Given Canada’s stable and thriving economy, it offers a lucrative avenue to many investors. But if you’re a non-resident looking for ways to invest in Canada, there are certain restrictions on opening an investment account and the options available.
The good news, however, is that non-residents can also benefit from the country’s booming market economy. This article will examine the different types of investment accounts available to non-residents and the restrictions you must consider.
What Is an Investment Account?
An investment account is a type of bank account that allows you to invest your money in stocks, bonds, mutual funds, and other investments. You can use it to buy shares of stock in companies or government bonds.
The type of investment that’s best for you depends on your goals and risk tolerance. While most people choose to invest in stocks because they have the potential to earn higher returns than bonds or cash investments, stocks also pose a higher risk of losses.
If you decide to open an investment account at a Canadian bank, there are four main types:
- A Registered Retirement Savings Plan (RRSP): It allows you to save for retirement with tax deductions.
- A Tax-Free Savings Account (TFSA): It helps you to grow your savings without paying taxes on any earnings until withdrawal. This makes it ideal for short-term savings goals like vacations or home renovations.
- A Registered Education Savings Plan (RESP): It enables you to save up for your kid’s post-secondary education. You can contribute up to $50,000 per child, and the government will match your contributions with grants.
- An Unregistered Investment Account: It lets you invest in stocks and other securities without paying taxes on the gains until withdrawal.
Opening an Investment Account in Canada as a Non-resident
If you are not a Canadian citizen or permanent resident, you can still open an investment account in Canada.
Non-residents of Canada pay income tax between 15% and 25% but are only required to file taxes for certain types of income, such as rental property earnings or revenue from selling real estate.
While non-residents face certain restrictions when opening an investment account, many Canadian banks and other financial institutions will allow foreign investors to open up accounts for trading stocks, bonds, and savings purposes.
What You Should Know Before Opening an Investment Account
Here are some of the main stipulations to consider as a non-resident before opening an investment account:
- To open an investment account with a Canadian financial institution, a non-resident must be at least 18 years old and have a valid Social Insurance Number (SIN).
- Non-residents cannot open RESPs and TFSA accounts but can open a self-directed RRSP.
- Non-residents are required to pay capital gains tax on any income they make from selling investments in Canada. This includes interest from bonds and GICs as well as dividends from shares of Canadian companies. The interest rate depends on their citizenship and residency status.
- Non-residents cannot buy new Canadian mutual funds but can retain the ones they already own.
- If non-residents sell a mutual fund they own in their RRSP account, the capital gains will be included as part of their RRSP. If it’s held outside an RRSP or TFSA, it will be taxed at half the rate of Canadian residents, ranging from about 15% to 25%.
How to Open an Investment Account
Opening an investment account can be daunting for first-time investors, but it’s a really simple process. Here’s how you can open an investment account:
- Complete the application form and provide some personal information.
- The financial institution will ask for your Social Insurance Number (SIN), which you can obtain from Service Canada. This will allow them to report any capital gains tax that you owe on your investments.
- You will need to provide a copy of your passport, driver’s license, or other reliable forms of identification. Some financial institutions may require that you have an account with them.
Once you’ve opened the account, you can start investing.
You can either purchase bonds or stocks directly from an issuer or through a broker. It’s a good idea to diversify your investments so that if one type of security declines in value, another may rise.
What Can I Invest in a Non-Registered Account in Canada?
Non-registered investment accounts are for people who want to invest in a wide range of products. They’re also for people who aren’t interested in tax savings.
If you have a non-registered account, you can invest in mutual funds, exchange-traded funds, stocks, and bonds.
Non-registered accounts also offer more investment flexibility compared to an RRSP or TFSA. This is because a non-registered account does not require you to buy or sell the product after a specified period.
You should also note that there are no tax savings when you move money into or out of this type of account.
Can Non-residents Invest In Stocks And Mutual Funds In Canada?
Non-residents of Canada cannot purchase new mutual funds in Canada, but they may hold existing investments.
Some financial institutions are more flexible than others about allowing non-resident clients to open accounts and make deposits into their mutual fund holdings.
Do Non-residents Pay Capital Gains Tax In Canada?
Generally, a non-resident is not required to pay Canadian withholding tax on the capital gains they receive from selling property that is exempt from capital gains taxes.
However, you may have to pay capital gains tax if you sell taxable Canadian property (TCP). Examples of TCP include real estate in Canada, natural resources found in Canada, and timber harvested in Canada.
Can A Non-resident Open An RRSP In Canada?
To be eligible to open an RRSP, you must meet the following requirements:
- Be a Canadian resident
- Have a Social Insurance Number (SIN)
- Have earned income and file taxes
In addition to Canadian citizens and permanent residents, temporary foreign workers and international students living in Canada may also qualify as tax residents if they have been in the country for at least 183 days during the year.
If you have an existing RRSP, you can still keep your funds in the RRSP account or withdraw the amount. Note that, depending on your country of residence, your RRSP funds may be taxed.
Can You Get A Canadian Permanent Residency By Investing Money?
Canada is an attractive investment destination, given its skilled labor force, high standard of living, and ease of doing business. The Canadian government provides foreign investors with the opportunity to qualify for permanent residency through Investment in Canada (launched in 2015).
The investor program offers various avenues to help you obtain residency in Canada. Examples include the Start-up Visa Program and the Self-Employed Program, and both have been included in the Immigration Levels Plan for 2022–2024.
By 2022-24, the Canadian immigration department plans to grant 50% more permanent resident visas under this category.
Opening an investment account in Canada offers numerous benefits for non-residents, such as investing in Canadian companies, using your RRSPs to buy property in Canada, and gaining permanent residency through an investor visa.
So, if you’re a non-resident, you can still diversify your portfolio and save money on taxes while doing it by opening an investment account in Canada.