Is deposit safe in Canada's banks?

Q&A:Q Your colleague Simon Carswell in Business Agenda on July 3rd reports on the prudence of the Canadian banking system. I am currently holding quite a large lump sum in a series of different institutions, in order to spread the risk during the current depression. Most of the banks are in Ireland and the UK, as well as one which is in the Netherlands.

Can I open a deposit account in a Canadian bank if I am an Irish resident? With the continued fumbling of this Government, afraid to take any action recommended by An Bord Snip Nua until after the Lisbon Treaty referendum is out of the way, surely my money will be more safe in Canada, especially once the Irish Government guarantee runs out in September next year?

Mr T.O’N., Dublin

A Your use of language is telling. Few commentators have yet gone as far as to term our current woes a Depression in economic terms. The fact that you have done so leads me to think that your estimation of the danger of a sovereign default (a country such as Ireland going bust and being unable to deliver on its guarantee of the security of bank deposits) is higher than most commentators would generally consider reasonable.

However, if you are keen to make such a move there are few restrictions these days on opening a non-resident account abroad as long as the money you are banking comes from after-tax income.

It is not just the Canadian banking system that is congratulating itself on its probity. The Australian and even Brazilian banking systems would also claim to have largely avoided some of the chaos that has afflicted US, European and Gulf banks because of a more conservative approach to regulation and profitability.

But you should not kid yourself that banking elsewhere guarantees your money. A number of Canadian banks have collapsed in the past – more than in Ireland as it happens.

If you are intent on pursuing this course of action, you would be well-advised to check with the Canadian Deposit Insurance Corporation www.cdic.ca, the group that protects bank deposits in Canada.

It lists all the institutions that it covers and, more importantly, the types of accounts within those institutions that can avail of its protection – up to sums of 100,000 Canadian dollars. Interestingly, I gather this does not include accounts held in any currency other than Canadian dollars – even if they are non-resident accounts.

That leaves you exposed to the cost of foreign exchange and the risk that currencies can move against you – ie that the euro strengthens against the Canadian dollar while your money is on deposit there.

On a more practical level, my understanding is that there is little more involved in opening a non-resident account with a Canadian bank than you would find in opening an ordinary bank account here. That means you will have to supply proofs of identity and possibly proofs of address. Whether you have to physically open such an account in person – as you generally do for an Irish bank account these days – or can do so remotely would depend on the institution.

Your first step would be to check the necessary details on the website of whichever institution you were looking to do business with.

You also want to look at the interest rates on offer – which, as far as I can determine, do not match those available here. You also need to look at the cost of transferring money to such accounts – including the foreign exchange costs.

There are a host of valid reasons for opening a non-resident account, although I think you would need to think through your plan carefully before proceeding purely on the basis of the current parlous state of banking in Ireland and the rest of Europe.

Q Your reply last week concerning the maximum income above which the income levy applies to over 70s, I believe that the max income for a married couple should read €73,000 p.a. approximately, rather than the €40,000 you have indicated. Please check and clarify.

Mr P.P., email

A The question to which you refer related to a couple in their 70s who, by choice, were not in receipt of medical cards and were having the income levy deducted from income arising from the husband’s occupational pension. The answer I gave was correct. I am afraid you are confusing two separate thresholds.

In the answer, I clarified that there was no longer any automatic entitlement to a medical card for people in their 70s. While I referred to “certain income requirements”, I did not spell out what those were as the query related primarily to the income levy.

The €73,000 figure you mention is the income threshold in relation to medical card eligibility for a married couple, one of whom is 70 or over. Anyone earning less than that sum in gross income (ie before tax) from all sources qualifies for the medical card.

The €40,000 figure which I did mention specifically, relates to the income threshold above which people over the age of 65 (not 70) are obliged to pay the income levy. For people not in receipt of a medical card – for whatever reason – this income threshold is the only relevant issue in assessing liability to the income levy.

As this threshold is per couple, an individual aged 65 or over and earning more than €20,000 but below €40,000 may find themselves subject to the levy. However, as long as the couple’s income is below €40,000 over the year, they will be able to claim a refund of income levy deducted. Please note that, for the purposes of the income levy, the relevant age in assessing income is 65. The cut-off at age 70 relates to medical cards, an entirely separate arrangement managed by a different Government department.

One thing I did forget to mention is that certain types of income are excluded when assessing liability to the income levy. These include: any social welfare payments (including the State pension); income on which Deposit Interest Retention Tax has been paid; income from An Post savings certificates; shares under certain approved profit-sharing and share option schemes; redundancy payments; rent-a-room relief; and payments in respect of personal injury.

This is not an exhaustive list, details of which can be found in Appendix B of the Frequently Asked Questions on the Income Levy produced by the Revenue Guidelines – www.revenue.ie/en/practitioner/ law/income-levy.pdf.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.