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of This kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for This kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that This is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
The cost of mortgage lender's insurance group coverage is based on a blended non-smoker/smoker rate, not having any advantage to either male or female. mortgage lender's group insurance Certificate specifies that it [the lender] is the sole beneficiary entitled to receive the death benefit. mortgage lender's group insurance is not portable and is not Guaranteed. Generally speaking, your coverage is void if you do not occupy the house for a period of time, rent the home, fall into arrears on the mortgage, and there are a few others which vary by institution. If, for example, you sell your home and buy another, your current mortgage insurance coverage ends and you will have to qualify for new coverage when you purchase your next home. Maybe you won't be able to qualify. Not being Guaranteed means that it is possible for the lending institution's group insurance carrier to cancel all policy holder's coverages if they are experiencing too many death benefit claims.
mortgage insurance purchased from a life insurance company, is priced, based on gender, smoking status, health and lifestyle of the purchaser. Once obtained, it is a unilateral contract in your favour, which cannot be cancelled by the insurance company unless you say so or unless you stop paying for it. It pays upon the death of the life insured to any "named beneficiary" you choose, tax free. If, instead of reducing term life insurance, you have purchased enough level or increasing life insurance coverage based on your projection of future need, you can buy as many new homes in the future as you want and you won't have to worry about coverage you might loose by renewing or increasing your mortgage.
It is worth mentioning mortgage creditor protection insurance since it is many times mistakenly referred to simply as mortgage insurance. If a home buyer has a limited amount of down payment towards a substantial home purchase price, he/she may qualify for a high ratio mortgage on a home purchase if a lump sum fee is paid for mortgage creditor protection insurance. The only Canadian mortgage lenders currently known to offer This option through the distribution system of banks and trust companies, are General Electric Capital [GE Capital] and Central mortgage and Housing corporation [CMHC]. The lump sum fee is mandatory when the mortgage is more than 75% of the value of the property being purchased. The lump sum fee is usually added onto the mortgage. It's important to realize that the only beneficiary of This type of coverage is the morgage lender, which is the bank or trust company through which the buyer arranged their mortgage. If the buyer for some reason defaults on This kind of high ratio mortgage and the value of the property has dropped since being purchased, the mortgage creditor protection insurance makes certain that the bank or trust company gets paid. However, This is not the end of the story, because whatever the difference is, between the disposition value of the property and whatever sum of unpaid mortgage money is outstanding to either GE Capital or CMHC will be the subject of collection procedures against the defaulting home buyer. therefore, one should conclude that This kind of insurance offers protection only to the bank or trust company and absolutely no protection to the home buyer.

Mortgage Life Insurance

A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.

Mortgage Life insurance (Credit Insurance)

Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.

Mortgage Term

The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.

Mortgagee and Mortgagor

The lender is the mortgagee and the borrower is the mortgagor.

Non-Medical Limit

This is the maximum value of a policy that an insurance company will issue without the applicant taking a medical examination, although medical questions are invariably asked during the application process. When a non-medical issue is made through group insurance, in most cases, medical data is not requested at all.

Non-participating Policy

A type of insurance policy or annuity in which the owner does not receive dividends.

Non-Smoker Discount

In October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts.
Savings to non-smokers can be up to 50% of regular premium depending on age and insurance company. Most life insurance companies offering non-smoker rates insist that the person applying for coverage have abstained from any form of tobacco or marijuana for at least twelve months, some companies insist on longer periods, up to 15 years.
Tobacco use is generally considered to be cigarettes, cigarillos, cigars, pipes, chewing tobacco, nicorette gum, snuff, marijuana and nicotine patches. In addition to these, if anyone tests positive to cotinine, a by-product of nicotine, they are also considered a smoker. there are some insurance companies which allow moderate or occasional use of cigars, cigarillos or pipes as acceptable for non-smoker status. Experienced brokers are aware of how to locate these insurance companies and save you money.
Special care should be taken by applicants for coverage who qualify for non-smoker rates by virtue of having ceased a smoking habit for the required period before application, but for some reason, fall back into the smoking habit some time after obtaining coverage. While contractually, the insurance company is still bound to a non-smoking rate, the facts of the applicant's smoking hiatus may become vague over the subsequent years of the resumed habit and at time of death claim, the insurance company may decide to contest the original non-smoking declaration. The consequence is not simply a need to back pay the difference between non-smoker and smoker rates but in reality the possibility of denial of death claim. It is therefore, important to advise the servicing broker as well as the insurance company of the change in smoking habits to make certain that sufficient evidence is documented to track the non-smoking period.

Nonbearing Wall

A wall supporting no load other than its own weight.

Noncombustible

The material will not burn. The glass fibers in PINK fiber glass insulation have a natural fire resistance, and are considered non-combustible when tested in accordance to ASTM E136.

Open Mortgage

A mortgage which can be prepaid at any time, without penalty.

Paid-Up Additions

A type of insurance policy or annuity in which the owner receives dividends, typically increases the death.

Palladian Window

one larger window with a circle top window above and usually has two smaller, rectangular windows on each side.

Pension Fund

Assets used to pay the pensions of retirees. An investment institution established to manage the assets used to pay the pensions of retirees.

Personal Line of credit (Credit Insurance)

A bank's commitment to make loans to a borrower up to a specified maximum during a specific period, usually one year.

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