Are you new to Canada? Whether you’ve arrived as an international student, under Canada’s new digital nomad visa, as a tourist, or through recent immigration, it’s crucial to grasp the essentials of the country’s financial system.
Here’s a brief overview of the basics to help you gain insight into the workings of Canadian currency, the process of opening a bank account, establishing credit, and managing your tax obligations.
In no time, you’ll be navigating these aspects like a seasoned pro!
Understanding Canadian Currency: A Beginner’s Guide
If you’re new to Canada, you can head to a foreign exchange center to exchange your native currency for Canadian currency, which you can then use for local purchases of goods and services.
For travelers from the United States, you’ll notice that Canada’s monetary system closely resembles your own. The two countries share many common currency denominations, and the prices of everyday items like milk and bread are also comparable.
However, if you’re visiting from another part of the world, the Canadian currency might appear quite distinct from what you’re accustomed to.
In Canada, the official currency is the Canadian dollar (CAD). The country’s bills are notable for their vibrant colors and represent various significant denominations, including:
- $5
- $10
- $20
- $50
- $100
We also have coins representing values under $1, which include:
- 1¢, also recognized as pennies (although the Royal Canadian Mint has ceased their production, they can still be utilized as valid currency)
- 5¢, also known as nickels
- 10¢, also known as dimes
- 25¢, also known as quarters
- 50¢, referred to as half-dollars, is an infrequently used and relatively rare coin that does indeed exist
A remarkable aspect of life in Canada is our regular utilization of $1 and $2 coins. The $1 coins are commonly known as “loonies” due to the depiction of a loon on the coin’s reverse side. Likewise, the $2 coins are termed “toonies,” which is a fusion of the words “two” and “loonie.”
Using credit and debit cards within Canada
The majority of contemporary businesses in Canada readily accept card payments through the Visa, Mastercard, and American Express networks. Assuming your bank or credit card issuer permits the use of your card in a foreign nation, you shouldn’t encounter any difficulties when using your card for purchases.
However, it’s worth noting that certain banks and credit cards might impose foreign transaction fees. It’s advisable to verify this information with your bank or credit card provider in order to accurately plan your budget.
Steps to Open a Bank Account
Upon becoming a full-time resident of Canada, you have the opportunity to establish a Canadian bank account. This step can help minimize international transaction fees and streamline your financial matters. To open a basic chequing account for everyday expenditures, most banks typically necessitate the following documentation:
- Two identifying documents (such as a driver’s licence, passport, or social insurance number)
- Residency documents (rental agreement, utility bills, etc.)
Certain banks exclusively cater to permanent residents and citizens, whereas others extend their services to temporary residents, international students, and even applicants from overseas.
Prominent Banks in Canada
The “big five” banks in Canada are:
- RBC, or the Royal Bank of Canada
- TD Bank, or the Toronto-Dominion Bank
- CIBC, or the Canadian Imperial Bank of Commerce
- BMO, or the Bank of Montreal
- Scotiabank, or the Bank of Nova Scotia
These major banks are undoubtedly among the largest in Canada, and their ATMs are widely available throughout the country. Additionally, there exist several smaller local banks, credit unions, and online banks that you can consider applying to.
When it comes to obtaining a mortgage or other loans in Canada, the major banks mentioned above are often the initial choice. Nevertheless, it’s advisable to explore various options to secure the most favorable rates. You can reach out to mortgage brokers, as well as other banks and credit unions, to obtain quotes.
How Tax-Advantaged Savings Accounts Operate
As a resident of Canada, you have the option to establish specialized registered accounts with numerous financial institutions. These accounts offer tax advantages, either through exemption from taxation or by featuring other forms of tax benefits. They provide the opportunity to accumulate savings for future expenditures, such as purchasing your first home, funding your child’s college education, or securing your retirement.
