BC to Michigan: Tech to Autonomous Vehicles, a Flat 4.25%, and the Property Tax Inversion

Vancouver's software and robotics talent has found a market in Michigan's autonomous vehicle and EV programs. The tax picture is a large income tax cut (BC's combined top rate of about 53.5% becomes about 41.25% in most of Michigan) paired with a property tax inversion: BC has some of the highest home prices and lowest property tax rates in North America; Michigan has the opposite.

Key takeaways

• BC's roughly 53.5% top rate sets the departure tax. On a $300,000 unrealized gain, about $80,000.
• Michigan's flat 4.25% plus Detroit's 2.4% city tax; most suburbs have no city tax.
• Michigan follows the treaty's RRSP deferral.
• BC's 12% combined GST and PST becomes a flat 6% sales tax.
• A Vancouver home kept behind faces BC's Speculation and Vacancy Tax, Vancouver's Empty Homes Tax, and the federal Underused Housing Tax if it sits empty.

The BC departure

Departure tax applies to non-registered investments, private company shares, crypto, and foreign property at fair market value on the departure date. BC real estate, RRSPs, TFSAs, and pensions are excluded. Report on Form T1243, list holdings on Form T1161 if the total exceeds $25,000, and post security under Form T1244 for illiquid assets. MSP ends on permanent departure.

The Vancouver home is excluded from departure tax, but keeping it empty as a non-resident invites three separate vacancy taxes. Rent it under NR6 and Section 216, or sell in the departure year under the principal residence exemption.

Michigan's side

Flat 4.25% state income tax; city income tax of 2.4% in Detroit, 1.5% in Grand Rapids, 1% in most other taxing cities, and none in Ann Arbor, Troy, Novi, or most of Oakland County; 6% sales tax with no local additions; high property tax softened by the Principal Residence Exemption and a taxable-value growth cap; no estate tax.

The inversion: a $1.5 million Vancouver home carries a property tax bill in the low thousands; a $600,000 Ann Arbor home carries one in the low teens of thousands. Budget for it.

The RRSP in Michigan

Federally deferred under Article XVIII of the treaty and deferred for Michigan because the state starts from federal AGI. Withdrawals face 25% Canadian withholding on lump sums, 15% on periodic RRIF payments within the treaty limit, a US foreign tax credit federally, and Michigan's 4.25%.

Who makes this move

Vancouver software and robotics engineers to the autonomous vehicle programs in the Detroit suburbs and Ann Arbor, BC clean-tech professionals to the EV and battery plants, and University of British Columbia researchers to the University of Michigan.

Worked example

A Vancouver robotics engineer moves to Ann Arbor on July 31 with $220,000 of unrealized gain in a non-registered account, $350,000 in an RRSP, and a Vancouver condo sold in the departure year.

• Departure tax. $220,000 gain, $110,000 taxable, at about 53.5%: roughly $59,000.
• Condo. Sold as a resident under the principal residence exemption. No vacancy taxes.
• RRSP. No tax on departure; federal and Michigan deferral.
• Michigan. Salary taxed at 4.25% state; Ann Arbor has no city tax. Combined top rate about 41.25%. Sales tax 12% becomes 6%.

Official sources

"When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value (FMV) and to have immediately reacquired them for the same amount. This is called a deemed disposition and you may have to report a capital gain (also known as departure tax)." — Canada Revenue Agency, Leaving Canada (emigrants), https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html

Michigan's individual income tax rate and the list of cities that impose a city income tax are published by the Michigan Department of Treasury. — Michigan Department of Treasury, City Income Tax, https://www.michigan.gov/taxes/citytax

BC's Speculation and Vacancy Tax applies annually to residential property in designated taxable regions, with rates that depend on the owner's residency and tax status. — Government of British Columbia, Speculation and vacancy tax, https://www2.gov.bc.ca/gov/content/taxes/speculation-vacancy-tax

Practitioner note

BC-to-Michigan clients budget correctly for the income tax cut and incorrectly for property tax, because a lifetime in Vancouver has taught them property tax is small. It is not small in Michigan. We put the property tax by district in the same spreadsheet as the income tax savings.

See also: Weighing Florida instead? See the Canada-to-Florida guide.

Next step

Fairlight prepares the BC departure return, the property decision, and the first-year federal, Michigan, and city returns. See cross-border pricing or book a call.