Ottawa to Dallas: The Defence Corridor and Zero State Income Tax

Dallas-Fort Worth is one of the largest defence manufacturing regions in the US, and its contractor base recruits from Ottawa's defence and intelligence community. Ottawa's consultants and federal program managers land in DFW's corporate headquarters as well. The move is a 16-point rate drop: Ontario's combined top rate of about 53.5% becomes a federal-only 37%.

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.
• Texas has no state income tax; US tax is federal only.
• 13% HST becomes 8.25% sales tax in Dallas.
• Dallas County property tax runs about 2%; file the homestead application after you move in.
• OHIP ends on permanent departure. Defence roles may require a green card, which sets the US residency start.

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 registered pensions are excluded. Report on Form T1243, list holdings on Form T1161 if the total exceeds $25,000. The Ontario surtax ends on departure.

A federal pension, if any, is taxed in the US with Canadian withholding capped at 15% under the treaty once NR301 is filed; Texas adds nothing.

Dallas's side

No income tax; property tax near 2% effective with a homestead exemption and a 10% annual appraisal cap; 8.25% sales tax; no estate tax.

The RRSP in Texas

Untouched on departure, federally deferred under the treaty, with no Texas 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

DND and CSE engineers to Lockheed Martin, Raytheon, and the DFW contractor base, Ottawa consultants to the Dallas offices of the large firms, federal program managers to corporate headquarters in Plano and Frisco, and Ottawa health-policy staff to DFW's hospital systems.

Worked example

A former DND systems engineer moves to Fort Worth on August 31 with $180,000 of unrealized gain in a non-registered account, $500,000 in an RRSP, and an Orleans home sold in the departure year.

• Departure tax. $180,000 gain, $90,000 taxable, at about 53.5%: roughly $48,000.
• Home. Sold as a resident under the principal residence exemption.
• RRSP. No tax on departure; periodic withdrawals later at 15%.
• Fort Worth. No state income tax. HST 13% becomes sales tax 8.25%.

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

"Texas imposes a 6.25 percent state sales and use tax on all retail sales, leases and rentals of most goods, as well as taxable services. Local taxing jurisdictions (cities, counties, special purpose districts and transit authorities) can also impose up to 2 percent sales and use tax for a maximum combined rate of 8.25 percent." — Texas Comptroller of Public Accounts, Sales and Use Tax, https://comptroller.texas.gov/taxes/sales/

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

Ottawa-to-DFW clients with a clearance in progress have two dates that must agree: the Canadian departure date and the green card issue date. We reconcile them before the offer is signed.

See also: Weighing Florida instead? See the Canada-to-Florida guide, or the same city's Ottawa to Miami guide.

Next step

Fairlight prepares the Ontario departure return, the residency-date reconciliation, and the first-year US return for Dallas-Fort Worth clients. See cross-border pricing or book a call.