Thursday, April 10, 2008

Loonies And Lexicons: Part 2

It's been a while since I wrote my Loonies And Lexicons post. Since then, I've noticed that I'm using the <acronym> tag an awful lot to translate the acronyms and abbreviations that I use. While I plan to continue to define these abbreviations for clarity's sake, I thought it would be worth taking another look at the Canadian terms and short forms that I use on the blog, in order to spell out their meaning in a little more detail (and all in one place). So, to readers on both sides of the International Boundary, welcome to the second edition of my cross-border glossary:
Tax Free Savings Account. Coming in 2009, this was one of the most exciting items in this year's federal budget. Similar to the American Roth IRA, the TFSA will allow Canadians to contribute after-tax money (up to $5,000 per year) and have that money grow tax-free. The money can be withdrawn at any time, and withdrawals free up contribution room, so you can "refund" your withdrawals over time. This account is basically the mirror image of the RRSP, which offers a tax break at the time of contribution; the TFSA instead offers a break at the time of withdrawal.

Bank of Canada. Equivalent to the Federal Reserve in the US, this is Canada's central bank. The BoC sets monetary policy, issues currency, and manages funds for government and banks. The BoC tends to make the news whenever it announces changes to the prescribed interest rate.

Canada Investor Protection Fund. Where the CDIC (or FDIC in the USA) insures bank deposits against bank failure, some limited protection is provided to investors holding non-cash securities. This protection is provided by the CIPC in Canada, which is equivalent to the American SIPC.

Canada Pension Plan/Quebec Pension Plan. These pension plans are funded by contributions by employers and employees. Your pension at retirement is determined by the amount you contributed to the plan during your earning years, as well as how long you contributed to the plan, and this income is taxable. This is equivalent to Social Security in the United States. Employees working in the province of Quebec contribute to the QPP, while employees working outside Quebec contribute to CPP.

Old Age Security Pension/Guaranteed Income Supplement. The Old Age Security Pension is a monthly payment eligible to most Canadians 65 or older. This pension is not based on contributions to a fund, but is rather based on the number of years you have lived in Canada. OAS income is taxable, while GIS is not. If your income is above the maximum ($64,718 for OAS or $15,240 for GIS), then a portion of these benefits is subject to a "claw-back". For OAS, the claw-back is 15% of every dollar of income over $64,718, and for GIS, it is 50% of every dollar over $15,240.

Employment Insurance. Formerly UI, this program provides income support to cover temporary loss of employment income. This covers people who are between jobs, or are unable to work for various reasons, including parental leave. Employees contribute to this program through payroll deductions, and benefits are determined based on premiums paid and employment history.

Unsecured Line Of Credit. As far as I've been able to tell, this is a product that does not exist in the United States. This is essentially a middle ground between credit card and a HELOC. The product works exactly like a HELOC, but does not have any collateral against the loan. ULOCs often provide free cheques and unlimited free transactions, so for the financially savvy, a ULOC can actually serve as a no-fee chequing account.

Canadian Automobile Association. Exactly equivalent to the AAA, this is our roadside assist/travel planning club of choice. With a CAA membership, we get free AAA maps and tour books whenever we need them, as well as member discounts at select hotels and other merchants.

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