Promising Opportunities in Canada for International Investors
The Canadian economy is typically known for its reliance upon the nation’s wealth of natural resources and profitable exports like oil, lumber, and auto parts. The services sector, which makes up over 70% of Canada’s GDP, is largely made up of real estate, education, and healthcare. Though the coronavirus pandemic forced the majority of consumer-facing businesses to shutter, reports indicate that the Canadian economy was able to weather the storm without irreparable damage. In April of 2021, the Bank of Canada increased its 2021 growth forecast to around 6.5%, and 3.75% in 2022. As restrictions ease up and businesses begin to reopen, experts predict economic growth that will in turn lead to returns for investors. Data shows that foreign investments into Canadian businesses, stocks, and commodities are breaking per year records. Canada has been historically welcoming to both immigration and investments from foreign nationals when compared to other countries. The country hopes to welcome 401,000 new immigrants this year, and typically allows for smooth foreign investment into Canadian businesses under the Investment Canada Act. This article discusses areas of interest in the Canadian economy for non-Canadians looking to diversify their portfolios and invest in up-and-coming sectors.
Under two Million:
Canadian cities, particularly Vancouver and Toronto, have had huge waves of development in recent years. Both home sales and prices have hit record highs that have only just begun to slow, leading to concern about an eventual pop of the bubble. Here we break down the taxation logistics for foreign buyers and how you can still make a profit in this sector.
- In 2017, the Foreign Buyers Tax was enacted in Toronto, charging non-resident buyers 15% on real estate purchases in an effort to curb skyrocketing housing prices.
- Mortgage interest rates were at historic lows during the pandemic, but experts predict a spike brought on by increased inflation. Mortgages can be obtained by foreigners looking to purchase in Canada but can be more difficult to obtain. A higher down payment (e.g. 35%) is sometimes required, as is paperwork like a recommendation from your bank.
- Capital-gains taxes also apply to any properties that aren’t your primary residence.
- If you’re looking for a passive source of income, non-residents are allowed to own rental property in Canada. For foreign investors, rental income is subject to a 25% withholding tax that must be submitted to the CRA every month. There are ways to save some money, but they require a time investment to fill out and submit the correct forms.
- If your property is residential, you also may be subject to a Speculation Tax. It varies from province to province, in Ontario, it’s equal to 15% of the land value. Properties in non-metropolitan areas of Canada still appreciate, but at much slower rates than ones in cities.
- Experts say that demand for housing continues to be high, and that prices will rise over the course of 2021, but that they will rise at a much slower pace than in the past few jet-fueled years. If interest rates are increased, the rise will be further dampened as buyers will be discouraged.
- If you’re going to buy a property, you could do it in cash in order to avoid an increase in your mortgage rates. There is still money to be made, as the market remains strong and competitive, especially in Vancouver and Toronto.
- If the volatility of the market gives you pause, there are safer options with positive outlooks. Real Estate Investment Trusts are trusts that invest in income-producing real estate assets like office buildings and hotels and are typically traded on the TSX (Toronto Stock Exchange). This could be a safer option for those not looking to gamble or dedicate large quantities of time figuring out where and when to buy. As the Canadian economy and population grow, your return will too. Plus, they’re tax-advantaged.
Canada’s start-up ecosystem is strong and has seen many ventures reach huge success and create large returns for investors.
- SVG Ventures Thrive, a global venture capital firm that invests in agricultural and food startups, recently announced the launch of their Canadian headquarters in Calgary. This will likely help kick the agri-food technology space in Canada into high gear, with the company’s goal being to put Canadian-based companies on the map for global investment.
- If you’re looking for something a little more long-term, investment in Canada’s high-growth technology sector, there are several Canadian ETFs that primarily invest in startups. BlackRock iShares XEQT gives investors access to the top-performing Canadian tech startups.
- If you’re looking for something more direct, there are angel investment groups like the Canadian Investment Network that connect investors from the United States to Canadian entrepreneurs. Keiretsu Forum Canada is an angel network with four chapters (London, Waterloo, York Region, and Toronto) which brings together its investor members with the best investment opportunities in emerging companies from around the globe
- Canadian fintech platform FrontFundr allows individual investors to access and invest in their curated list of early-stage startups.
Any Investment Level
As populations continue to rise, forecasts predict an increased demand for agricultural commodities. Canada is the world’s fifth-largest agricultural exporter, and Canada is home to some of the world’s most productive land.
