Canadians Working Abroad Need to Be Wary of Foreign Exchange Impacts

Your employer is planning to relocate you to distant shores, a real step up in your career and future responsibilities. The assignment will be three years in duration, and your human resources personnel are already counseling you on what to expect. Issues related to housing, living expenses, dependent care and education, home travel leave, and taxes will be addressed in your compensation package, but are there other issues that should concern you?

There are a host of issues related to working in another market, but one of the key items that is often overlooked is the impact of foreign exchange rates on your overall financial position. You will need to consider how you will handle having personal assets and liabilities in two countries and how to minimize your risk exposures related to forex. Canadian forex brokers can connect you with historical charts and educate you on long-term trends, but your personal situation will determine the best strategy for protecting you from the vagaries of currency fluctuations.

There are a number of questions that need to be answered before planning can begin, but your initial task is to define your living arrangement “post-relocation” and start from there. Will your family move or remain in Canada? If your family moves with you, will you sell your home and put many items in storage? What Canadian Dollar obligations will remain after your move? Do you have a proposed return date in your contracts? In what currency will your compensation be based – home, foreign, or split?

The complexity of your compensation arrangement will necessarily be driven by how senior your position is, but there should still be some flexibility given to address your individual requirements. Your basic objective will be to have income in two currencies, such that your ongoing obligations in each currency are covered. From a longer-term perspective, you will want to accumulate excess earnings in a stable currency, more than likely the Canadian Dollar. The value of the Loonie is tied to future prospects for oil prices, which are projected to increase by most economists.

Here are a few considerations that may reflect on how you want to be paid going forward:

  • Canada Residence: If you rented before your move and terminated your lease, then issues here are reduced significantly. If your family remains in Canada, you will need a Canadian Dollar income stream to cover expenses back home. A “split” compensation arrangement works best under these circumstances, where a portion of your income is paid in Loonies for Canadian obligations, and you use the remainder to live in your foreign market. If your family will move and you own a home, your situation is more complex. You must decide if you wish to sell your home or have a property management firm rent and maintain it with a third-party. Maintaining a position in the local housing market assures you that you will be able to own when you return. Renting will also involve financial obligations in Canadian Dollars, based on your projected cash flows.
  • Foreign Residence: Your employer can help you here, based on previous relocations and experience. Your housing, costs of living, dependent education, health coverage, and local taxes must be covered in local currency. A local bank account is a “must have”. If your pay is totally in Canadian Dollars, work with your employer to fix forward forex contracts for the transfers of funds on a scheduled basis.

Foreign work assignments can be an adventure, but try to match income with expenses to limit your exposures to foreign exchange risk.