Canadian expat investment options include retained RRSPs and TFSAs, non-registered accounts, offshore investments, global funds and property.
Non-residents can generally retain existing Canadian accounts, but new contributions may be restricted or penalized, particularly for TFSAs. Investment income may also be taxed or reported differently in Canada and the expat’s country of residence.
Proper planning ensures that Canadian expat investment options can be good for growing wealth, meeting long-term financial goals, and minimizing tax burden.
Key Takeaways
- Canadian expats can consider both home-country and host-country investment options.
- Tax residency determines how Canadian investment income is taxed.
- RRSPs can generally be retained, but withdrawals may face withholding tax.
- Non-resident TFSA contributions are generally subject to a monthly penalty.
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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.
Investing as a Canadian expat
Unlike residents in Canada who primarily deal with domestic investment products and tax rules, expats must consider their tax residency status, the financial systems in their host country, and the potential loss of access to Canadian-registered accounts.
They must also account for cross-border reporting requirements, possible taxation in both countries, currency exposure and whether their investments will remain accessible if they relocate again or return to Canada.
How to Determine Canadian Tax Residency
Canada determines tax residency based on ties to Canada, which are categorized as primary and secondary:
- Primary Ties: A home in Canada, a spouse or common-law partner in Canada, and dependents in Canada.
- Secondary Ties: Bank accounts, driver’s licenses, memberships, and Canadian healthcare coverage.
If you maintain significant ties, you are likely considered a Canadian tax resident. If not, you may be classified as a non-resident.
Deemed residency applies to individuals who spend 183 days or more in Canada during a calendar year but do not establish residency elsewhere.
Do Canadian expats pay taxes on investments?
Tax residency status has a significant impact on how investment income is taxed.
Residents of Canada are taxed on their worldwide income, which includes all investment income earned both in Canada and abroad.
To avoid double taxation, residents may claim foreign tax credits to offset taxes paid on the same income in their host country.
Non-residents, on the other hand, are only taxed on Canadian-sourced income. This includes dividends, which are subject to a 25% withholding tax unless a tax treaty reduces this rate.
Interest income is often exempt from withholding tax, provided it is paid to an arm’s-length non-resident.
Finally, capital gains are generally exempt from Canadian taxes, except for gains on taxable Canadian property, such as real estate or shares in private Canadian companies.
It should be noted that non-residents must also comply with the tax regulations in their host country, which may tax worldwide income or only income earned locally.
Also Canada has tax treaties with many countries to prevent double taxation and clarify which country has primary taxing rights for different types of income.
Foreign tax credits are a mechanism to reduce double taxation.
For instance, if investment income is taxed in your host country, Canada may allow you to claim a credit for the taxes paid abroad, reducing your Canadian tax liability.
Reporting requirements for Canadian expat taxes
Canadian expats with investments must meet specific reporting obligations:
- T1135 Foreign Income Verification Statement: Expat residents must file this form if they own specified foreign property with a cumulative cost base exceeding CAD 100,000. As per the Income Tax Act, this includes:
- Foreign bank accounts.
- Stocks or bonds held in foreign brokerage accounts.
- Foreign real estate (excluding personal-use property).
- Annual Income Tax Returns: Residents file a T1 General Income Tax Return, reporting worldwide income, while non-residents can file specific returns for Canadian-sourced income (e.g., electing under section 216 of the Income Tax Act for rental income and electing under section 217 for pensions).
Failure to comply with reporting obligations can result in severe penalties, including fines of up to CAD 2,500 per year for failing to file Form T1135.
How are Canadian investments taxed in an expat’s host country?
Canadian expats must comply with the investment tax rules of their country of residence in addition to any continuing Canadian obligations. A host country may tax worldwide income, including dividends, interest, capital gains and withdrawals from Canadian accounts.
Canadian tax advantages may not automatically be recognized abroad. For example, income or gains within a Canadian registered account could remain tax-advantaged in Canada but become taxable in the host country.
Tax treaties and foreign tax credits may reduce double taxation, but their availability depends on the countries involved, the type of income and the individual’s residency status.
Expats should therefore assess both tax systems before contributing to, withdrawing from or selling an investment.
What are the best investment options in Canada for Canadian expats?
Investment options in Canada for Canadian expats include RRSPs, TFSAs, RESPs, RDSPs, non-registered investment accounts and Canadian property.
The most appropriate options depend on the expat’s residency status, eligibility to contribute, Canadian tax treatment and whether the account’s tax advantages are recognized in the host country.
Registered Retirement Savings Plan (RRSP)
The RRSP is a tax-deferred investment account designed to help Canadians save for retirement.
Canadian expats can retain their RRSP accounts while living abroad, and the investments within the account will continue to grow tax-deferred.
However, non-residents generally cannot contribute to an RRSP unless they have earned income in Canada and file a Canadian tax return.
Withdrawals from an RRSP while living abroad are subject to a 25% withholding tax for non-residents. This rate may be reduced under a tax treaty between Canada and the host country.
For instance, the Canada-U.S. tax treaty reduces the withholding tax on periodic withdrawals (e.g., from a Registered Retirement Income Fund or RRIF) to 15%.
Withdrawals must also be declared as income in the host country, potentially leading to double taxation if no tax treaty exists.
Tax-Free Savings Account (TFSA)
TFSAs are attractive investment vehicles in Canada because they allow tax-free growth and withdrawals.
However, Canadian expats cannot contribute to their TFSA if they are classified as non-residents. Contributions made as a non-resident are subject to a 1% penalty tax per month on the contributed amount until it is withdrawn.
Investment gains within the TFSA remain tax-free in Canada, but this tax-free status is often not recognized by other countries.
