Canadians living overseas typically face three main choices: invest locally in their new country of residence, keep investments in Canada through brokers or real estate, or use an offshore, expat-focused solution.
Each route has tax implications, portability issues, and pros and cons depending on where you live, how long you plan to stay abroad, and your long-term financial goals.
This article explains all three approaches in detail, outlining the upsides and downsides, common misconceptions, and which strategies tend to be more tax-efficient for Canadian expats.
My contact details are hello@adamfayed.com and WhatsApp +44-7393-450-837 if you have any questions.
The information in this article is for general guidance only. It does not constitute financial, legal, or tax advice, and is not a recommendation or solicitation to invest. Some facts may have changed since the time of writing.
This article is long. For the time poor and those who prefer video content, I have summarized the article below:
Canadian expats living overseas might want to invest with a local brokerage and focus on real estate in the local area. In other words a Dubai broker if you live in the UAE, or a UK broker if you live in London.
This option has several advantages and disadvantages.
What are the upsides?
For Canadian expats living in the United States, this is probably the most tax-efficient option.
The US tax authorities, the IRS, make it much more tax efficient to invest inside the country for American residents, and most overseas brokers (whether in Canada or beyond) will not want to take American residents for legal reasons.
Another reason to take this option is if you are very “close” to your second home. In other words, if you have lived in another country for 30 years and know the place well, often with a family that is from that country, a local solution might make sense.
This is because you have become more of an immigrant, rather than an expat, and aren’t planning to move around every 3-4 years.
What about the downsides?
A local solution in your new country of residency has many negatives, including:
Some Canadians want to invest with a broker back in Canada, even when they are non-residents.
This isn’t always possible, and indeed some brokers have even been known to close down accounts, if they know the customer is going overseas.
What are the dangers of investing in local real estate or with a local stock broker as an expat Canadian?
Offshore investing allows Canadian expats to invest through a third-country platform rather than locally or back in Canada. It offers tax efficiency, full online access from anywhere in the world, and specialist support for expats.
This is where our service, which you can apply for here, makes sense.
What are the benefits of investing offshore for expats?
This option isn’t the best option for American residents, for the reasons explained above.
For most expats, a third country can be a great option, in terms of investment choice, portability and so on. There are exceptions to this generalization though, including for American residents.
Of course, what you invest in is even more important than where you invest. Investing is best done if it is long-term and not based on speculation.
Typically Canada has double taxation treaties with most countries expats reside in. So whilst you would be taxed on the Canada-side for your rental income, you would probably not be taxed in your country of residency.
How about sales tax on property as opposed to just income tax on rental income?
Individuals have to collect, remit and report the sales tax (which includes GST/HST/QST) if they’re earning an income through their rental property which is a short-term residential rental property or is under lease by the government.
You also have to submit the details of the province where the property is located. The tax rates vary between 5% to 15% depending on the province where the property is located. Expats are required to pay the taxes in case of selling or buying such type of property too.
Can you contribute to TFSA as a non-resident?
Typically the answer is no, you can’t contribute to a tax-free savings account as non-resident. However, you usually contribute to a ‘Registered Retirement Savings Plan (RRSP)’ while being an expat, if it is carried forward from your time of residence in Canada.
Typically, you can purchase index funds in Canada or mutual funds. Most platforms, regardless of which country they are from, have access to the Canadian markets. This could be indirectly (a North American fund or ETF for example) or directly.
You don’t need to have an account with a Canadian brokerage to invest in Canadian ETFs.
Difference between ETFs and mutual funds
Whilst there is a technical difference, if investor 1 buys an S&P500 index-linked ETF, and investor 2 buys an S&P500 index fund, both investors will get almost identical returns.
The main difference is that ETFs can be sold more easily – often almost instantly – whilst index funds can take a few days to sell.
This might sound good, but can often lead to investors panicking. Research from Vanguard has shown that investors are more likely to sell in the middle of the day, during volatile periods like stock markets falling.
So if used correctly (buy and hold) and not used to buy and sell, index-linked ETFs and index funds will get you almost identical results.
If buying ETFs it is better to stick to broad-based ones such as the S&P500, MSCI World and maybe 10% in MSCI Emerging Markets. It is best to avoid sector-specific and niche ETFs, like “the cancer ETF”.
Keeping a small amount of money in the Canadian Banks for unexpected costs is fine. However, money in the bank isn’t a good investment. The reasons are:
Nobody can time markets. I have never met anybody who has profited from trying to move in and out of markets. Markets have increased, and fallen, during periods including:
Investing works best when it is; a). Low cost. B). Diversified. c) reasonable in terms of costs. “Boring advice” but true.
If you sell Canadian real estate while being an expat, you might be subject to capital gains taxes. The gains are often subject to a withholding tax to make certain you do report the transaction.
Brokers all ask for proof of ID (passport, ID card or drivers license) and proof of address dated in the last three months (utility or bank statement) due to international anti-money laundering rules.
Some brokers also ask for proof of funds, like pay slips or contracts, but this is more common with bigger sums of money.
It should go without saying that some blacklisted countries should be avoided, and established offshore jurisdictions are better.
As a generalization I would also avoid US brokerages unless you are an American citizen or resident. The reason is simple; taxes again!
