There’s more to making a new home in Canada than finding a nice neighbourhood to live in and getting a new job. Once you’re settled, you may want to learn about the Canadian stock market and start putting your hard-earned money to work. Depending on where you’re coming from, investing in Canada may not be all that different from investing elsewhere — stocks are stocks whether here or there. Still, Canada has its own rules, products and country-specific quirks. If you’re new to investing in Canada, here’s everything you need to know to get started.
Things to know before you invest in Canada
Here are some basics before you start your Canadian investment plan:
Getting a Social Insurance Number
Before you can open a brokerage account and start investing in Canada, you’ll need a Social Insurance Number (SIN). It’s a unique nine-digit ID number everyone who works and gets paid in Canada must have. Fortunately, you don’t need to be a citizen or even a permanent resident to apply. The application process is easy, and once it’s out of the way, your financial life in Canada can begin.
Opening a bank account
If you’re being paid in Canadian dollars and planning to invest, it’s a good idea to have a Canadian bank account. Canada’s banking system is one of the most accessible in the world — more than 99% of adults have a bank account. The country’s major banks take steps to ensure banking is safe, secure and accessible for everyone. Many banks even have special packages for newcomers to Canada to help you get your savings started. Have a look at TD’s information for newcomers here.
Tax implications on global income
Residents of Canada must fill out Canadian tax forms to declare income earned and be eligible for certain benefits. You will have to declare all income earned, whether it is earned in Canada or abroad, but tax treaties with some countries may help you avoid being taxed twice on globally-earned income.
Other considerations: risk, budget, savings, market trends
Before diving into the market, you’ll want to assess your risk tolerance level, which essentially speaks to how much money you can lose without feeling sick to your stomach. Also, think about your short- and long-term goals. Whether it’s retirement or a new home, your goals can impact what investments you purchase. You may also want to consider creating a budget so you can properly set aside money for savings. It’s always a good idea to have a good grasp on the basics of investing before you get started.
Investment plans in Canada
Get to know the different kinds of plans and products available to investors in Canada.
Tax-Free Savings Account (TFSA)
A TFSA is exactly what it sounds like: you put money into the account and do not pay taxes on any gains. There is an annual maximum you can contribute, which is set by the Federal government. For 2023, the annual maximum is $6,500. Your lifetime maximum grows every year, starting the first year you are eligible to open an account. Your maximum limit will depend on your age as well as how many years you’ve lived in Canada. You can withdraw money whenever you like, but you can only recontribute what you’ve removed starting January 1 of the year following a withdrawal. Ideal for: Building an emergency fund, saving for larger purchases or retirement and other long-term saving goals. Tax benefit: There is no immediate tax break when the money is placed in the account, but your qualified investments can grow tax-free and you won’t pay any taxes on your gains when you withdraw.
Registered Retirement Savings Plan (RRSP)
RRSPs were designed to incentivize Canadians to save for retirement. They come with an annual contribution limit based on your income (up to a maximum of $30,780 in 2023) and any qualified investments inside the account can grow tax-free. With an RRSP, you’re contributing pre-tax income, which means you could get a tax refund if your contribution lowers your taxable income enough. Unlike the TFSA, withdrawals from RRSP are taxed as income, although there are exceptions for buying a new home or paying for education. Ideal for: Long-term retirement savings. Tax benefit: Contributions are not subject to taxation until money is withdrawn from the account. The presumption is you will make withdrawals when you’re no longer working and could be in a lower tax bracket.
Registered Education Savings Plan (RESP)
Similar to RRSPs, RESPs allow your qualified investments to grow tax-free. However, where an RRSP is primarily for retirement savings, RESPs are designed to help you save for post-secondary education. An attractive feature of this plan is the Canada Education Savings Grant, which provides a government-sponsored matching payment of up to 20% of the first $2,500 contribution contributed annually to the RESP. It’s essentially free money. (You can’t get more than $7,200 over the lifetime of the RESP.) Ideal for: Parents and grandparents of young children who want to help build a nest egg for post-secondary educational costs. Tax benefit: There are no tax benefits for the plan sponsors (i.e., parents or grandparents). Taxes are deferred on any investment gains or interest. While tax will have to be paid upon withdrawal, the tax burden is transferred to the student, who will likely be in a lower income tax bracket when they’re at school.
First Home Savings Account (FHSA)
The FHSA is a registered plan that allows Canadians to save for the purchase of their first home. The FHSA combines features from both the TFSA and RRSP. Like an RRSP, your contributions are tax deductible, while withdrawals from the account are tax-free like a TFSA — provided you are using the funds for the purchase of a qualifying home. And of course, your qualified investments grow completely tax-free as long as they’re in the account. You can save $8,000 per year up to a maximum of $40,000. Ideal for: People over the age of 18 planning to buy a first home within the next 15 years. Tax benefit: Contributions are tax-deductible, which means you could get a tax refund when you contribute, and you also won’t be taxed on any withdrawals that go toward the purchase of the home.