For example, in the United States, TFSA income is fully taxable and must be reported to the IRS. Expats should carefully evaluate whether maintaining a TFSA is beneficial based on the tax treatment in their host country.
Registered Education Savings Plan (RESP) / Registered Disability Savings Plan (RDSP)
RESPs and RDSPs can be maintained while living abroad, but contributions may be restricted for non-residents.
Additionally, grants or bonds provided by the Canadian government for these accounts may stop if the account holder no longer resides in Canada.
Withdrawals may trigger withholding tax, and income generated in these accounts may be taxable in the expat’s host country.
Non-Registered Accounts
Non-registered accounts offer flexibility as an investment option for Canadian expats, as they are not subject to contribution limits or specific account rules like registered accounts.
Expats can hold a wide range of investments in these accounts, including:
- Stocks and Bonds: Individual equity and fixed-income securities traded on Canadian or international markets.
- Exchange-Traded Funds (ETFs) and Mutual Funds: Diversified options for investing in broad market indices, sectors, or asset classes.
- Alternative Investments: Hedge funds, private equity, or other non-traditional investments.
Investment income from non-registered accounts is taxed differently for non-residents:
- Dividends: Subject to a 25% withholding tax, which may be reduced under a tax treaty.
- Interest Income: Typically exempt from Canadian withholding tax if it meets specific conditions, such as being paid by an arm’s-length Canadian payer.
- Capital Gains: Non-residents are generally not taxed on capital gains from the sale of Canadian securities, except for taxable Canadian property (e.g., real estate or shares in private Canadian companies).
Non-residents must also report income earned in these accounts to the tax authorities in their host country, where additional taxes may apply.
Can expats buy property in Canada?
Real estate is a popular investment for Canadian expats due to its potential for long-term capital appreciation and rental income. However, non-residents face specific tax obligations when investing in Canadian property.
- Rental Income: Rental income earned by non-residents is subject to a 25% withholding tax on the gross rent. Non-residents can file an NR6 form to pay tax on net rental income (gross rent minus allowable expenses) instead. Filing a Section 216 return allows for accurate calculation and potential tax refunds.
- Capital Gains on Sale: When a non-resident sells Canadian real estate, they are subject to capital gains tax. To comply with CRA rules, the buyer must withhold 25% of the sale price until the seller obtains a Certificate of Compliance (Form T2062). This certificate ensures that the seller has paid the necessary taxes on the capital gain. Non-compliance with this process can result in significant penalties.
Real estate investments are also taxable in the host country, depending on local tax laws. Expats must ensure they meet both Canadian and foreign tax obligations for their property.
Offshore Investment Options for Canadian Expats
Offshore investment options for Canadian expats include international investment accounts, host-country brokerage accounts, and globally diversified ETFs and mutual funds.
These options can provide broader market access and greater portability than some Canadian accounts, but their suitability depends on regulation, fees, currency exposure, tax treatment and reporting requirements in Canada and the expat’s country of residence.
Offshore Investment Accounts
Offshore investment accounts are designed for individuals living abroad who want access to global markets and flexibility in managing their wealth.
These accounts are typically held in jurisdictions with favorable tax and regulatory environments, such as Singapore, Switzerland, or the Cayman Islands.
Host Country Investment Accounts
Opening an investment account in the host country is another option for Canadian expats.
These accounts provide access to local financial markets and are often integrated with the host country’s banking systems.
Global ETFs and Mutual Funds
Exchange-Traded Funds (ETFs) and mutual funds with international exposure are excellent tools for Canadian expats seeking diversified global investments.
These funds are typically available through offshore or host country brokerage accounts.
Alternative Investments for Canadian Expats
Alternative investments for Canadian expats include REITs, hedge funds, private equity, distressed assets and venture capital.
They can provide exposure beyond traditional stocks and bonds, but may involve higher fees, greater risk, limited liquidity, larger minimum investments and additional Canadian or host-country tax and reporting considerations.
Options Include:
- Real Estate Investment Trusts (REITs): REITs provide exposure to global real estate markets without direct ownership. Expats can invest in REITs listed on major stock exchanges or private real estate funds.
- Private equity: Invests in privately held companies through growth capital, buyout or venture capital strategies. These investments typically require a long holding period and may be available only to eligible investors.
- Hedge funds: Use strategies such as leverage, short selling, derivatives and arbitrage. Fees and risk can be higher than those of conventional investment funds.
- Private credit: Provides financing to companies outside traditional public bond markets. It may offer income potential but usually has limited liquidity and greater credit risk.
- Infrastructure Funds: Invest in assets such as energy systems, transport networks, utilities and digital infrastructure. Returns may come from long-term contractual or usage-based income.
- Commodities and precious metals: Provide exposure to assets such as gold, energy and agricultural products, potentially supporting diversification and inflation risk management.
Alternative investments often have higher entry requirements, such as minimum investment amounts, and require thorough due diligence to ensure compliance with Canadian and host country laws.
For more guidance, consulting an expat financial advisor is highly recommended.
FAQs
Do Canadian expats pay departure tax on investments?
Canada may treat certain investments as sold at fair market value when an individual becomes a non-resident, potentially creating a taxable capital gain. Some assets are excluded, and payment may sometimes be deferred.
Can Canadian expats keep using a Canadian brokerage account?
Possibly, but the provider may restrict trading, new purchases or access based on the expat’s country of residence and local regulations.
Should Canadian expats invest in Canadian dollars or another currency?
The appropriate currency exposure depends on where future expenses will arise, where the expat expects to retire and how much currency risk they can accept.
What happens to an expat’s investments after returning to Canada?
Returning may change the person’s tax residency, reporting obligations and treatment of foreign investments, so account values and acquisition records should be documented carefully.
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