Five Finance Tips For Americans in Canada

Moving to Canada? Catherine Treyz, writer and American abroad, breaks down 5 important tips that will help set you up for financial success.

Even if you’re not a hockey fan and don’t know what poutine is, Canada is an attractive destination for many Americans. In fact, US News and World Report recently ranked the Great White North as the third best country to live in, behind Switzerland and Japan.

Canada offers diverse natural landscapes, lively cities, and English as its national language — in addition to French. In recent years, Canada has also relaxed its immigration rules, making it easier for Americans to work across the border.

But just because the United States of America and Canada share a language and border, don’t expect your financial experiences similar to those at home. These 5 tips will help you get on the right track.

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1 - Same border, different banks

One of the first tasks expats have to think about is finding a new financial institution.

Among the list of Canadian banks to research are the Royal Bank of Canada, Toronto-Dominion (which does have an American subsidiary), Canadian Imperial Bank of Commerce, Bank of Nova Scotia, and Bank of Montreal. Research which banks will best serve your needs. If you’re looking into getting a Canadian credit card, some of these banks require a Canadian credit history whereas others don’t.

Also, like in the States, if you’re planning to stay in Canada for awhile, having a good credit history will be important and your US credit history won’t transfer. But that’s also not to say you should ditch your American plastic. Occasionally using your US credit card will help maintain your US credit score, which could be important if and when you move back.

To help get started, Wise offers the Wise account with a debit card that will enable you to convert, manage and spend your US and Canadian dollars interchangeably for a low fee. More on that next.

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2 - Different dollar

Canada's currency may share a name with the US “dollar,” but the similarities end there.

Following the valuation of the Canadian dollar will help you better assess when to transfer money from your American account to your Canadian one — or vise versa. For that, Wise can help.

Wise provides both an affordable and quick alternative to traditional bank transfers. It removes the hidden fees that are often associated with traditional bank or wire transfers — even across the USA and Canada. Additionally, Wise now provides the Wise account that allow account holders to receive and convert currencies in one spot, which may be helpful if, for example, you’re a freelancer and invoice international clients.

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3 - Get a tax adviser

If you're moving to Canada, it's well worth get a tax adviser to help them on their filings. Everyone's financial situation is unique, and you should check all online advice against a professional's opinion.

Getting your taxes right for both the Internal Revenue Service and your Canadian residence is incredibly important. Again, it is well worth working with a professional to ensure you do this.

Phil Hogan, a Victoria-based accountant at Hutcheson & Co who specializes in cross-border tax, says it’s imperative to review and understand your tax and financial situations even before making the move north.

“Once you become a Canadian tax resident, many of the financial and tax planning opportunities will cease to exist.

He adds that some Americans may want to “consider selling some assets to avoid Canadian capital gains on US assets that may be in a loss position for US purposes.”

Cross border tax adviser Matt Altro advises Americans to use caution before investing in Canadian mutual funds, ETFs, and Passive Foreign Investment Companies(PFICs). With respect to the latter, taxation of PFICs from a US perspective can be, according to Altro, "very punitive."

Be wary of Canadian mutual funds, ETFs and REITs. They are classified as Passive Foreign Investment Companies (“PFICs”) by the IRS. PFICs require a complicated annual filing each year (Form 8621) for each fund. In addition, the taxation of PFICs from a US perspective can be very punitive.

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4 - Pick a city that’s affordable

Housing, especially rent, in Canada appears to be less expensive than most American cities.

But that doesn’t mean you should live in the most expensive Canadian city. The Canadian government estimates Canadians spend 35% to 50% of their income on housing and utilities.

While Vancouver and Toronto may be the more popular cities to live in if you’re seeking adventure or a more metropolitan feel, Montreal may be more affordable if you’re looking to pay less on rent (and learn French while you’re at it). While one-bedroom rents in Vancouver and Toronto can exceed C$2,000, the highest Montreal rents averaged C$1,290 in 2016. Like many major cities, it may even be worth looking into getting a roommate if your situation allows for it.

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5 - Develop a budget and a cushion

While Canada may appear deceptively more affordable in some areas, it’s still important to budget. Unless you want to only eat at Tim Hortons.

Like many countries, do your research and create a basic budget to manage all of your expected and unexpected expenses. For example, while Canadian public health insurance is world renowned, newcomers may have to get a private plan during the early months depending on which province they live in. Prescription medicine may also not be covered by your new health insurance.

It’s quite possible, if you're a salaried employee, that your income may differ from what your former American one. Whether higher or lower, you should continue to budget. The large takeaway for American expats in Canada is to understand the differences between both countries, no matter how slight or major they may be. Doing so, in both formal and informal ways (Facebook groups or message boards for expats can be helpful resources), will help you make the wisest decisions.