This is one of the trickier aspects of returning to Canada for citizens who have lived abroad for many years and want to repatriate some or all of their money back to Canadian dollars held in Canada. There are several aspects to foreign exchange considerations:
The key word for understanding foreign exchange is Timing.
When moving back to Canada some years ago, I personally fell into the trap of wanting to have my money in Canada when I arrived back. I converted our holdings to CAD and set up life here in Canada with those funds. Due to exchange rate changes in the months preceding our return, I lost CAD 14,000 on the conversion rate difference from my earlier projections. Had I waited for a more favourable rate, I could have recouped most or all of these lost monies. As exchange rates go up and down over the years in fairly clear patterns, timing becomes the key variable.
As of the latest update to this document (June 2017), the Canadian dollar (CAD) is at its lowest level compared to the US$ (USD) in many years. Given this situation, should you convert some or all of your foreign currency back to Canadian dollars right now?
In summary, timing is the key consideration for moving some or all of your monies back to Canada when you are returning to reside here.
Major costs in Canada when you return can be the purchase of real estate for living in or investment, a vehicle, or even money for a post-secondary education for your child. Living expenses in major cities in Canada are continually rising, so plan on having enough cash in Canada to live comfortably, too. Clearly, bringing some money to Canada is essential.
I have added some USD foreign exchange considerations to the "Moving Back to Canada from USA" page, which can give you some general ideas.
The opportunity facing Canadians considering moving their USD funds to CAD is embodied in this chart:
Quite simply, the mid-term projection of the USD is anyone's guess, but as of mid-2018, it is still strong and this is certainly a very good time to move money back to CAD from USD. Note: The USD seems to be strong, but there are so many variables changing in world economics that is very hard to predict what will happen next.
This leaves Canadians moving back to Canada with some fundamental questions to consider:
If you need the money to be in Canada now, or very soon, exchanging now from USD may save you from future losses from a poorer exchange rate. If you are exchanging GBP to CAD, BREXIT implications could go either way: Strengthening the GBP or weakening it, so there is no definitive timing implication for that currency.
If you can wait for the very long term (5-10 years +), You can more accurately match any currency's high exchange rate to your needs.
If you are not in a rush to move your money back to Canada, and want to balance the risk of your holdings (called "hedging"), perhaps keeping 40% in USD, 40% in CDN, and the remaining 20% in EUR, YEN, or CNY (RMB) would make sense. More below, in "Part 2: Hedging".
"Hewers of wood and drawers of water"
This used to describe the early Canadian economy. Resource-based. And we did most of our trade with the U.S. .
Today, the Canadian economy is more diversified, but we still retain some of the economic pillars of the past. What Canada looks like now:
The challenge for the present and future? We still do 3/4 of our trade with the U.S.!
Another old saying:
"When America sneezes, Canada gets a cold".
Given our reliance on the U.S. for trade, and the fact that the U.S. population and economy is 10 times the size of Canada's, is there cause for concern when this friendly neighbour gets economically sick?
The simplest and most clear message coming from Canadian reliance on our economically challenged neighbour to the south is that you might consider holding a significant part your financial investments outside of Canada and the U.S., in foreign currencies and investments. Switzerland, Germany, Brazil, and China all offer an opportunity to off-set economic risk in the U.S., and by association, Canada.
This is tricky stuff. If you have significant financial holdings in a foreign currency I suggest you consult with a sophisticated financial advisor who understands currencies, specifically.
"Hedging" simply means balancing your risk or "not putting all your eggs in one basket".
When one currency goes up another goes down, by default. Obviously you want to be invested more in currencies that go "up" over time and not down. However, this is devilishly hard to predict, per the timing issue noted above.
For most people, this means you need another tool: Owning more than once currency so that when one goes down, you have another that goes up. You won't make any major gains on your money from a currency value perspective...but you won't ever lose much, either, assuming you have spread your risk across a few currencies.
If you are getting paid in one currency, and putting away savings for the future, hedging is a powerful risk reduction tool for you.
Example mix, assuming you are still living overseas or are returning to Canada but do not want to immediately convert all your funds:
You have Australian dollars (AUD) 100,000. Here is how you might hedge it:
AUD 40,000 (40%)
USA 21,000 (20%)
EUR 16,000 (20%)
CDN 21,000 (20%)
(The above is just an example to illustrate hedging, not necessarily the best investment mix for you at the time of reading this).
Another example mix, if you want to be a bit more widely invested:
AUD 20,000 (20%)
EUR 16,000 (20%)
CDN 21,000 (20%)
CHF 19,500 (20%)
JPY 37,000 (20%)
Important note: This currency "hedging" will not likely be in cash that is held in bank accounts, to be clear. If you have an investment account (stocks, bonds, ETF's, etc.) you can hedge across currencies by holding bonds or bond ETF's, for example, that are denominated in different currencies. This way you can achieve not only currency value stability, but some income from your money, too.
Holding multiple currencies might seem complicated, but it really is quite simple. If in doubt, always hold at least 2 different major currencies, ones that are not closely tied together For example, the USD and CDN are too closely tied to be considered an effective risk management strategy. CDN and EUR are not closely tied together. Holding funds in these two currencies would be the start of an effective hedge strategy.
Simple, right? You sell your house in California, for example, and tell your bank to transfer the USD$800,000 you got from the sale to your Canadian bank account and all is good. Easy.