Some of the widely favored accounts comprise:
- Tax-free savings account (TFSA)
- Registered retirement savings plan (RRSP)
- Registered education savings plan (RESP)
- First home savings account (FHSA)
Steps to Transfer Money Internationally
Numerous methods are available for transferring funds to and from Canada. Here are several popular options:
1. Bank wire transfers: A majority of major banks and credit unions in Canada provide international wire transfer services. To initiate such a transfer, you will require the recipient’s bank account specifics, including their International Bank Account Number (IBAN) or its equivalent, along with the bank’s SWIFT code, also referred to as the Bank Identifier Code.
2. Online money transfer services: Online platforms like Wise, PayPal/Xoom, and Remitly can provide more competitive exchange rates and lower fees compared to traditional banks. You have the option to review the exchange rates offered by these platforms and compare them with those of major banks in Canada. Many individuals prefer this method for transferring money due to its cost-effectiveness and quicker processing times.
3. Money transfer operators (MTOs): These companies offer money transfer services that don’t necessitate the sender or recipient to hold a bank account. Western Union and MoneyGram are notable examples. However, it’s important to note that companies providing this service often impose higher fees compared to other alternatives mentioned earlier.
4. Cheques and money orders: These approaches are more conventional means of sending money internationally; however, they generally involve longer processing times compared to some of the other alternatives discussed earlier. These documents can be acquired from banks or post offices and can be dispatched to any destination worldwide.
5. Prepaid debit cards: Prepaid cards can be loaded with funds and employed for international transactions. Certain providers might present more favorable exchange rates and reduced fees in comparison to conventional money transfer methods.
Establishing Credit History in Canada
In Canada, there are two primary credit bureaus: Equifax and TransUnion.
Whenever you initiate an application for a credit card or a loan, the lender will assess your information using these databases to evaluate your overall creditworthiness.
If you’re new to credit and lack a credit history, obtaining a prepaid “secured” credit card can be a constructive approach. This enables you to establish a positive payment history, which can subsequently pave the way for your application for a conventional line of credit.
What is a “good” credit score?
In Canada, credit scores generally span from 300 (the lowest) to 900 (the highest). Your credit rating is determined by your score in the following manner:
- 300 – 559: Poor
- 560 – 659: Fair
- 660 – 724: Good
- 725 – 759: Very good
- 760 – 900: Excellent
A higher score enhances your likelihood of approval for financial products like cashback rewards cards and personal loans. Moreover, elevated credit scores might lead to more favorable interest rates.
If you’re uncertain about your credit status, you can obtain your credit report without charge from either credit bureau.
Filing your taxes in Canada
Lastly, Canadian residents are obligated to annually file a tax return with the Canada Revenue Agency (CRA). This return entails declaring your total yearly income, which determines both your tax bracket and the aggregate amount of taxes owed to the provincial government and the federal government of Canada.
Income earned prior to one’s arrival in Canada is not subject to Canadian taxation. However, upon becoming a Canadian resident for tax purposes, individuals are required to report income from any source worldwide on their tax return.
You have the option to electronically submit your taxes using CRA-approved software or seek assistance from a professional tax preparer.
Additionally, you can apply for eligible deductions, such as child-care expenses, which can potentially lessen your overall tax liability.
For most jobs, income taxes are automatically withheld from your paycheck before disbursement. In such cases, you might be eligible for a tax refund if you have overpaid taxes throughout the year.
However, if you’re self-employed or your income taxes haven’t been deducted from your earnings, you might find yourself owing taxes at year-end. Consequently, it’s advisable to allocate a portion of your earnings into a savings account to budget for income taxes in advance, preventing any unanticipated financial strain.
Creating a Long-Term Financial Strategy
If you’re a newcomer to the country, familiarizing yourself with the intricacies of the financial system might require a few weeks or months of learning. However, with some time and experience, everything will become clearer.
Commence by grasping the fundamentals, including understanding and utilizing Canadian currency. Once you’ve solidified your residency status, take the step to open a bank account, initiate a savings regimen, and establish your credit history. Subsequently, consider seeking guidance from a financial advisor to craft a comprehensive, long-term strategy encompassing retirement planning and investment endeavors for the years ahead.