Moving from Canada to Tennessee: No Income Tax, High Sales Tax, and Nashville's Boom

Tennessee is a no-income-tax state with one of the highest sales taxes in the US, and Nashville has become a corporate relocation and healthcare capital that recruits Canadians from every province. Memphis's logistics hub, Knoxville's Oak Ridge research corridor, and Chattanooga's manufacturing draw others. The US side of the move has no state income tax; the Canadian side carries the departure tax.

Key takeaways

• Tennessee has no state income tax on wages, salaries, or investment income.
• Sales tax is 9.25% in Nashville and up to 9.75% in some counties.
• Property tax is low, near 0.6% to 0.9% effective.
• No estate tax. No inheritance tax.
• The RRSP is untouched: no state income tax means no state layer.

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.

Tennessee's side

No state income tax; 7% state sales tax plus local, 9.25% in Nashville and Memphis and up to 9.75% in some counties; property tax near 0.6% to 0.9% effective; no estate tax; no inheritance tax. Tennessee's Hall tax on interest and dividends was fully repealed in 2021. Businesses pay franchise and excise taxes.

The RRSP

Untouched on departure, federally deferred under Article XVIII of the treaty, with no Tennessee layer. Withdrawals face 25% Canadian withholding on lump sums, 15% on periodic RRIF payments within the treaty limit, with a US foreign tax credit.

Who makes this move

Canadian healthcare and finance professionals to HCA and Nashville's healthcare companies, Canadian software engineers to Nashville's technology campuses, Canadian logistics staff to FedEx in Memphis, Canadian scientists to Oak Ridge National Laboratory, Canadian musicians and producers to Nashville's music industry, and Canadian retirees drawing RRIF income with no state tax.

Worked example

A Toronto healthcare finance manager moves to Nashville on June 30 with $220,000 of unrealized gain in a non-registered account, $450,000 in an RRSP, and a Toronto condo sold in the departure year.

• Departure tax. $220,000 gain, $110,000 taxable, at about 53.5%: roughly $59,000.
• Condo. Sold as a resident under the principal residence exemption.
• RRSP. No tax on departure; no state layer on withdrawals.
• Nashville. No state income tax. HST 13% becomes sales tax 9.25%. Property tax on a $650,000 home around $4,500.

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

"The general state tax rate is 7%. The local tax rate varies by county and/or city." — Tennessee Department of Revenue, Sales and Use Tax, https://www.tn.gov/revenue/taxes/sales-and-use-tax.html

"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

Tennessee is one of the best states for a Canadian federal pensioner or RRIF retiree: no state tax on the pension, CPP, OAS, or RRIF income, low property tax, and no estate tax. The sales tax is the trade, and it is close to Ontario's HST.

Corridor guides

• Calgary to Nashville: Healthcare, Energy Finance, and Zero State Income Tax
• Montreal to Nashville: Healthcare, Zero State Tax, and Three Authorities on the Way Out
• Ottawa to Nashville: Healthcare, Government Skills, and Zero State Income Tax
• Toronto to Nashville: Healthcare, Corporate Relocation, and Zero State Income Tax
• Vancouver to Nashville: Healthcare, Tech, and Zero State Income Tax

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.