The Finance Dictionary

This information provides users with thorough and reliable meanings to all the most common, and even uncommon, financial terms

Financial Terms Beginning With The Letter P

Par value

The par value is the stated face value of a stock or bond.

Partnership

A partnership is a business entity which is created when two or more individuals and/or entities join together to conduct a business, with the goal of making a profit. The business can be a partnership of individuals, corporations, trusts, other partnerships, or a combination of these.

In order to form a partnership, an agreement is drawn up which outlines the terms of the partnership. The terms would include required contributions of capital by each partner, rules governing the management of the partnership, and the method of allocating profits or losses among partners.

Partnerships are regulated by provincial/territorial laws. In the absence of a partnership agreement, or if certain provisions are not addressed in the agreement, provincial or territorial laws will determine some or all of the terms of the partnership.

A partnership has unlimited liability. The partners are jointly liable for all debts and other liabilities of the business. If the business is sued, all the business and personal assets of the partners are at risk. An exception to this is a Limited Partnership.

Passenger vehicle

For purposes of the Income Tax Act, a passenger vehicle is an automobile that was purchased or leased after June 17, 1987. An automobile is a motor vehicle designed to carry people on highways and streets, and can carry a driver and no more than 8 passengers.

There are special rules for GST registrants for claiming input tax credits on the purchase of passenger vehicles.

For income tax purposes, there are limitations on the expenses that can be claimed for a passenger vehicle.

Pay yourself first

Use
  • 10% of your gross income for making extra payments on your debt, or
  • 10% of your gross income for saving or investing outside of an RRSP, or
  • 15% of your gross income for making contributions to RRSPs.

The reason for using 15% for making RRSP contributions is to include your tax savings in your contributions. If you earn $60,000 per year and contribute $6,000 (10% of your earnings), if your marginal tax rate is 30% you will get $1,800 in tax savings. When you contribute the $1,800 to your RRSP it will generate another $540 of tax savings. When you contribute the $540, it will generate another $162 of tax savings, etc., etc......

In order to have the same after-tax money as when you are using 10% of your gross income to pay down your debt or save outside of an RRSP, you will have to contribute about 15% of your earnings to your RRSP. You can then do what you want with any tax refund.

Penny stock

A stock which sells for less than a dollar, and is considered to be speculative.

Pension Plans

See:

Personal services business

A personal services business exists when a person who is a specified shareholder of the corporation provides services to another entity, and the relationship between the provider of the service and the entity receiving the service could reasonably be regarded as an employee/employer relationship. This person could also be described as an "incorporated employee". However, if the corporation employs more than 5 full-time employees throughout the year it will not be considered to be carrying on a personal services business. A personal services business is not eligible for the small business deduction. ITA 125(7)

Personal-use property

Personal-use property includes cars, boats, furniture, cottages and other property purchased for personal use.

If you have personal-use property which you purchased for more than $1,000, and you sell the property for more than you paid, you will have a capital gain to report on your tax return. If you sell the property at a loss, generally the loss cannot be claimed.

See the CRA information on personal-use property.

Portfolio

A group of investments owned.

Preferred shares

Preferred shares are a class of corporate capital stock which normally holds priority over common shares in dividend payments, and in distribution of the corporate assets in a liquidation.

See also capital stock.

Prepaid expenses

A prepaid expense occurs when services or supplies are purchased but not used by the end of the accounting period, such as property taxes (if your fiscal year-end is not the same as the year-end for property taxes) and insurance.

For example, the term for insurance is normally one year or longer. Thus, if the term is one year, but the insurance payment date is not at the end of the fiscal year, then a portion of the insurance cost applies to the next fiscal year. At the end of the year this portion will show on the balance sheet as a prepaid expense.

Present value

The value today of a payment or series of payments to be made (or received) in the future. To determine the present value, an interest rate (discount rate) is used. For example, the present value of a payment of $1,000 to be made in one year, using a 5% discount rate would be $952.38 ($1,000 / 1.05). In other words, the present value is the amount you need to invest today, at the specified interest rate, to make the specified payment or series of payments in the future.

Price/book ratio (P/B)

Market value per share divided by book value per share

Price/cashflow ratio (P/CF)

Market value per share divided by annual cashflow per share

Price/earnings ratio (P/E)

Market value per share divided by annual net income per share

Price/free cashflow (P/FCF)

Market value per share divided by annual free cashflow per share

Price/sales ratio (P/S)

Market value per share divided by annual sales per share, or total market cap divided by total annual sales.

Primarily

Canada Revenue Agency (CRA) uses "more than 50%" as their guideline to interpret the word "primarily" in the Income Tax Act and the Excise Tax Act.

Prime rate

The prime rate is the interest rate charged by financial institutions to their best customers. See also Bank of Canada rate, target overnight rate, and overnight rate.

Principal protected notes (PPNs)

See structured products.

Principal residence exemption

This exemption partially or completely eliminates any capital gain resulting from the disposition of a person's principal residence. A taxpayer and their spouse together may only designate one principal residence between them for each taxation year.

CRA usually considers that if there is more than 1/2 hectare (1.25 acres) of property, only 1/2 hectare of the land can be considered part of the principal residence, and there would be a capital gain on the excess when the property is sold, even if the rest is the principal residence. However,they also consider whether the property is subdividable. Thus, if the property is 2 hectares, and is not subdividable, they may consider the whole amount of the land to be part of the principal residence.

Private corporation

Shares of a private corporation are not publicly traded on a stock exchange. See also Canadian controlled private corporation, and public corporation.

Pro rata

In proportion to. A pro rata refund for a partially fulfilled contract would be for the proportion of the contract which is unfulfilled.

Promissory note

A written promise to repay an unsecured loan.

Proprietorship

An unincorporated business owned by one person. For tax purposes, the net income of the proprietorship is reported as self employment income on the owner's personal income tax return.

Prospectus

Legal document prepared for potential investors which describes all facets of the securities or property being offered for investment. This should always be scrutinized carefully by potential investors. If there is no prospectus provided for a potential investment, you should seek professional advice.

Public corporation

Shares of a public corporation are listed on a stock exchange and can be purchased by the general public. See also private corporation.

Put option

See option.