Moving from Canada to Hawaii: An 11% Top Rate, the Lowest Property Tax in the US, and a State Estate Tax

Hawaii is one of the few US destinations where a Canadian mover's combined income tax rate barely falls. The state's top rate is 11%, for a combined federal and state top rate near 48%, within a few points of Alberta and only about five below Ontario. What Hawaii offers instead is the lowest property tax in the US, a general excise tax in place of a sales tax, and a location that draws Canadian military-adjacent contractors, tourism executives, and Asia-Pacific business professionals.

Key takeaways

• Hawaii's graduated income tax tops out at 11%, for a combined federal and state top rate near 48%. No city income tax.
• Hawaii starts from federal AGI, so the treaty's RRSP deferral flows through.
• The general excise tax is 4% state plus 0.5% on Oahu, passed through to consumers at about 4.7%.
• Property tax is the lowest in the US, near 0.3% effective.
• Hawaii has an estate tax with an exemption near $5.5 million.

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.

Hawaii's side

Graduated income tax with twelve brackets topping out at 11%; no city income tax; a general excise tax on businesses (4% plus 0.5% on Oahu) that is typically passed through to consumers; property tax near 0.3% effective, the lowest in the US; estate tax with an exemption near $5.5 million and rates to 20%. Hawaii starts from federal AGI and exempts employer-funded pension income from state tax, which can cover a Canadian defined benefit pension.

The RRSP

Federally deferred under Article XVIII of the treaty and deferred for Hawaii 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 Hawaii's graduated rates; a Canadian employer pension may qualify for Hawaii's pension exemption.

Who makes this move

Canadian military-adjacent contractors to Pearl Harbor and the Oahu installations, Canadian tourism and hospitality executives to the resort operators, Canadian Asia-Pacific business professionals using Honolulu as a base, and Canadian retirees with the means for Hawaii's cost of living.

Worked example

A Vancouver hospitality executive moves to Honolulu on June 30 with $250,000 of unrealized gain in a non-registered account, $500,000 in an RRSP, and a Vancouver condo sold in the departure year.

• Departure tax. $250,000 gain, $125,000 taxable, at about 53.5%: roughly $67,000.
• Condo. Sold as a resident under the principal residence exemption. No vacancy taxes.
• RRSP. No tax on departure; federal and Hawaii deferral.
• Honolulu. Combined top rate about 48%, a five-point cut from BC. Sales tax 12% becomes a 4.7% excise pass-through. Property tax on a $1.2 million home around $4,000.

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

Hawaii's individual income tax rate schedules for taxable years beginning after December 31, 2024 top out at 11%. — Hawaii Department of Taxation, Individual Tax Tables and Rate Schedules, https://tax.hawaii.gov/forms/d_25table-on/

"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

Hawaii is a lifestyle move, not a tax move, and the estate tax is the item Canadians have not planned for: a $5.5 million exemption catches a couple with a Honolulu home and two RRSPs. We put the estate analysis in the first meeting.

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.