An offshore bank account can provide access to foreign currencies or financial products not available in Canada, along with more privacy and the potential to minimize taxes. But managing a foreign account can be complicated.
No, it’s not illegal to have an offshore account. But failing to accurately declare overseas income — or using such an account to avoid declaring your income — is illegal. Tax specialists and other financial advisers can help you leverage an offshore account and navigate tax law.
Reporting your offshore assets to the CRA
If you hold foreign property that at any point in the year totals more than $100,000 CAD, you must report what you own on Form T1135 when submitting your taxes. Since 2015, the CRA has made it simpler to report holdings totaling less than $250,000 CAD, but holdings totaling more than this amount must be reported in more detail.
The Income Tax Act defines such property as money, real estate, stock investments, patents, copyrights, precious metals or gold certificates, among other things. Check out the resources below for more information on what qualifies as foreign property and how to report your international holdings.
When comparing offshore accounts, look specifically for benefits that include:
A beneficial tax environment. An offshore bank account typically is set up in a country that imposes a lower tax rate on investment income than Canada does.
Strict confidentiality. Overseas bank accounts tend to enforce strict privacy policies that prohibit divulging details of its clients to third parties.
Flexible accessibility. An offshore account should allow for quick investment decisions. Not all accounts allow for easy access to foreign exchange, so first consider where you’ll make most of your investments.
High interest rates. Your offshore account will likely function as a savings account, paying you interest on your balance. Confirm that you’ll get the strongest rate you’re eligible for.
Multicurrency availability. Offshore banking should provide the ability to conduct business in multiple currencies from one account.
Global transfers. Look for an account that allows for easy transfers among your worldwide accounts.
Compare interest rates around the world
When you open a high-interest savings account in the US, you might find interest rates of less than 1% up to 2.5%. But while you can find considerably higher returns overseas, it comes with risk.
For example, an interest rate of 16.00% on that account in Venezuela may sound great. But not when you consider the country’s inflation, which is expected to hit 1,000,000% by the end of the year. Your investment could be nearly worthless in a year from now when you factor in inflation.
Other factors to consider when choosing an account include:
Exchange rates. Look for a bank with strong exchange rates. Otherwise, you could lose a significant amount of money when you withdraw or deposit Canadian dollars.
Inflation. Lower inflation can result in stronger returns, while high inflation can detract from the value of your investment.
S&P rating. A county’s long-term credit rating from Standard & Poor’s reflects the current economic climate and financial stability. A high AAA grade indicates a stable economy, BBB grades are riskier and anything below that is regarded as fairly speculative and high risk. Keeping your money in an unstable country is a bad idea — if the bank isn’t still there when you go to withdraw your investment, you might not be able to get it back.
World interest rates
Compare interest rates, inflation and credit rating in the most popular overseas investment destinations against Canada.
United Arab Emirates
*Our table is compiled using various sources and is intended for comparison purposes only. Because the information may not be current, you should not base investment decisions on them. Note that interest rates, inflation and credit ratings change over time, sometimes abruptly.
Overseas GICs in particular may deliver better returns than products in Canada. Planning ahead to take advantage of an opportunity when available can be most valuable way to invest your money.
If you own a company with a 5-year plan to do business in South Africa, you might want to open a South African rand (ZAR) 5-year Guaranteed Investment Certificate (GIC) account to simultaneously earn interest and prepare for overseas finances.
Depending on your needs, you might also benefit from access to foreign currencies. If you transact a lot of business overseas, avoiding currency exchange fees is as good as money in your pocket. You may prefer holding an interest-earning offshore account in a currency that suits your needs, even if the interest is lower than what you might get in Canada.
Offshore accounts for tax minimization
Contrary to what you might’ve heard from TV and movies, you must pay taxes if you keep your money overseas. You’ll pay taxes in line with the local laws of your offshore account. You may need to pay tax on that income in Canada as well, including capital gains tax on investments and tax on interest earned from overseas savings accounts.
Talk with financial advisers or tax specialists to minimize your tax obligations and stay current with the laws that apply to your holdings.
Did you know?
The CRA takes tax evasion very seriously. All international electronic funds transfers totaling more than $10,000 are accessed and analyzed for signs of tax avoidance. Through the Offshore Tax Informant Program, people are financially rewarded for coming forward with information on major international tax evasion schemes.
The penalties for not paying your taxes are stiff and can range from fines to jail time. If you have failed to report all your holdings in the past, the CRA encourages you to file a Voluntary Disclosure Program (VDP) application to avoid prosecution. You’ll have to repay your taxes plus interest, but at least you can stay on the right side of the law.
The pros and cons of having an offshore account
Lower taxes than in Canada. Taxes are a main appeal for investors looking to open offshore investment accounts.
Foreign investments and products. An offshore account can provide a range of investment and banking services that aren’t available in Canada including bonds, stocks brokerage, foreign exchange, investment funds, equity-linked products, mortgages and lending and insurance.
Online accessibility. You typically have access to savings accounts, multicurrency accounts, GICs and global fund transfers.
Hard to apply. Local restrictions and requirements can make applying for an offshore account difficult.
Fees. You could be charged fees for the advantage of keeping your money in an offshore account.
Legal ramifications. If you don’t declare your income to the CRA, you could be convicted of tax evasion — even if it’s unintentional.
What are the risks?
Investors looking to keeping their money in offshore accounts will want to be aware of specific risks:
Regulations. Canadian citizens who hold funds in an offshore account are subject to laws, rules and regulations. Talk with a professional about your specific responsibilities to the CRA.
Security. Your deposits aren’t always protected as they would be in a CDIC-insured bank in Canada.
Accessibility. Opening and maintaining an offshore account can be costly. You’ll find simple savings accounts for Canadians offshore, but they might not provide the same advantages as an offshore account designed for investments.
Opening a savings account overseas can reap strong financial gains. But you put yourself at risk for tax evasion, higher fees and — if you invest in a less stable country — unpredictable inflation unless you know your responsibilities.
Talk with a financial or tax professional before investing in an offshore account, and research the country you’re considering to minimize your risk of inflation and instability. To compare offshore rates with domestic accounts, read our detailed guide to Canadian savings accounts.
Opening an account differs by bank. With most, you’ll provide government-issued ID, a statement from the bank you’re withdrawing from, a statement about the source of those funds and the purpose for setting up the account.
Yes, most offshore accounts come with investment options. The types of options that are available differ by bank, making it important to compare accounts before deciding which one(s) you’ll open.
Most offshore accounts require an international transfer to that account. Look for a money transfer specialist that charges low or no transfer fees along with strong exchange rates when sending and receiving money to your Canadian account.
Shirley Liu is Finder's global program manager. She was previously the publisher for banking and investments and has also written comparisons for energy, money transfers, Uber Eats and many other topics. Shirley has a Master of Commerce and a Bachelor of Media, Journalism and Communications from the University of New South Wales. She is passionate about helping people find the best deal for their needs.
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