Pro Finance Tips for Canadian Expats
Living in another country—even if it’s only part-time—is one of the most high-return experiences a person can invest in. Learning a new language, trying new food, and embracing new cultural practices are just some of the riches waiting for intrepid Canadians willing to take a chance and drop their anchors overseas. But beware: without a clear financial strategy, the price could far outpace your expectations. Luckily, with a bit of research and planning, you can ensure your time away from home doesn’t cost you the roof over your head.
Are You a Nomad, a Snowbird, or a Full-Time Expat?
In order to get your overseas finances in order, one of the very first things you need to determine is the extent of your expattery:
- Nomads are constantly on the move, often visiting several different countries each year.
- Snowbirds winter in warmer climates, usually leaving Canada for around six months to live part-time in one other country.
- Full-time expats have moved to another country, typically for work, and often intend to be away for years or even permanently.
The way you style your time away will determine your best course of fiscal action. Take, for example, the question of local bank accounts. The ability to operate in the local currency without expensive foreign transaction fees is appealing, and it’s a strategy available to and recommended for full-time expats and in some cases, snowbirds (like those who return year after year to the same single location and can meet the requirements of the local bank). This strategy would be impractical if not impossible for nomads.
Cash or Credit?
How you spend your everyday money is both a potential financial pitfall and an obvious opportunity for savings.
Depending on where you are, it may be critical to have cash on hand in the local currency. During my travels throughout Mexico, I’ve wound up on more than one occasion in a tiny pueblo with no ATM, never mind credit card terminals. Cash is flexible and accepted everywhere. The problem is, there are limits to how much cash you can withdraw from an ATM in one visit, and withdrawals in foreign currencies come with hefty fees—one from your bank and an additional one from the issuing bank. Also, you don’t necessarily want to be walking around with large amounts of cash on your person.
Credit cards are convenient, secure, and can offer purchase protection, perks, rewards, or cash back. Like withdrawing cash, though, repeatedly swiping a Canadian credit card may result in substantial foreign transaction fees—typically 2.5% of each purchase.
Your best solution may be a mix of cash and carefully selected cards.
Find out if your home Canadian bank is partnered with any relevant foreign banks. Many of these institutions operate in international networks and you might be able to save a few bucks by ensuring you use the right ATM. Next, Your best bet is to parcel out the cash you carry on you and stash the rest at home, but with fees both coming and going, you’ll want to take money out as infrequently as possible. Finally, be cognizant of where you spend your cash. Some vendors tack on a fee for credit card purchases to cover their own costs. Paying in cash might reduce your bill significantly.
When choosing your expat-friendly credit card, you’re going to want to look for an attractive approach to foreign transaction fees, purchase protection, and travel-related perks like points or insurance.
The no-annual-fee Home Trust Preferred Visa waives foreign transaction fees entirely and offers 1% cash back on all purchases. Additionally, it includes Purchase Security Insurance, which may cover you if a buy goes wrong. During some travels last year I bought a pair of shoes in a town I was passing through. After only one day on my feet, a seam came loose—but I was already long gone. When attempts to reach the vendor failed, I was reimbursed for the faulty footwear by my credit card company.
As they say, there’s more than one way to skin a cat. The Rogers Platinum Mastercard does not waive foreign transaction fees but it does offer 3% cash back on foreign purchases—a reimbursement that covers the fee and then some. With no annual fee, this card’s also worth a look.
As an expat, you’re probably also interested in earning travel insurance and flight, hotel, or car rental points. At $99/year, the Scotia Gold Amex is a bargain, offering a whopping 4 points per $1 (about $0.04 per dollar) on all gas, grocery, dining, and entertainment purchases. The redemption policy is extremely flexible, and purchases are protected as well. It does *not* cover foreign transaction fees, so I recommend using it when you’re back on Canadian soil or making online purchases in CAD, and using one of the above two cards that waive or subsidize foreign trans. fees while in your overseas home.
One of the biggest headaches in foreign banking is the time, cost, and hassle of moving money between accounts and currencies. If you’re a retired snowbird, this may not present much of an issue, but, if like many nomads and expats, you make at least some of your income remotely, moving money can be a major—and majorly expensive—problem.
Depending on the amount of money to be moved and whether it’s a gift, a payment for goods or services, or employment income, an old-fashioned bank transfer may be what you need. Banks generally charge flat fees for transfers so if you’re moving a large amount, the service fee isn’t too onerous. On the other hand, different banks in different countries require different codes, which can quite easily lead to mistakes—and most banks impose a significant penalty for returned transfers. Take the time I was waiting on a transfer coming from a bank in Korea. When it failed to arrive, it took forever to track down the problem (their transfer form required a branch number and I have a no-fee, branchless account), and to add insult to injury, I was charged a fee.
Long the leader in international money transfers, PayPal has a quality infrastructure and can accept money in different currencies, but on top of their service fees, their currency exchange rates tend to be far inferior to what’s offered elsewhere.
If you’re transferring money in different currencies, it’s well worth it to set up a TransferWise account. As with PayPal, you’ll have to connect the service to your Canadian account, as will anyone you’re transferring money with. When you send money, your fee is completely transparent, and TransferWise offers competitive rates on currency conversions.
*Pro-tip for nomads and freelancers: if you’re dealing with money transfers on a regular basis, look into the TransferWise borderless account, a no-fee, global, multi-currency account that’s like having several local accounts.
No matter where in the world you are, you’ll still need to pay your taxes! For Canadian expats, there’s a whole host of rules and dependencies that will dictate to whom—and how—you pay. Tax is determined by residency status and residency is determined by your ties to Canada, which may include owning a home, having dependents in Canada, or carrying a Canadian passport. Canada has a system of tax treaties with other countries, intended to prevent Canadians from being double-taxed (taxed both in Canada and another country), but the process might involve multiple filings and reimbursements depending on your situation.
Tax issues get more complicated if you don’t maintain residency status, if you are working in another country, or for a whole host of other specifications. Avoid the headache and hire an accountant to make sure you’re informed.
Just like most aspects of travel-planning, figuring out what’s best for your financial health while outside Canada’s borders takes some thought and attention to detail. The good news is that the right set of tools can reduce your expenses while making you money—a winning combination to help you take on the world.