Kelsey Rolfe The Globe and Mail 24 November 2022
Getting established in a new country and understanding an unfamiliar financial system can be overwhelming. If you’re new to Canada, here’s what you need to know about getting your financial footing – from setting up a bank account to building your credit to saving and investing for life’s major milestones.
How can I open a bank account?
You’ll need two pieces of government-issued identification to open a bank account, such as a social insurance number (SIN), permanent resident card, provincial health card or Canadian driver’s licence. Three Immigration, Refugees and Citizenship Canada forms – IMM 1442, IMM 1000 or IMM 5292 – are also valid identification. If you only have one piece of government ID, you can use a debit or credit card with your name and signature or a current foreign passport, among other options.
You can technically open a Canadian bank account while you’re still in your home country, but these tend to be preliminary account set-ups and you’ll have to visit a branch to show your ID. Online banks and investment apps that offer banking services are an exception, as the entire account set-up process is online.
While you don’t need your SIN to open a bank account, it makes sense to prioritize it: You’ll need one to be able to earn interest on your chequing or savings balances, as financial institutions are obligated to report any interest income you earn to the Canada Revenue Agency for tax purposes.
What should I consider when choosing a financial institution?
In Canada you can open an account with a bank, credit union or digital bank. Enoch Omololu, founder of the personal finance website Savvy New Canadians, recommends newcomers compare account fees before committing to a financial institution. Banks and credit unions charge monthly account fees of between $5 and $30, and there may also be transaction fees for ATM withdrawals and e-transfers.
However, young newcomers and international students may be able to open no-fee accounts. Rob Carrick, The Globe and Mail’s personal finance columnist, highlighted the accounts available with the big banks and online banks. With interest rates rising rapidly in Canada, it’s also beneficial to compare savings account interest rates. In a May newsletter, Mr. Carrick shared a couple of savings account rate-comparison websites and noted that the big banks have been offering “unusually good” bonus rates on temporary savings account promotions.
If you choose to open an account with a credit union, you’ll have to pay a small membership fee when you open your account. That fee means you have ownership stake in the credit union and it entitles you to certain benefits such as profit sharing and voting rights, depending on the institution’s rules, said Michael Zienchuk, manager of the wealth strategies group at the Ukrainian Credit Union (UCU).
Mr. Omololu said that how you plan to use your account should help determine which financial institution you choose to bank with. Digital banks are a good fit if you’re looking for a no-fee chequing account or the ability to earn interest on your chequing balance, and are comfortable banking online.
If you feel it’s important to receive support in person, a financial institution with bricks-and-mortar branches may serve you better. Mr. Omololu also noted that online international money transfers tend to be difficult to use, so newcomers who plan to send money to loved ones abroad may have an easier time doing so with a traditional financial institution.
Most banks and credit unions allow you to search for branches based on the languages they can help you in, or receive multilingual customer support over the phone. There are also numerous credit unions that were formed to serve specific communities, such as British Columbia’s Khalsa Credit Union for the province’s Sikh community, and the UCU, Parama Credit Union for Lithuanian immigrants, Finnish Credit Union, Korean Credit Union and others in Ontario.
How do I send money home to family and friends?
You can send money abroad through banks and credit unions, money transfer businesses, currency exchanges and cheque-cashing businesses. Transactions can be issued online or over e-mail, by telephone or in person, depending on the institution you choose.
Each institution will have different fees for international transfers, and some make their money by charging a higher than normal exchange rate, so it’s a good idea to shop around before making your choice. You may also want to compare what the recipient has to pay to access the funds, which comes off the amount that you’ve sent them. The Financial Consumer Agency of Canada, the country’s top financial watchdog responsible for protecting consumer interests, also suggests looking up any money transfer businesses in Canada’s Better Business Bureau to ensure you’re choosing a legitimate entity.
You can use cash, a cheque, money order, or your debit, credit or prepaid card to make the transfer, but according to the FCAC there may be additional fees depending on which method you use. Sending funds with your credit card can be considered a cash advance, which makes the transaction more expensive because interest is charged immediately on cash advances and the rates are usually higher than the interest on a normal credit card purchase.
How do I build my credit score?
If you want to borrow money or buy a home in Canada, you’ll need a credit score. But your credit history from a previous country doesn’t transfer over, so you’ll need to build one from scratch, Mr. Zienchuk said. Canada has a centralized credit scoring system with two main credit bureaus, which allows financial institutions and lenders to look up your history with your permission.
One of the first steps to building a credit history is getting a credit card. If you aren’t approved for a regular credit card immediately, you can instead apply for a secured credit card, which requires a security deposit of roughly one to two times the credit limit that’s held as collateral.
Mr. Omololu said many newcomers who’ve arrived from countries with much different credit systems are concerned that just accessing credit products can negatively affect their credit history. In Canada, he said, using these products and regularly making payments on them is what helps to build your score.
Beyond accessing a credit card and paying bills on time, he also recommended newcomers not use more than 30 to 35 per cent of their credit limit. He also suggested having a mix of credit types, such as personal or car loans, which helps to build your credit profile more quickly.
How can I purchase a home?
To buy a home in Canada you’ll need to be approved for a mortgage. Lenders – including banks, credit unions, mortgage companies and insurers, among others – will consider your pretax income, expenses, credit score and other factors when deciding what to offer you.
A lack of credit history tends to be the biggest challenge newcomers face when trying to qualify for a mortgage. But Joe Bladek, a Barrie, Ont.-based mortgage broker who works regularly with newcomers and immigration consultants, said many lenders have other ways you can prove your creditworthiness. As examples, he cites rental history, a letter from a landlord, or a year’s worth of bank statements (that could be six months of statements from a Canadian bank and the remainder from the country of origin) that show you don’t miss bill payments. Occasionally lenders will accept an international credit bureau file.
