Ottawa to Nashville: Healthcare, Government Skills, and Zero State Income Tax

Nashville's healthcare industry and corporate headquarters recruit Ottawa's health-policy professionals, program managers, and cybersecurity staff. The move is a 16-point rate drop: Ontario's combined top rate of about 53.5% becomes a federal-only 37%. Tennessee is also one of the best states for a Canadian federal pensioner.

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.
• Tennessee has no state income tax; US tax is federal only.
• A Canadian public service pension paid to a Tennessee resident is taxed federally with Canadian withholding capped at 15% under the treaty once NR301 is filed; Tennessee adds nothing.
• 13% HST becomes 9.25% sales tax in Nashville.
• OHIP ends on permanent departure.

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.

The federal pension in Tennessee

Under Article XVIII of the treaty, Canadian tax on periodic pension payments to a US resident is capped at 15%; file NR301 before the first post-departure payment. The US taxes the pension federally with a foreign tax credit; Tennessee adds nothing. CPP and OAS are taxable only in the US, and the OAS clawback does not apply.

Nashville's side

No state income tax on wages, salaries, or investment income; sales tax 9.25% in Nashville and up to 9.75% in some Tennessee counties; property tax near 0.6% to 0.9% effective; no estate tax; no inheritance tax.

The RRSP in Tennessee

Untouched on departure, federally deferred under 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

Health Canada and PHAC professionals to HCA and Nashville's healthcare companies, Ottawa cybersecurity staff to the healthcare companies' security groups, federal program managers to Nashville's corporate headquarters, and Ottawa retirees choosing Tennessee for its tax treatment of pensions.

Worked example

A retired federal employee and spouse move to Franklin on September 30 with a $45,000-a-year public service pension, $150,000 of unrealized gain in a non-registered account, $600,000 in RRSPs, and a Nepean home sold in the departure year.

• Departure tax. $150,000 gain, $75,000 taxable, at about 53.5%: roughly $40,000.
• Pension. NR301 filed; 15% Canadian withholding; taxed federally with a foreign tax credit. No Tennessee tax.
• RRSP. No tax on departure; RRIF conversion and periodic withdrawals at 15%.
• Home. Sold as a resident under the principal residence exemption.
• Franklin. No state income tax. HST 13% becomes sales tax 9.75%. Property tax on a $650,000 home around $4,500.

Official sources

"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), https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

"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

Practitioner note

Tennessee is one of the best states for a Canadian federal pensioner: no state tax on the pension, CPP, OAS, or RRIF income, low property tax, and no estate tax. The NR301 is the one form that gets missed.

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 pension withholding paperwork, and the first-year US return for Nashville clients. See cross-border pricing or book a call.