Ontario to California: Closer Rates Than You Think, and What Happens to the RRSP and OHIP

Ontario to California is the busiest Canadian tech and entertainment corridor and one of the smallest rate drops. Ontario's combined top rate is about 53.5% including the provincial surtax; California's combined federal and state top rate is about 50.3%, with capital gains taxed as ordinary income. Three points of headline rate is not why people move. What changes is the RRSP, which California taxes annually, and OHIP, which ends the day you leave.

Key takeaways

• Ontario's roughly 53.5% top rate sets the departure tax. On a $300,000 unrealized gain, about $80,000.
• California's combined top rate is about 50.3%; capital gains at ordinary rates.
• California does not follow the treaty on RRSPs: the account's annual earnings are taxable on the California return.
• OHIP ends on permanent departure. California employer coverage usually starts within the first month; confirm.
• 13% HST becomes 8.625% to 10.25% sales tax in the major California metros.

The Ontario departure

Departure tax applies to non-registered investments, private company shares, crypto, and foreign property at fair market value on the departure date. Ontario 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.

The Ontario surtax layers onto provincial tax above two thresholds and is part of what you leave behind. Because California taxes post-arrival gains at ordinary rates on the full amount, realizing gains before departure at Ontario's half inclusion is often cheaper than carrying them into California, even at 53.5%.

The Toronto home is excluded from departure tax. Rent it under NR6 and Section 216, sell it in the departure year, or face Toronto's Vacant Home Tax if it sits empty.

The RRSP decision

Federally the RRSP is deferred under Article XVIII of the treaty. California does not conform: the Franchise Tax Board taxes the interest, dividends, and realized gains inside the account each year. Before departure, the choices are to restructure toward growth assets that produce little annual income, to draw the account down while still an Ontario resident, or to accept the annual California inclusion and track basis. For most Ontario tech movers with mid-sized RRSPs and a few years in California, restructuring is the usual answer; for retirees, a partial draw-down in Ontario is sometimes cheaper.

California's side

Graduated rates to 12.3% plus a 1% surcharge above $1 million; capital gains at ordinary rates; sales tax 8.625% in San Francisco, 9.5% in Los Angeles County, up to 10.25% in some cities; Proposition 13 property tax at about 1.1% of purchase price with a 2% annual cap; no estate tax; aggressive residency audits; community property.

Equity

RSUs vesting after the move are split between Canada and the US by working days over the vesting period, and California sources its share by California working days as well. Both payrolls may withhold on the full amount; the excess is recoverable on the first-year returns.

Who makes this move

Toronto and Waterloo software engineers to the Bay Area, Toronto film and television professionals to Los Angeles, Ontario biotech researchers to San Diego and South San Francisco, and Ontario finance professionals to Los Angeles and San Francisco.

Worked example

A Toronto software engineer moves to San Francisco on July 1 with $300,000 of unrealized gain in a non-registered account, $500,000 in an RRSP producing about $15,000 a year of income, RSUs vesting after the move, and a Toronto condo sold in the departure year.

• Departure tax. $300,000 gain, $150,000 taxable, at about 53.5%: roughly $80,000. Cheaper than California's ordinary-rate treatment of the same gain later.
• RRSP. Federally deferred. California taxes the $15,000 annual income at rates up to 13.3%; restructuring toward growth equities reduces it.
• Condo. Sold as a resident under the principal residence exemption.
• RSUs. Split by working days between Canada, US federal, and California.
• California. Combined top rate about 50.3%, a three-point cut from Ontario. HST 13% becomes sales tax 8.625%.

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

California does not conform to federal tax treaty provisions; income excluded from federal income under a treaty may be taxable by California. — California Franchise Tax Board, Publication 1031, Guidelines for Determining Resident Status, https://www.ftb.ca.gov/forms/2024/2024-1031-publication.pdf

There are 5 Ontario income tax brackets and 5 corresponding tax rates. — Government of Ontario, Personal income tax, https://data.ontario.ca/dataset/personal-income-tax-rates-and-credits

Practitioner note

Ontario-to-California files have a specific order of operations: RRSP restructuring, then gain realization, then the departure date, then the OHIP end date, then the California residency start. Each step depends on the one before it. We build the timeline backward from the job start date.

See also: Weighing Florida instead? See the Canada-to-Florida guide.

Next step

Fairlight prepares the Ontario departure return, the RRSP restructuring, and the first-year federal and California returns. See cross-border pricing or book a call.