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Overseas Bank Accounts for Higher Interest Rates
November 30, 2010
8:49 pm
jeremywong
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you are adding in the 5% swing b4 even opening the account.

What do you mean by "5% swing"?

so 1600 for the change

What's the "1600″?

thats 2387.5 +3300 you lose on canadian interest

What's the "2387.5″?

December 1, 2010
4:16 pm
stylintheo
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the 5% swing means when you sell Aussie to Can,at the end of the investment.
1600 is what the exchange will cost on 150,000 Can to Aussie funds.
787.5 is the withholding tax,for non-residents is10%...now 7875.00 is what you would make. minus 2387 = 5488 now take away the 3300- what ever tax bracket you are in,lets say the lowest at 22% of earnings, you would have to pay 726 to the CRA thats 2574 total Can funds on 150,000 in Aus. it is 5488.
I know what you mean, and you are right if you are only going to keep it in 1 year
no point to invest.

December 2, 2010
3:35 pm
jeremywong
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1600 is what the exchange will cost on 150,000 Can to Aussie funds.

The cost of converting C$150000 to AUD is definitely not C$1600. HSBC will give you A$149100 for your CAD. If you don't have to pay forex at all, you will get around A$153100. Thus it costs A$4000 (C$3900) or 2.6% for the one-way trip (CAD to AUD only; the A$4000 is HSBC's fee on the trade). You will have to pay HSBC 3% fee to convert AUD to CAD. (Try calculating HSBC's fee for converting CAD to Indian rupee.)

minus 2387 = 5488 now take away the 3300

You still haven't explained the "2387" (show equation). Whatever that is, it must be in AUD, because you're subtracting it from AUD interest (A$7875). But you can't subtract the C$3300 (CAD interest) from A$5488, an AUD amount---which you also have to explain---because they are different currencies and the exchange rate, with the cost of forex added, will never be at par.

what ever tax bracket you are in,lets say the lowest at 22% of earnings

The lowest marginal tax rate is 15%.

December 3, 2010
10:03 am
Andrew
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The lowest marginal tax rate is 15%.

This is the lowest marginal federal tax rate. There is a provincial component that should also be taken into account.

If I understand stylintheo correctly, he is taking into account tax that is withheld by the foreign government. Canada has tax treaties with various governments around the world so depending on what country withholds taxes, IF they withhold taxes, you still may be able to claim it as a foreign tax credit, so essentially, you may not pay more taxes even though the foreign government withholds the amount. Sorry if I misunderstand whether the calculation took this into account or not, but I hope the tax treaty information may be of use. I know for certain that Canada and the US have a tax treaty that basically treats any taxes paid to the US government as if you paid the Canadian government. Believe it or not, the United States actually pay less taxes than we do!

December 4, 2010
3:15 am
jeremywong
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This is the lowest marginal federal tax rate. There is a provincial component that should also be taken into account.

According to Ernst & Young's Personal Tax Calculator, the lowest marginal tax rate for BC, Alberta, and Nfld is 15%. For other provinces, it ranges from 24% to 29%. So you are right. Only those three provinces have no provincial tax in the lowest tax bracket.

If I understand stylintheo correctly, he is taking into account tax that is withheld by the foreign government.

Stylintheo's problem is not the calculation of tax. Stylintheo miscalculated the forex fees, which are ten times bigger than the annual tax.

December 4, 2010
12:56 pm
stylintheo
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1600 is what the exchange will cost on 150,000 Can to Aussie funds.
787.5 is the withholding tax,for non-residents is10%...
Thats how I get the 2387.50
now 2387.50 plus 3300 is how I got 5488
you only lose on the investment when you have to switch back to CAN funds.
but if you left it in for say 3 years, use the interest Cal. your up like over 9000 CAN dollars

December 4, 2010
1:21 pm
Andrew
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is the withholding tax,for non-residents is 10%...

The tax treaties for various countries can be found here: http://www.fin.gc.ca/treaties-.....e--eng.asp

Specifically, this: http://www.fin.gc.ca/treaties-.....l2-eng.asp covers Australia.

The 10% comes from Article 11.2:

2. Such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

I believe Article 23.2a covers "double taxation":

2. In the case of Canada, double taxation shall be avoided as follows:

a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions (which shall not affect the general principle hereof) and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Australia on profits, income or gains from sources in Australia shall be deducted from any Canadian tax payable in respect of such profits, income or gains;

December 4, 2010
4:37 pm
stylintheo
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so you dont have to pay tax to Canada?

December 4, 2010
5:02 pm
stylintheo
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you have to add up the tax breaks you would get from Canada
as u would make 3300 less on your line 214 of ur return T5 slip

December 4, 2010
5:06 pm
stylintheo
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australia you would make Projected Value of a Deposit
Initial Deposit 150,000.00
Compound Periods per Year (1,2,4, or 12) 12
Annual Interest Rate (%) 5.250
Number of Years 1
-------------------------------------------------------------------------------- Principal Invested is: 150,000.00
Interest Earned is: 8,067.28
The Final Value is: 158,067.28

December 4, 2010
5:10 pm
stylintheo
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Projected Value of a Deposit
Initial Deposit 152,000.00
Compound Periods per Year (1,2,4, or 12) 12
Annual Interest Rate (%) 2.200
Number of Years 1
-------------------------------------------------------------------------------- Principal Invested is: 152,000.00
Interest Earned is: 3,377.93
The Final Value is: 155,377.93
this is the same amount you would have in Canada
as it costs 152,000 for 150,000

December 4, 2010
5:14 pm
stylintheo
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you only lose on the investment when you have to switch back to CAN funds.
but if you left it in for say 3 years, use the interest Cal. your up like over 9000 CAN dollars

December 5, 2010
2:09 am
jeremywong
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stylintheo said:
it costs 152,000 for 150,000

A$150000 = C$149000, but HSBC asks for C$152900, because it charges a forex fee of C$3900 (2.6%).

you only lose on the investment when you have to switch back to CAN funds.

It only becomes obvious how much you've lost to forex when you switch back to CAD. You lose 2.6% to forex on every AUD deposit, and lose 3% on every withdrawal back to your CAD account.

if you left it in for say 3 years, use the interest Cal. your up like over 9000 CAN dollars

After three years, you'll be ahead by only C$5700. If you compare it to MAXA's 3.75% 6-year GIC, you won't be ahead until the fourth year.

December 5, 2010
9:01 am
stylintheo
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again compairing the 6 year GIC to a Savings account....

December 5, 2010
9:04 am
stylintheo
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why are you not adding up the tax savings as well?

December 5, 2010
11:13 am
stylintheo
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U-bank-usaver account is paying 6.51%

December 5, 2010
11:15 am
stylintheo
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There is one problem with this AUD/NZD scheme not yet mentioned: the cost of foreign currencies, which is five to seven percent (HSBC rates) for a round trip. (There is 10% non-resident withholding tax on the interest.) It will take two years' interest to recover the price of foreign exchange plus the interest you would have gotten from Canadian banks. (HSBC pays 5.25% in Australia.) By the way, deposit insurance in Australia expires in Oct 2011. Deposit insurance in New Zealand has already expired.

why do you keep calling it a scheme, Canada has tax treaties in place.

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