Understanding investment and tax implications
The Canadian government provides a number of tax incentives to help encourage investment.
Which investment fees are tax-deductible in Canada?
Some but not all investment fees are tax-deductible in Canada. Most brokerage fees on non-registered accounts, known as “carrying charges,” will be tax-deductible, including management fees and specific investment advice fees. Interest paid on any money borrowed to invest may also fall into this category, but only under specific circumstances. Brokerage fees on registered accounts such as RRSPs and registered pension plans are not tax-deductible.
Investment Tax Credit by the Canada Revenue Agency (CRA)
Canadians are eligible for Investment Tax Credits (ITCs) if they meet certain criteria. The criteria most commonly applies to property, apprenticeships and financial partnerships.
Options for investments in Canada
What are some investment options in Canada?
Guaranteed Investment Certificates (GICs)
GICs are incredibly popular in Canada, and for good reason: The accounts are secure and almost entirely risk-free. A GIC is much like a savings account, though you usually need to commit to leaving your money in for a specified amount of time, sometimes up to five years, before retrieving the initial investment and interest.
Stocks in Canada work much like they do anywhere else. They offer you a way to potentially grow your money faster than investing it in a GIC, but in exchange for this potential higher return, you also have to be willing to accept a higher level of risk. If you’re new to stocks, take a look at how to invest in stocks as a beginner. TD Direct Investing makes it easy to learn how to trade stocks by providing a range of services, support and products.
If managing your own stock portfolio is too much, you may want to consider buying a mutual fund, which is a diversified collection of stocks or bonds often hand-picked by a professional manager. These funds typically invest in several different securities, industries and geographies, which can help minimize risk.
Exchange-Traded Funds (ETFs)
An ETF is similar to a mutual fund, but it typically has lower fees and trades on a stock exchange. While many ETFs are considered passive investments because they mirror an index like the S&P 500 or S&P/TSX Composite, there are a growing number of funds that are actively managed by a portfolio manager.
Bonds are relatively low-risk fixed-income securities. They work by essentially loaning money to a government or company in exchange for interest payments. Corporate bonds are available, as are bonds from the Canadian government. Many people own bonds via bond mutual funds or ETFs.
How to start investing in Canada
If you’re ready to take the plunge, how do you get started?
Self-directed or DIY investing
Many investors like managing their own portfolio — and there’s nothing wrong with that! Self-directed investing means that you control where your money goes. It can be satisfying and fun and you might also save some money on fees. That said, DIY investing requires some know-how and planning.
Working with a financial advisor can be a good way to get into the market even if you barely know your GICs from your RRSPs. A financial advisor will work with you to understand your budget, goals and risk tolerance so they can build a portfolio that will work for you. Fees to consult with a financial advisor may be higher, since you’re paying for help, but you could save time and effort.
Sitting in between DIY investing and an advisor-managed portfolio, robo-advisors are automated investor platforms that can help you build a portfolio based on a questionnaire outlining your preferences and goals. The fees are typically lower than those of a human advisor.
Staying safe: investment scams
While Canada is a relatively safe place to invest your money, scams exist wherever there’s money. As such, it’s important to stay on high alert to keep your investments safe and sound. Here are some spooky stories of speculation.
Canadian investment scams
The Canadian government takes financial fraud seriously and asks citizens to do their part by reporting any suspected fraud to the appropriate authorities. If you think you’re being scammed, it’s important to gather any pertinent information and report the incident to local law enforcement, the Canadian Anti-Fraud Centre, your financial institution and any other affected organizations.
Choosing safe investments with high returns in Canada
Some investments that seem too good to be true are just that, but that doesn’t mean you have to avoid every promising investment. An important element of investing is having a good understanding of your tolerance for risk. With a well-defined risk threshold, you can better decide if higher yielding investments are right for your portfolio.
Many Canadian investments involve playing a long game. Low- or medium-risk mutual funds and well-balanced and diversified portfolios may fluctuate (especially during times of inflation or other economic upheaval), but the long-term growth potential has been historically reliable for patient investors. While it can be tempting to pull your investments whenever you see a temporary decline, staying invested and letting your accounts grow over the long term can be a smart move. For more on investing through uncertain times, check this out.
FAQ: investing in Canada
How to invest money in Canada
Investing money in Canada can be fairly easy. You’ll need a SIN number and, ideally, a Canadian bank account. Beyond that, it’s up to you to decide if you want to work with a bank or financial advisor or self-direct your own portfolio.
Can immigrants invest in the stock market in Canada?
Absolutely. Most investment opportunities in Canada are open to newcomers.
How much can a new immigrant contribute to a TFSA?
Everyone in Canada is limited in what they can contribute to their TFSA. Depending on your age, and the number of years you’ve lived in Canada, this amount may vary. The annual contribution amount in 2023 is $6,500, which means a new immigrant could contribute that much in their first year in Canada.