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 R

Real estate investment trust (REIT)

An investment vehicle which allows people to invest in a portfolio of real estate holdings by purchasing units of the trust. This gives the holders more diversity and liquidity than investing directly in real estate. REITs are not taxed as corporations, but flow their income through to unit holders.

Recapture

When a depreciable fixed asset is sold, its capital cost allowance (CCA) class is reduced by deducting the lower of its original cost, or its proceeds of sale. If, at the end of a fiscal year, the balance of the class is negative, a gain has occurred. This gain is referred to as a "recapture" of CCA, and must be included in business or property income for the year.

Recapture rules do not apply to passenger vehicles included in Class 10.1.

Record date

When dividends are declared by a corporation, the dividend announcement includes the amount of the dividend and the record date. The dividend is paid to shareholders who hold the stock on the record date. Because it takes 3 days for trades in shares of corporations to be settled, a person must buy the stock at least 3 days prior to the record date (at least the day prior to the ex-dividend date) in order to be entitled to the dividend. See also trade date and settlement date.

Registered education savings plan (RESP)

An RESP is an education savings plan that has been registered with Canada Revenue Agency (CRA). It is a method for parents to save for their children's post-secondary education. The payments to an RESP are not tax deductible, but the earnings in the RESP grow on a tax-free basis.

Registered pension plan (RPP)

Registered pension plans are pension plans that are regulated by federal or provincial pension legislation, and must be registered under the Income Tax Act. There are two types of registered pension plans - defined benefit pension plans (DB), and defined contribution pension plans (DC). Defined contribution plans are also known as money purchase RPPs.

Registered retirement income fund (RRIF)

Registered retirement savings plans (RRSPs) must cashed out (taxable) or converted to RRIFs (tax-free) no later than the year in which the RRSP holder turns 71. The 2007 Federal budget revised this age from 69 to 71, for both RRSPs and RPPs.

Once the RRSP is converted to a RRIF, the holder must withdraw a minimum amount each year, except in the first year. These withdrawals are taxable to the holder. The withdrawals qualify as pension income for purposes of the pension income tax credit for taxpayers 65 and over. Starting in 2007 the withdrawals may be split with a spouse (pension splitting)./p>

It may be beneficial to convert at least a portion of an RRSP to a RRIF when the taxpayer turns 65, in order to generate income eligible for the pension tax credit, and for pension splitting.

TThe holder of the RRIF controls what investments are held in the account.

Registered Retirement Savings Plan (RRSP)

An RRSP, or Registered Retirement Savings Plan, is a savings or investment account which allows you to defer paying tax on funds deposited to it. When you make a contribution to your RRSP, you get a tax deduction for the amount contributed. The deduction reduces taxable income, so the higher your marginal tax rate, the greater the tax savings will be.

Retained earnings/accumulated deficit

The net income, or net profit, generated by a company each year is transferred to Retained Earnings, which is a part of Shareholders' Equity on the balance sheet. Retained Earnings are the accumulated profits of the company, and show as a positive amount on the balance sheet. If the company has accumulated losses instead of profits, this is called Accumulated Deficit, and shows up as a negative amount on the balance sheet.

Return on assets (ROA)

The return on assets is a measure of the company's profitability and efficiency. It is calculated by dividing the annual operating income (income before interest and taxes) by the average total assets. The average of total assets can be determined by adding the year's beginning and ending balances of total assets, and dividing by two.

Return on equity (ROE)

This ratio reflects the profitability of the investment to the common shareholders. It is calculated by dividing the annual net income less any preferred stock dividend requirements by the average common shareholders' equity during the year. The average common equity is usually determined by adding the year's beginning and ending balances, and dividing by two.

Revenue

The amount of sales, rental, interest and other income earned by a business. The revenue of a business is reported on the income statement.