Moving from Canada to Delaware: Graduated Rates, No Sales Tax, and Wilmington's Banking Corridor

Delaware's economy is built on banking, credit cards, and corporate law: Wilmington hosts the card operations of several major banks and the Court of Chancery that decides most US corporate disputes. Canadian finance and legal professionals move there for both. The tax picture is a graduated income tax topping out at 6.6%, no sales tax, low property tax, and a small Wilmington city wage tax.

Key takeaways

• Delaware's graduated income tax runs 2.2% to 6.6%.
• Wilmington levies a 1.25% city wage tax on residents and on non-residents who work in the city.
• No sales tax anywhere in Delaware.
• Property tax is among the lowest in the US, near 0.5% effective.
• No estate tax. Delaware excludes up to $12,500 of pension income for taxpayers 60 and older.

The Canadian departure

Departure tax applies to non-registered investments, private company shares, crypto, and foreign property at fair market value on the day you leave. Canadian 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 to defer tax on illiquid assets. The rate is your province's: on a $300,000 unrealized gain, roughly $72,000 from Alberta and $80,000 from Ontario, Quebec, or BC. Provincial health coverage ends around your departure date; confirm the exact date with your plan and arrange US coverage to start the same month.

US federal side

Dual-status return in the arrival year, FBAR on Canadian accounts above $10,000 aggregate, Form 8938 above thresholds, and the RRSP treaty deferral federally. The TFSA loses its tax-free status the day you become a US person; close it before crossing. Equity compensation vesting after the move is split by working days between Canada and the US.

Delaware's side

Graduated income tax from 2.2% to 6.6%; Wilmington's 1.25% city wage tax; no sales tax; property tax near 0.5% effective; no estate tax. Delaware starts from federal AGI and excludes up to $12,500 of pension and eligible retirement income for taxpayers 60 and older, plus a $2,000 exclusion for younger taxpayers.

The RRSP

Federally deferred under Article XVIII of the treaty and deferred for Delaware 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 Delaware's graduated rates after the retirement income exclusion.

Who makes this move

Bay Street and Montreal finance professionals to the card operations of JPMorgan Chase, Bank of America, Capital One, and Barclays in Wilmington, Canadian lawyers to Delaware's corporate bar, Canadian chemists and engineers to the DuPont and Chemours legacy, and Canadians working in Philadelphia who choose Delaware for its taxes.

Worked example

A Toronto credit card risk manager moves to Wilmington on June 30 with $200,000 of unrealized gain in a non-registered account, $450,000 in an RRSP, and a Toronto condo sold in the departure year.

• Departure tax. $200,000 gain, $100,000 taxable, at about 53.5%: roughly $53,500.
• Condo. Sold as a resident under the principal residence exemption.
• RRSP. No tax on departure; federal and Delaware deferral.
• Wilmington. State 6.6% plus city 1.25%; combined top rate about 44.85%. HST 13% becomes sales tax zero. Property tax on a $500,000 home around $2,500.

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

Delaware's graduated income tax is 6.60% on taxable income of $60,000 or over, and the pension and eligible retirement income exclusion is $12,500 per person age 60 or over. — Delaware Division of Revenue, Personal Income Tax FAQs, https://revenue.delaware.gov/frequently-asked-questions/personal-income-tax-faqs/

"You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least: 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 years immediately before that." — Internal Revenue Service, Substantial Presence Test, https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test

Practitioner note

Delaware is a quiet good answer for Canadians working in Philadelphia: a resident of northern Delaware commuting to Philadelphia pays Philadelphia's non-resident wage tax and Delaware's income tax with a credit, and buys everything without sales tax. We run the Delaware-versus-Pennsylvania comparison for every Philadelphia-area move.

See also: Weighing Florida instead? See the Canada-to-Florida guide. Browse every corridor by city, province, and state.

Next step

Fairlight prepares the Canadian departure return, the first-year federal and state returns, and ongoing cross-border filings. See cross-border pricing or book a call.