Can a non-resident open an investment account in Canada?
Withdraw investments when you don’t live in Canada
You ask about RRSP withdrawals in the future. As a Swedish resident, withdrawals would be subject to a 25% Canadian withholding tax.
At retirement, withdrawals from a Registered Retirement Income Fund (RRIF) may be subject to a lower rate of 15%. But if you contribute now and then want to withdraw the money in a few years when you’re a non-resident, you won’t save any tax on the contribution and will be subject to 25% on the withdrawal — a bad result.
Canadians Invest in ISKs
Sweden offers a investsparkonto (ISK) which has similarities to a Canadian TFSA. Instead of income earned on the account being subject to tax, the value of the account is subject to a flat tax rate of 30%, payable on a standard income rate that changes from year to year.
The standard income rate for 2022 is 1.25%, so 30% tax is due on 1.25% times the account value. Interest, dividends and capital gains are generally taxed at 30% in Sweden as well, so as long as you can earn more than 1.25% on your ISK investments, it is better to invest in this account than an ISK account. ordinary and taxable investment.
Sounds like an ISK account is a good option to consider, Kyle, even if you’re only in Sweden temporarily. If you return to Canada, you will be able to use your RRSP contribution room and contribute to an RRSP at that time, when the tax deductions are really useful to you. TFSA contribution room will also begin to accumulate again and you will be able to contribute to the TFSA.
RRSP and TFSA for Canadians Abroad
Until then, you can keep your existing RRSP and TFSA accounts. You can even have a regular investment account in Canada. A 10% withholding tax would apply to interest income, 15% to dividends and distributions from trusts (mutual funds or exchange-traded funds, aka ETFs), and no withholding tax would be due on capital gains on your investments as a Swedish resident. The Canadian withholding tax would generally be eligible for tax deduction on such investments in Sweden.
Non-Canadian residents cannot purchase new Canadian mutual funds, but they can continue to own existing mutual funds. Some financial institutions are more flexible than others when it comes to working with non-residents of Canada. Most will allow you to keep an account after becoming a non-resident, but opening a new account as a non-Canadian resident can be difficult.
Hope that helps, Kyle. Good luck with your Canadian and foreign investments and find out where your expat adventure will take you next!