Moving from Canada to New York: The Real Rate, NYC's Extra Layer, and the Estate Tax Cliff

New York is the one US destination where a Canadian mover's combined rate barely moves. New York State's brackets run up to 10.9%, but that rate only applies above $25 million; most high earners sit at 9.65% or 6.85%. New York City adds its own income tax, topping out at 3.876%. For a Manhattan resident, the combined federal, state, and city top rate lands near 51%, within a few points of Ontario's 53.5%. The differences are in what each side does with the RRSP, the estate, and the departure year.

Key takeaways

• New York State's top rate of 10.9% applies above $25 million; the practical top rate for most movers is 9.65% (above roughly $1.08 million single) or 6.85% (above roughly $215,000).
• New York City adds 3.078% to 3.876% for residents. Westchester, Long Island, and New Jersey suburbs do not carry the city tax.
• New York's estate tax exemption is about $7.35 million and has a cliff: exceed it by more than 5% and the entire estate is taxed.
• New York's treatment of the treaty is less settled than Florida's or Michigan's; review the RRSP position with a preparer before assuming deferral.
• Canada's departure tax applies on the way out regardless.

The Canadian departure

Departure tax is a deemed sale of 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 for illiquid assets. At Ontario's roughly 53.5% top rate, a $300,000 unrealized gain costs about $80,000 on the way out.

New York's side

• State income tax. Graduated brackets from 4% to 10.9%. Capital gains are taxed as ordinary income.
• City income tax. New York City residents pay 3.078% to 3.876% on top of state. Yonkers has a smaller surcharge. The rest of the state has no city income tax.
• Residency. New York uses domicile and a statutory residency test (183 days plus a permanent place of abode). The Department of Taxation and Finance audits residency aggressively, and the audit covers day counts, where your belongings are, and where your family lives.
• Sales tax. 8.875% in New York City; 8.375% to 8.875% in the suburbs.
• Property tax. Low effective rates in New York City for co-ops and condos; high in Westchester, Nassau, and Suffolk.
• Estate tax. Exemption around $7.35 million, with the cliff: an estate more than 5% above the exemption loses the exemption entirely and is taxed from the first dollar at rates up to 16%.

The RRSP in New York

Federally, Article XVIII of the treaty defers US tax on RRSP growth until withdrawal. New York starts from federal adjusted gross income, but the state has historically declined to follow federal treaty exclusions in some contexts and has issued guidance requiring addbacks for treaty-exempt income. Whether RRSP growth deferred under the treaty must be added back on the New York return is a position to take deliberately, with the guidance in hand, rather than assume. If it must, the approach is the same as California's: restructure the account toward low-yield holdings before departure or draw it down while still Canadian.

The estate cliff

Canada has no estate tax; it deems assets sold at death and taxes the gain. New York has an estate tax with a low exemption and a cliff. A Canadian couple who become New York domiciliaries with a $9 million estate face a New York estate tax on the entire $9 million, not the excess over $7.35 million, because the estate exceeds the exemption by more than 5%. Federal estate tax, by contrast, applies only above $15 million. Planning for New York domicile means planning for the cliff.

Who moves to New York

Bay Street finance professionals to Wall Street and midtown, Ottawa policy professionals to the UN and consulting, Montreal and Toronto lawyers to New York offices, and tech workers to the city's growing engineering hubs. Many "New York" movers actually settle in New Jersey or Connecticut, which changes the state layer entirely.

Worked example

A Toronto investment banker moves to Manhattan on July 1 with $300,000 of unrealized gain in a non-registered account, $800,000 in an RRSP, and deferred compensation vesting over three years.

• Departure tax. $300,000 gain, $150,000 taxable, at about 53.5%: roughly $80,000.
• RRSP. Federally deferred; New York position reviewed and documented.
• Deferred comp. Split by working days between Canada and the US; New York and New York City source their share by New York working days.
• New York. Combined federal, state, and city top rate near 51%. HST 13% becomes sales tax 8.875%.

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

New York State personal income tax rates and the New York City resident tax rates are published by the Department of Taxation and Finance. — New York State Department of Taxation and Finance, Tax rates and tables, https://www.tax.ny.gov/pit/file/tax-tables/

New York's estate tax applies to estates exceeding the basic exclusion amount, and estates more than 105% of that amount are taxed on the entire estate. — New York State Department of Taxation and Finance, Estate tax, https://www.tax.ny.gov/pit/estate/

Practitioner note

New York files have two decisions the other states do not: which side of the city line to live on (2.9 to 3.9 points of income tax) and whether to become a New York domiciliary at all if the estate is anywhere near $7.35 million. A client who intends to stay a few years and return to Canada can sometimes remain a Canadian domiciliary for estate purposes while being a New York statutory resident for income tax; that is a deliberate position, not a default.

Corridor guides

• Alberta to New York: Energy Finance, NYC's Extra Layer, and Why the Rate Goes Up
• BC to New York: Two High-Tax Jurisdictions and What Each Does With Your RRSP
• Ontario to New York: The Surtax Swap, Wall Street, and What Each Side Does With Your RRSP
• Quebec to New York: Three Tax Authorities on the Way Out, Two More on the Way In
• Calgary to New York: Trading Desks, NYC's Extra Layer, and Why the Rate Goes Up
• Montreal to New York: The TP-1, Three Tax Authorities, and Two More on Arrival
• Ottawa to New York: Policy, the UN, and a Nearly Lateral Move on Tax
• Vancouver to New York: Hollywood North Meets Wall Street, and Two High-Tax Jurisdictions

See also: Every Canada-to-US corridor, by city, province, and state — the full index of Fairlight moving guides.

Next step

Fairlight prepares the Canadian departure return, the first-year federal, New York State, and New York City returns, and the estate analysis. See cross-border pricing or book a call.