Ontario to Michigan: The Auto Corridor, a Flat 4.25%, and the Windsor-Detroit Commuter Rules

Ontario to Michigan is the most-crossed border in the Canada-US relationship, and it carries two different kinds of file: the Ontario resident who relocates to the Detroit suburbs, Ann Arbor, or Grand Rapids, and the Windsor resident who commutes to Detroit and does not move at all. The relocation is a large tax cut: Ontario's combined top rate of about 53.5% becomes about 41.25% in most of Michigan or 43.65% inside Detroit. The commute is a Canadian file with a US non-resident return attached.

Key takeaways

• Ontario's roughly 53.5% top rate, including the provincial surtax, sets the departure tax. On a $300,000 unrealized gain, about $80,000.
• Michigan's flat 4.25% plus Detroit's 2.4% resident city tax; most suburbs have no city tax.
• Michigan starts from federal AGI, so the treaty's RRSP deferral flows through.
• 13% HST becomes a flat 6% sales tax.
• Windsor-Detroit commuters who return home daily do not count those days toward US residency if they commute on more than 75% of workdays.

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 ends on departure. OHIP ends on permanent departure. The Ontario home: sell it under the principal residence exemption, rent it under NR6 and Section 216, or face Toronto's Vacant Home Tax if it is in Toronto and sits empty.

Michigan's side

Flat 4.25% state income tax on federal AGI with Michigan adjustments; city income tax of 2.4% in Detroit (1.2% on non-residents working in the city), 1.5% in Grand Rapids, 1% in most other taxing cities, and none in Ann Arbor, Troy, Novi, or most of Oakland County; 6% sales tax with no local additions; property tax among the higher effective rates in the US, softened by the Principal Residence Exemption and a taxable-value growth cap; no estate tax. Michigan phases in a retirement income deduction by birth year.

The RRSP in Michigan

Federally deferred under Article XVIII of the treaty and deferred for Michigan 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 Michigan's 4.25%, with the birth-year retirement deduction available.

The Windsor-Detroit commuter

If you keep your Windsor home and commute, you have not moved. Days you return home the same day do not count toward the substantial presence test if you commute on more than 75% of your workdays. You file a US non-resident return on Detroit-sourced wages, pay Detroit's 1.2% non-resident city tax, and report the income on your Canadian return with a foreign tax credit. Canada is the primary taxing authority, and Ontario's rates apply to your worldwide income.

Who makes this move

Windsor and Toronto engineers to the Detroit automakers and their suppliers, Ontario software developers to the automakers' technology and autonomous vehicle groups, Ontario university staff to Ann Arbor and East Lansing, Ontario medical professionals to the Detroit and Grand Rapids hospital systems, and Windsor families going from commuting to relocating.

Worked example

A Windsor engineer relocates to Troy on June 30 with $200,000 of unrealized gain in a non-registered account, $500,000 in an RRSP, and a Windsor home sold in the departure year.

• Departure tax. $200,000 gain, $100,000 taxable, at about 53.5%: roughly $53,500.
• Home. Sold as a resident under the principal residence exemption.
• RRSP. No tax on departure; federal and Michigan deferral.
• Troy. Salary taxed at 4.25% state; Troy has no city tax. Combined top rate about 41.25%. HST 13% becomes sales tax 6%.

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

"Twenty-four Michigan cities levy municipality taxes related to income. These taxes can be individual income tax, business taxes (e.g., withholding tax, corporate income tax, or partnership tax), and/or fiduciary income taxes." — Michigan Department of Treasury, Which cities impose an income tax?, https://www.michigan.gov/taxes/citytax/what-cities-impose-an-income-tax

"Personal income tax is collected annually from Ontario residents and those who earned income in the province. The tax is calculated separately from federal income tax. There are 5 Ontario income tax brackets and 5 corresponding tax rates." — Government of Ontario, Personal Income Tax Rates and Credits, https://data.ontario.ca/dataset/personal-income-tax-rates-and-credits

Practitioner note

The Michigan decision that moves the most money is which suburb: the same salary is taxed 2.4 points higher in Detroit than in Troy or Novi, and property tax varies by district. For Windsor residents, the prior question is whether to move at all; the commuter file is often the better answer for a two-income household with one Canadian employer.

See also: Toronto to Detroit: Auto, the EV Transition, and Michigan's Flat 4.25% Plus City Tax. Browse every corridor by city, province, and state.

Next step

Fairlight prepares the Ontario departure return, the first-year federal, Michigan, and city returns, and the commuter analysis for Windsor-Detroit clients. See cross-border pricing or book a call.