If you invest in say Interactive Brokers and you live in Dubai or London, there is a chance (albeit small) that your heirs could pay US inheritance taxes.
Procrastinating and taking years to make a decision, is often the biggest mistake. The first rule of investing is to show up – actually to invest and not leave money in the bank losing to inflation.
This is especially important for expats, because there is usually a lack of compulsory savings, unlike in Canada, Australia and most European countries. Back home, even procrastinators can build up small investment portfolios, as tax is paying for the basics.
Apart from that, either being too cautious or too aggressive, can be a mistake, as can only focusing on local solutions.
Finally, “doing your own research” can be more dangerous than you might think, unless you do it in the right way, as my video below illustrates:
Vanguard can accept for some expat locations, and not for others, and those rules are often changing. For example, Vanguard have opened up in new countries recently, and now can’t accept US specified persons.
I have written an article about this in the past. There are numerous ways to get money out of countries which have put restrictions on capital outflows.
In general, paying for a monthly investment, is a bit easier, compared to sending large amounts of money out of such countries. You can often pay with Visa and MasterCards for your brokerage accounts.
In this case, you are still considered a US specified person. So you should focus on having a US-compliant solution, which complies with FATCA.
A financial advisor costs money, but so do personal trainers, and most people that go to the gym, would say personal trainers can be motivators and show them how to use the equipment correctly.
So, a financial advisor that helps with your overall financially planning picture can motivate you and show you best practices.
I have seen some people DIY invest very well, but more often than not, like the person who injures themselves using gym equipment incorrectly, they underperform.
For instance, plenty of research that has been done, has shown that DIY investors trail the indexes, even if they invest in the same investment:
Often this is because they are “buying high and selling low”. For example, I have met countless DIY investors that panicked during 2008-2009, or after Trump’s election in 2016, and now regret not staying the course.
So a good financial advisor can justify their fees, by giving advice that will save you money, and make you more money in the long-term.
Having 10% in MSCI Emerging Markets won’t hurt. Remember though, that GDP growth and markets aren’t always connected.
Look at China in recent times. Excellent stock markets performance but some of the worst stock market returns since 2006.
This might be an extreme case, but even a broad-based emerging markets index, hasn’t always beaten established markets like the US in recent decades.
One reason for this is that many emerging market firms IPO in the US (Alibaba is one example of many) and most big corporations now earn a lot of profits in China and other markets.
Take Apple’s revenue share as an example, which is currently 30% in the Asia-Pacific region, 25% in Europe and only 44% in the Americas.
It depends. In general, as an expat, investing in USD and some other currencies is fine. Fewer brokers accept Canadian Dollars in the expat market, compared to USD, Euros and some other currencies.
Good financial advice doesn’t change as quickly as tax. Tax-efficient investing can always change, even on a yearly basis, after each government budget.
Who knows what will happen with future Canadian budgets but a rational investor can only deal with the information available at the time.
In general, it makes sense to have greater allocation to stocks when you are young, and gradually increase your allocation to government bonds as you age.
This is for two reasons; stocks markets have averaged 8%-10% long-term, but are more volatile than bonds, and bonds increase when stocks fall.
So as you approach retirement in your mid 55s or 60s, it is important to take some risk off the table. In your 20s and 30s, you don’t need to worry about volatility because markets always come back.
The one exception to the “markets always come back” rule is Japan, which shows the importance of having a diversified portfolio and not relying on one “hot” country like some investors did in the 1980s.
So broad-based indexes like MSCI World and indexes that are very internationalized (like the US S&P500) are safer than domestically-focused indexes.
More adventurous assets like private equity can be fine, for 5%-10% of your portfolio, if you have a good advisor.
For most investors, there should be a clear distinction between an investment and a speculation. Foreign exchange (FX), crypto and various other things commonly referred to as investing, are merely speculating.
That speculation might or might not pay off, but it remains a speculation. With these kinds of investments, you are hoping that the person coming after you will pay more for you, than you have paid.
So often it is a zero sum game. For example, the USD can’t go up against the Euro, at the same time as the Euro goes up against the USD.
In comparison, with many sensible investments, every buyer of that investment can profit from any increases in price. If I buy the MSCI Word, and you do, as an example, we can both profit from price rises.
Nobody can time markets. It is always good to be as long-term as possible.
The current valuations are very attractive for any long-term investor, regardless of what happens in the short-term.
If you have kids, or plan to have them, basic life insurance can make sense. This is cheap and easy to get. In general though, it makes sense to separate life insurance from investments.
Life-insurance based investments are seldom good value, because they are primarily insurance, and not investing. There are some exceptions to this rule, for example, when life insurance firms are simply regulated as insurance firms, but are based on an investment principle.
Rising inflation. Losing 2%-3% a year to inflation is painful. 4%-7% a year could be destructive.
I specialize in regular and lump sum investing. The minimums are $100,000 on the lump sum side, and $750 a month on the regular investment accounts.
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It will depend on several factors.
The main factors are:
The first thing to remember is cash in the bank will inflate away.
Even with 2%-3% inflation, it will soon eat away at your capital, now that interest rates are 0% in most countries.
In many of the countries where interest rates are higher, the currency risks are bigger due to devaluations and so on.
In general, the safest way to invest a large pot of money is
Things to avoid are