(This was the shortest section on the whole web site!)
But wait a minute...! There are a few things to be aware of:
First, I have had a couple of people tell me that they had to profits on foreign exchange as income in Canada when they return. Hmmm....when I gently explored further with one of these people I learned they had not actually been non-resident in Canada. They had not cut all critical ties to Canada when they left. They were actually liable for gains on currency increases because they were still residents of Canada in the eyes of the Canada Revenue Agency. If you are living abroad, have been for many years, and have no major ties to Canada, you are most likely free to transfer money back to Canada without tax implications.
Second, if you decide to have a USD bank account in Canada and then transfer a large amount of money in USD to your Canadian USD account, you become liable for Canadian taxes on gains in the value of your USD holdings vis-a-vis the CAD from the day the money arrives in Canada forward in time.
Are you OK with this?
Please be proactive: If you plan to have all your assets in CAD after you move back, transfer CAD to Canada when you move back, not USD or another currency into a foreign currency account in Canada. Further, by converting the funds in the country you are in now to CAD, you avoid any potential question of gains or losses in Canada on the funds. In other words: Exchange the funds to CAD where you are now and transfer the CAD from there to a CAD bank account in Canada. As the money crosses over the border into Canada there is no currency exchange and no potential future gain or loss considerations for Canadian taxes.
Third, did you know that banks generally give you the worst foreign exchange rate and have the highest fees? Many of my clients are now using private foreign exchange companies to do transfer their funds to Canada, at a much better exchange rate and with much lower fees. Transferring $10,000 to Canada? Your choice of bank/company for doing the exchange won't make much difference. Transferring $50,000, $100,000, $500,000, or $1,000,000+? A big potential difference and money in your pocket. Typically hundreds and thousands of dollars in savings for you.
From a client in May, 2018:
Using a foreign exchange company over the bank to send the deposit for my condo saved me about $660! I didn't expect that much of a difference.
Here are a few private foreign exchange companies to consider, based on client reviews:
For moving money, I have used Xoom (part of Paypal) and TransferWise for several smaller transfers and then used TransferWise for a large transfer from proceeds of the sale of our house in the US. TransferWise has higher limits than Xoom, but both are easy to use. Transfers from the USA for US residents can be done by direct debit (easiest) or using a domestic wire (for large amounts with TransferWise). Of the two, TransferWise is the most transparent in the fee structure, exchange rate, and processes. They have also been very good at answering questions so far. I also had accounts with OFX and HiFX, but neither one is transparent about the exchange rate. What you see on the website public page for the rate is higher than when you log into your account-a bit of bait and switch. With Xoom and TransferWise, both have the accurate exchange rates available without logging in.Thank you for sharing your experiences!
In summary, shopping around for the best foreign exchange rate (including fees!) is in your financial interest if you are moving large amounts back to Canada when you return.
Off-shore banking might conjure up images of people hiding their funds from tax collectors of their country of residence. While off-shore banking might be used for unsavory purposes, accounts with banks that are legally structured in odd places in the world are really just great banking services for lots of normal expatriates who do not want their accounts and funds controlled by countries who have lots of bank and currency controls.
Opening an international off-shore bank relationship with a major international bank makes sense for many expatriates and Canadians returning to Canada to resume residency. You can hold multiple currencies in accounts with the bank and access your accounts and funds electronically from anywhere in the world. HSBC is an example of one such bank. On top of offering accounts with multiple currencies, HSBC will also give you an international credit card that is not linked to the country you are resident in. It comes with high fees for usage, but while traveling or between country residencies, it might make sense. (Note: This is not an ad for HSBC and I do not work for them or are paid by them in any way).
Per the hedging discussion above, off-shore banking is a great way to set up a simple hedging strategy. As international banks understand multiple currencies much better than local banks, they are in a position to make your hedged savings happen quickly and easily.
An interesting new "borderless account" option is emerging for people who want to keep money "offshore" but still access it in Canada easily. A client shared the following:
"I note you recommend getting a Canadian bank account in advance of moving. None of the Big Five [banks in Canada] make that easy. They want me to register a Canadian address ... and then show up in person at the nearest branch. I need some way of transferring the proceeds of our house sale to Canada, so we can buy a house... The fintech app Transferwise has just introduced a "borderless account", which purports to work like a Cdn bank account for any $CDN funds."
The TransferWise borderless account. Please note that I am not affiliated with TransferWise and receive no commission or other benefit from them.
Opening a bank account while visiting Canada, with a foreign address
Please note that you can open a bank account quite easily in Canada when you are physically present, and have a foreign address. Just bring lots of identification for proof that you are you and it is very easy. The problem noted in the quote above is for people trying to open an account from abroad, either over the phone or electronically. It is possible to open a bank account from abroad. Check out the Taxes, Accounting, and Banking page of this site for experiences clients have had opening an account from abroad.
One final note on off-shore banking:
Integrity. I strongly suggest staying in your integrity at all times with off-shore banking, tax considerations, or any other question when moving back to Canada. My Godfather, who lived a quietly wealthy life, explained it to me this way:
"I never cheat on my taxes. And I sleep well at night."
Please share with me your ideas, considerations, and experiences relating to foreign exchange. I will post them here as help for others. Along with a credit to you will be a big thank you on behalf of the many people you will be helping!
Latest update to this page: August 2018