- Purchasing land and operating a farm, or purchasing an existing farm, is a great way to create passive income. The rules differ by province, but generally, non-Canadians are allowed to purchase land in Canada. For example, in Alberta, non-Canadians are limited to two parcels of land that cannot exceed 20 acres.
- Foreigners looking to purchase or operate a business in Canada are subject to application and review under the Investment Canada Act.
- Guelph, Ontario has the highest level of agricultural innovation, technology, and research in Canada. It also has lower-than-average land, development, and business costs, making it a hotspot for entrepreneurs. There are indirect investment opportunities through investing in the University of Guelph Accelerator, or AgriRoots, a farm-based investment fund.
- Vertical farming has become a hot-button area in recent years due to environmental benefits and a maximized crop output due to low necessity for space and no need to worry about weather. *
In the past, the Canadian stock market has been overlooked as a point of investment as it was considered a less significant market in the global scheme. Now, the Toronto Stock Exchange ranks 8th largest in the world in terms of market capitalization. Canadian stocks produced an average 7.3% total return per year over the past 20 years. Last year saw foreign investors pulling their money out of Canada, particularly in energy and mining sectors as the Liberal Party lost their parliamentary majority, plans to build pipelines hit roadblocks, and the pandemic wreaked general economic havoc. But in mid-2021, inflows are at a record high and there are options poised for huge growth opportunities in the coming years, especially as the Canadian dollar rises. Strike while the iron is hot!
Investing in stocks in the Automotive Sector is a promising option, particularly in Ontario. A recent rise in demand from the U.S. may increase this industry in coming years as parts of automotive supply chains are in Canada. Additionally, the Detroit Three (GM, Ford, and Fiat-Chrysler) announced an injection of $5 billion dollars over the next few years into the manufacturing industry in Southern Ontario, geared towards building out the next generation of electric vehicles.
- The Evolve Automobile Index Fund is a Canadian ETF that invests in companies either indirectly or directly involved in producing parts for electric and autonomous vehicles and has seen promising returns over the past few years.
The Farming Sector, as discussed above, is another sector predicted to take a significant upswing. If you’re not interested in owning or operating a farm directly, there are many other ways to benefit from this industry.
- Input Capital Corp. (INP.V on the TSX) operates an agricultural commodity streaming company based in the Canadian prairies, which have seen greater farmland appreciation than anywhere else in the country.
- Area One Farms is an agriculture-focused private equity firm.
- AGInvest connects investors to Southern Ontario farmland.
A new crop of Canadian Ethereum ETFs recently debuted on the TSX, and many experts say now is the time to buy for those interested in the high-risk cryptocurrency gamble. The CI Galaxy Ethereum ETF (ETHX-B.TO) offers the lowest management fee and allows you to invest in Ether without having to purchase the coin directly.
High Investment Level (Upwards of $2 Million)
Canadian finance firms are also on the upwards as the Canadian economy regains strength. The Canadian private equity dollars have been focused on the information, communications, and technology sector in 2021, as Canadian innovation continues to grow. Predictions indicate that 2021 will see the highest number of IPO exits.
- Novacap invests in a variety of companies, many in the technology space.
- Altmaven Capital invests exclusively in technology companies.
- Persistence Capital Partners is a private equity firm focused on investing in the Canadian healthcare market.
- CPS Capital focuses on commodities, heavy manufacturing, and the finance sector.
Venture capital investments in the Canadian tech sector are on track to hit an all-time high for a single year, with much of the capital concentrated in early-stage companies. There are many reputable Canadian venture capital firms that invest in Canadian innovation. Though the rules on international investment differ from firm to firm, typically you need to be an accredited investor and may be subject to a KYC, a background check designed for investors. You also may be subject to tax implications that differ based on your country of origin.
Below is a list of creditable Canadian VCs and their main investment targets. If you want to go this route, the first step is to contact the firm directly and inform them of your interest.
- iGan Partners targets health technology specifically.
- Globalive invests in the technology space across the board, from HRtech and Fintech to drone technologies.
- Relay Ventures focuses on early-stage technology ventures in the mobility, Proptech, Fintech, and Sportstech spaces.
- Garage Capital, AmorChem, and Golden Ventures also primarily invest in Canadian startups.