Feb 082018
 

So you’ve decided to move back to Canada eh? Maybe you didn’t like your new country, or maybe Canada lured you back through family, friends, access to nature, relative political stability, employment, universal healthcare, politeness, excessive skiing…. should I keep going?….. beavers, mild summers, few natural disasters, legal cannabis (pending July 2018), funny accents (or lack thereof), hockey, poutine, flannel shirts, immigrants, subsidized education, and of course the majestic moose.

Regardless of your motives for returning you’ll need to figure out how to re-establish your financial life to maple country. It’s not going to be simple, but it can be relatively cheap.

The information here will also be relevant to new immigrants. If you are a new immigrant or refugee there are additional government services to help with your transition that us former residents don’t get.

PICK A RE-ENTRY DATE

It’s very important that you pick a firm date to regain Canadian residency. Both countries will be after your precious taxable income and this date determines who gets first dibs. Typically it’s the day you physically arrive in Canada. The CRA will use this date to determine when to start taxing you. Here’s some things to do before and after that date:

ORGANIZE YOUR INTERNATIONAL FINANCES BEFORE YOU RETURN

You’ll need to decide what to do with your foreign financial accounts. This decision will mostly depend on your plans for the future and how the other country deals with non-residents.

If you’ve spent a significant amount of time abroad you’ve probably established some roots in your new country. Maybe you found a beautiful spouse who will want to visit their family back home every year. If you expect to be making repeat visits you’ll probably want to keep a bank account open for spending money. First check to see if the foreign bank allows non-residents to hold accounts, and check what you need to do to avoid monthly fees. The money will be just sitting there for months at a time and you wouldn’t want it to get eaten by fees.

Depending on your country you might want to keep some of the currency anyways. USD have always been valuable and should continue to be in the future. The downside is that the money will be just sitting there losing value to inflation. I’d advise against holding your overseas money in a savings account that earns interest. Chances are you’ll be earning 0.1% which might be a few dollars per year and you’ll have to deal with more complex foreign taxes.

REASONS TO KEEP A FOREIGN BANK ACCOUNT

  • Frequent visits to said country
  • Currency diversification
  • Easy purchases in foreign currency
  • Bank diversification

REASONS TO NOT KEEP A FOREIGN BANK ACCOUNT

  • No plans to return to said country
  • Avoiding losing money to inflation
  • Avoiding losing money to bank fees
  • Avoiding foreign taxes on bank interest
  • Simplicity of financial account consolidation

What’s that? you got fired and your visa is void and you’re returning to Canada tonight? Bummer. Most reasonable banks should let you transfer your money and close your account remotely. Probably best not to mention that you got deported till after your money is safely back in Canada.

LIQUIDATE YOUR NON-TAXABLE INVESTMENTS (PROBABLY)

Any taxable investments you’ll almost certainly want to bring back to Canada. Chances are the brokerage won’t want to deal with your cross-border tax situation and the new country will have first dibs on your investment return tax since the money is earned in that country. Furthermore you’ll then have to file an income tax return in that country.

The benefits of leaving your taxable investments abroad is avoiding currency conversion fees, having access to better investments (maybe), and avoiding stock market losses during the money transfer period. Again you should check with your international brokerage to see if they allow non-residents to keep accounts, chances are you’ll be forced to close them.

TAX SHELTERED ACCOUNTS?

I’m looking at you Americans with your 401k and Australians with your Superannuation funds. Well here’s where it gets complicated. You’ll first want to check if Canada recognizes the foreign account. Off you go to check if Canada has a tax treaty with your other country. If Canada doesn’t recognize the foreign tax benefit your gains will be considered regular income and you’ll be taxed at your marginal rate.

Let’s say Canada recognizes the foreign tax benefit. Do you want to keep monitoring the account until you retire? And filing a foreign income tax in retirement? The simplicity of financial consolidation might be worth the early withdraw penalty and early tax. (unless you’re reading this and already retirement age, in which case, stop reading blogs and enjoy your free time)

If the account has less than $10,000 and you’re under age 40 my recommendation is to move the money to Canada. The simplicity of financial consolidation will be worth the penalty.

IF YOU’VE DECIDED TO MOVE MONEY BACK

First you need a place to put it in Canada. Some Canadian banks will allow you to open an account from abroad. Pick a bank and call them to get that started. If you’re a returning Canadian maybe you never closed your account in the first place!

By now you should’ve decided on a hard date to regain Canadian residency. If you’re not going to have a Canadian bank account before that day you’ll want to consolidate as much of your international finances as you can. Sell your investments, transfer the money to your bank and close the account. After you get your Canadian bank set up you can transfer your money over. Best to get this process started at least 2 months before your return date.

What’s that? You want to know the best way to transfer large sums of money between countries? Well remember that border patrol gets really antsy when you are carrying more than $10,000 in cash or cheques. You’re better off transferring it electronically.

Border patrol be like

Border patrol be like

You could send it directly between your Canadian and international bank but there’s a good chance they’re going to hit you with a painfully unfair exchange rate and hidden fees. Another option to convert USD to CAD is Norbert’s Gambit, but that requires some creative investing tricks that might be intimidating, and not all US banks will let you hold CAD.

The best option for you may be a third party currency conversion service such as Transferwise. The founders decided they were fed up with expensive currency transaction fees through banks and created their own platform. All you need to know is that they use the true exchange rate instead of adding a few percent on top like the big banks do. They obviously aren’t entirely free but end up being around 8x cheaper than typical exchanges. They get my vote for the cheapest way to exchange large sums of money.

Transferwise1

WHEN YOU’RE BACK IN THE NORTH

If you haven’t already, open a Canadian bank account. Now’s your chance to stop blindly continuing with the same bank you’ve always been with. Do some research and choose a bank with a good interest rate. If you are planning on depositing international currency you might need to go with one of the big banks.

Reopen your TFSA! You can check on the CRA website to see what your current contribution room is keeping in mind you didn’t gain any contribution room while you were a non-resident. The CRA may not update your TFSA contribution room information until you file your next tax return. Be sure to update them with your new address. Although I haven’t confirmed this, my best guess is that even if you are a Canadian resident for 1 day of the calendar year you’ll get the contribution room for that year.

Reopen your other tax sheltered accounts. If you have kids open them an RESP. If you have a job be sure to sign up for the RRSP matching. Still have money to invest? Open a non-registered account.

SUMMARY

  • Decide:
    • What accounts to close and leave open
    • What day to regain Canadian residency
  • Before you leave:
    • Sell investments and consolidate money into a single foreign bank account
    • Open a Canadian bank account
    • Transfer money into the Canadian account
  • When you arrive
    • Open a Canadian bank account (if you haven’t already)
    • Transfer money (if you haven’t already)
    • Open accounts:
      • TFSA
      • RRSP
      • Taxable account (optional)

Ok we’re done here. Welcome back to Canada!

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