Your status in the country plays a role in how much you’ll need to contribute for a down payment. Permanent residents can put as little as 5 per cent down, as long as you meet your lender’s employment and credit requirements. If you’re an international student or have a work permit you’ll need to make at least a 10 per cent down payment. Buyers who put down a down payment of between 5 per cent and 19 per cent must be insured by the Canada Mortgage and Housing Corp. (CMHC), which involves a premium on your mortgage.
Both the CMHC and Sagen, a private mortgage insurance provider, have programs to help new Canadians secure mortgages, recognizing that newcomers are a significant portion of the market (according to a 2019 CMHC survey, 18 per cent of mortgage consumers are new Canadians). CMHC’s program has no minimum residency period requirements, requires non-permanent residents to be purchasing a one-unit property they plan to occupy, and is only available for purchase prices below $1-million, among other requirements. Sagen’s program requirements include that borrowers have a minimum of three months’ full-time employment in Canada, be purchasing a property with a maximum of two units of which one is owner-occupied, and is only available for properties below $1-million.
How do I save for my child’s education?
Canada has a registered investment account called a registered education savings plan (RESP) that you can use to save for your child’s postsecondary education costs, as long as they are a resident of Canada and have a valid SIN.
Contributing to an RESP allows you to take advantage of two government incentives. As part of the Canada Education Savings Grant, the government will annually match 20 per cent of your contributions up to $2,500, and this amount can be higher for children from low- and middle-income families. The Canada Learning Bond offers up to $2,000 to children of low-income families to help with their education.
RESPs are tax-deferred, meaning that the money you received from government benefits and interest payments, dividends and capital gains from the funds you invested won’t be taxed until your child is enrolled in school and you request withdrawals from the account. Those funds will be treated as their taxable income (your contribution amounts aren’t taxed).
How can I save and invest for retirement?
Canada offers two individual savings accounts through which you can save for retirement, called the registered retirement savings plan (RRSP) and the tax-free savings account (TFSA). An RRSP, an investment account that’s available to residents of Canada who file taxes in the country and have an income and a SIN, allow you to build up funds for retirement while reducing your current tax bill. A TFSA, another type of investment account that isn’t taxed at withdrawal but also doesn’t reduce your current tax bill, is available to Canadian residents over the age of 18 with a valid SIN.
Mr. Omololu stressed the importance of heeding the annual contribution limits for both RRSPs and TFSAs to avoid being taxed on the overage – something he said many newcomers aren’t immediately aware of. “Newcomers who’ve just heard about the TFSA, for example, have opened accounts and overcontributed, and it’s just a mess trying to sort that out. It makes for a messy start to investing in Canada,” he said, suggesting that a more prudent approach to these accounts is to set up a pre-authorized monthly contribution.
If you’re not sure whether an RRSP or a TFSA makes the most sense for your financial situation, Tim Cestnick, co-founder and chief executive officer of Our Family Office Inc. and a regular Globe contributor, has a helpful breakdown of scenarios where one or the other may make the most sense.
You’ll also likely be able to receive two government benefits at your retirement, the Canada Pension Plan and Old Age Security. CPP is available to anyone age 60 and older who made at least one valid contribution during their working years. It’s a monthly, taxable and inflation-linked pension benefit. You make contributions based on your annual earnings up to a maximum amount, which in 2022 is $64,900. The contribution rate is currently 11.4 per cent, but those contributions are split evenly between you and your employer (self-employed workers pay the full contribution rate). The more you contribute throughout your career, and the longer you delay receiving your pension (the latest you can begin receiving it is age 70), the more you qualify for. There are no residency requirements for CPP. If you’ve worked in one of the more than 50 countries Canada has a social security agreement with, you may be able to combine the contribution periods from both countries to meet the minimum qualifications for one or both of those countries’ pension benefits.
Old Age Security is a monthly payment to seniors aged 65 and older. You don’t have to contribute to receive OAS payments, but the amount you receive is based on how long you’ve lived in Canada, as well as your income. You have to have lived in the country for at least 10 years as an adult to qualify at all, and for 40 years as an adult to receive the maximum amount. But, as with CPP, if you’ve worked in a country that has a social security agreement with Canada, this may help your eligibility for OAS.
Depending on your employer, you may also be able to save for retirement through a workplace defined-benefit or defined-contribution pension.
What do I need to know about paying taxes?
All residents of Canada must file an income tax return every year, regardless of their immigration status, if they’ve earned income, received government benefits or participated in programs such as the first-time Home Buyers’ Plan, or have sold capital property.
Filing your taxes determines your eligibility for many government benefits, including the Canada Child Benefit, GST/HST credit and some provincial and territorial programs. However, you can also apply directly for the benefits once you have a SIN, and don’t need to wait until after you’ve filed your taxes.
You must report not just your Canadian income each tax year but also your worldwide income, such as investments or a business in the country you left. If you’ve paid taxes in another country, you can claim foreign taxes on your return so you aren’t being doubly taxed for the same assets.
The Canada Revenue Agency also requires you to disclose foreign assets worth more than $100,000 through the T1135 tax form, regardless of whether those assets have earned any income. These could include assets such as stock investments, a bank account or rental properties overseas, with their original cost valued in Canadian dollars. But they do not include personal property, like a home in another country that you plan to use for vacations. If you fail to report you face a $25 per day penalty up to a maximum of 100 days, but you do not have to file a T1135 in the tax year that you first became resident in Canada.