Montreal to Chicago: The TP-1, Three Authorities, and Illinois's Flat 4.95%

Montreal's finance, consulting, and AI sectors feed Chicago's, and the move is a large tax cut: Quebec's combined top rate of about 53.3% becomes about 42% in Illinois, with no city income tax. The departure year runs through Revenu Québec, the CRA, and the IRS.

Key takeaways

• Two Canadian departure returns: the federal T1 and Revenu Québec's TP-1, with matching departure dates.
• Quebec's roughly 53.3% top rate sets the departure tax. On a $300,000 unrealized gain, about $80,000.
• Illinois's flat 4.95% income tax; no city income tax in Chicago.
• Illinois follows the treaty's RRSP deferral and exempts most retirement income.
• Quebec's 14.975% combined GST and QST becomes 10.25% sales tax in Chicago. RAMQ ends on departure.

The three-authority departure

The federal deemed disposition applies to non-registered investments, private company shares, crypto, and property outside Canada; Quebec mirrors it. Report on federal Form T1243 (with T1161 if the property list exceeds $25,000) and on the Quebec equivalents. RAMQ ends when you leave Quebec to settle outside Canada. QPP paid later to an Illinois resident is taxable only in the US federally and exempt from Illinois tax as retirement income.

Chicago's side

Flat 4.95% state income tax; no city income tax; 10.25% sales tax; property tax near 2% effective in Cook County; estate tax above $4 million.

The RRSP in Illinois

Federally deferred under Article XVIII of the treaty and deferred for Illinois because the state starts from federal AGI. Illinois subtracts most federally taxed retirement income, which generally covers RRIF withdrawals. Canadian withholding is 25% on lump sums, 15% on periodic RRIF payments within the treaty limit, with a US foreign tax credit federally.

Who makes this move

Montreal finance professionals to Chicago's banks and trading firms, Quebec consultants to the Chicago offices of the large firms, Montreal AI and software engineers to Chicago's tech employers, and Quebec aerospace engineers to the region's manufacturers.

Worked example

A Montreal consultant moves to Chicago on July 31 with $200,000 of unrealized gain in a non-registered account, $400,000 in an RRSP, and a Plateau condo sold in the departure year.

• Departure tax. $200,000 gain, $100,000 taxable, at about 53.3%: roughly $53,000 across the T1 and TP-1.
• Condo. Sold as a resident under the principal residence exemption on both returns.
• RRSP. No tax on departure; federal and Illinois deferral.
• Chicago. Combined top rate about 42%. Sales tax 14.975% becomes 10.25%.

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

Revenu Québec sets out the income tax obligations of individuals who cease to be resident in Québec, including the deemed disposition of property on departure. — Revenu Québec, Leaving Québec, https://www.revenuquebec.ca/en/citizens/your-situation/residence-status-and-tax-obligations/leaving-quebec/

Effective July 1, 2017: 4.95 percent of net income. — Illinois Department of Revenue, Income Tax Rate, https://tax.illinois.gov/research/taxrates/income.html

Practitioner note

Montreal-to-Chicago is a four-authority departure year with a simple US side. The complexity is entirely Canadian: two departure returns, two sets of rental filings if the condo is kept, and one departure date that must appear on all of them.

See also: Weighing Florida instead? See the Canada-to-Florida guide, or the same city's Montreal to Miami guide.

Next step

Fairlight prepares the T1, the TP-1, and the first-year federal and Illinois returns. See cross-border pricing or book a call.