Moving from Canada to Kentucky: A Falling Flat Rate, Local Occupational Taxes, and the Louisville Logistics Hub

Louisville hosts UPS's Worldport air hub, Humana's headquarters, and a growing healthcare and logistics sector; Lexington has the University of Kentucky and Toyota's Georgetown plant nearby. Kentucky's tax picture is a flat state income tax cut to 3.5% for 2026, local occupational license taxes in most cities and counties that add 1% to 2.5%, a 6% sales tax with no local additions, and an inheritance tax that exempts spouses and children.

Key takeaways

• Kentucky's flat state income tax is 3.5% for 2026, down from 4%.
• Louisville's local occupational tax is about 2.2% on residents; Lexington's is 2.25%; most counties charge 1% to 2%.
• Sales tax is 6% statewide with no local additions.
• Property tax is near 0.8% effective.
• Kentucky has an inheritance tax, but spouses, children, and parents are exempt. Retirement income up to $31,110 is excluded.

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.

Kentucky's side

Flat state income tax of 3.5% for 2026; local occupational license taxes (Louisville Metro about 2.2% on residents, Lexington-Fayette 2.25%, most other counties 1% to 2%); 6% sales tax with no local additions; property tax near 0.8% effective; no estate tax, but an inheritance tax on transfers to beneficiaries other than spouses, children, parents, and siblings. Kentucky starts from federal AGI and excludes up to $31,110 of pension and retirement income per person.

The RRSP

Federally deferred under Article XVIII of the treaty and deferred for Kentucky 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 Kentucky's flat rate after the $31,110 retirement income exclusion, which covers most RRIF and pension income. Local occupational taxes generally apply to earned income only.

Who makes this move

Canadian logistics professionals to UPS Worldport and Louisville's distribution sector, Canadian healthcare staff to Humana and the Louisville and Lexington health systems, Ontario auto engineers to Toyota Georgetown and Kentucky's plants, and Canadian academics to the University of Kentucky and University of Louisville.

Worked example

A Toronto logistics manager moves to Louisville 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 Kentucky deferral.
• Louisville. State 3.5% plus Louisville Metro about 2.2%; combined top rate about 42.7%. HST 13% becomes sales tax 6%. Property tax on a $450,000 home around $3,600.

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

"2026 Kentucky Standard Deduction: $3,360. 2026 Kentucky Tax Rate: 3.5% of taxable income" — Kentucky Department of Revenue, 2026 Kentucky Withholding Tax Formula, https://revenue.ky.gov/Forms/2026%20Withholding%20Formula.pdf

"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

Kentucky's local occupational tax is the item Canadians do not expect: Louisville's is about 2.2% and follows where you live and work. The retirement income exclusion of $31,110 per person is generous and covers most Canadian pension and RRIF income for a retired couple.

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.