Ottawa to Miami: What Happens to a Federal Pension When You Move to Florida

The Ottawa-to-Miami file looks different from the Toronto one. It is less often a Bay Street professional chasing a Brickell finance job and more often a public servant, a defence contractor, or a consultant with a federal pension, a modest non-registered portfolio, and a clear retirement date. The tax questions follow: how is a Canadian government pension taxed in Florida, what happens to the Ontario surtax on the way out, and when does the substantial presence clock actually start for someone who has wintered in Florida for years.

Key takeaways

• A Canadian public service pension paid to a Florida resident is taxed in the US, with Canadian withholding capped at 15% under the treaty on periodic payments.
• Ontario's combined top rate is about 53.5%, including a two-tier provincial surtax that disappears the day you leave.
• Departure tax on a $300,000 unrealized gain is roughly $80,000. Federal pensions, RRSPs, and TFSAs are not caught.
• OHIP coverage ends when you leave Ontario permanently. Confirm the date and arrange US coverage.
• Florida has no state income tax, so pension, RRSP, and CPP income are taxed federally only.

The federal pension in Florida

Under Article XVIII of the Canada-US treaty, pensions arising in Canada and paid to a US resident may be taxed in Canada, but the Canadian tax on periodic payments is capped at 15% of the gross amount. Canada's default Part XIII withholding on a non-resident is 25%; you file Form NR301 with the pension administrator to have the treaty rate applied. The US then taxes the pension as ordinary income with a foreign tax credit for the 15%.

Florida adds nothing. The same pension in Ontario would have been taxed at combined rates that reach 53.5%; in Florida it is federal only, with the 15% Canadian withholding credited against it.

CPP and OAS work differently: under the treaty they are taxable only in the US, treated like Social Security, and the OAS clawback does not apply because Canada does not tax the benefit.

The Ontario departure

Departure tax is a deemed sale of non-registered investments, private company shares, crypto, and foreign property at fair market value. 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.

Ontario's rate structure includes a provincial surtax layered on provincial tax above two thresholds, which is why the province's combined top rate reaches about 53.5% despite a headline provincial bracket of 13.16%. That surtax is part of what you leave behind.

OHIP coverage ends on permanent departure. Confirm the effective date with ServiceOntario and start US coverage the same month.

The snowbird problem

Ottawa retirees moving to Miami have often spent winters in Florida for years. The IRS substantial presence test counts all days in the current year, one-third of last year's days, and one-sixth of the year before. Four months a year for three years meets the test. If that is you, your first US tax year may already have happened, and the "move" is really a change from a closer-connection position (Form 8840) to full residency. That changes the FBAR start date and whether the TFSA has already been taxable in the US.

Miami's side

No state income tax, no city income tax, no estate tax. Sales tax is 7% in Miami-Dade against 13% HST in Ontario. Property tax is higher than Ottawa's on a like-for-like home, softened by homestead: own and occupy as your permanent residence on January 1, apply by March 1, for up to $50,000 off assessed value and a 3% cap on annual assessment increases.

The RRSP is untouched on departure and tax-deferred in the US under the treaty. Periodic RRIF withdrawals within the treaty limit face 15% Canadian withholding, lump sums 25%, with a US foreign tax credit either way.

Worked example

A retired federal employee and spouse leave Ottawa on September 30 with a $60,000-a-year public service pension, $200,000 of unrealized gain in a non-registered account, $700,000 in RRSPs, and a Kanata home they sell in the departure year.

• Departure tax. $200,000 gain, $100,000 taxable, at about 53.5%: roughly $53,500.
• Pension. NR301 filed; 15% Canadian withholding; taxed in the US with a foreign tax credit. No Florida tax.
• CPP/OAS. Taxed only in the US. No clawback.
• RRSP. No tax on departure; RRIF conversion and periodic withdrawals at 15%.
• Home. Sold as a resident under the principal residence exemption.

Official sources

"Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State." — Canada-United States Tax Convention, Article XVIII(1), https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

"Pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment." — Canada-United States Tax Convention, Article XVIII(2)(a), same source

"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

Practitioner note

The Ottawa file's recurring miss is the NR301. Without it the pension administrator withholds 25%, and while the extra 10% is recoverable by filing a Section 217 return, it is a year of waiting for money the treaty says you did not owe. We file NR301 with the pension centre before the first post-departure payment.

Next step

Fairlight prepares the Ontario departure return, the pension withholding paperwork, and the first-year US return. See cross-border pricing or book a call.