Ottawa to Orlando: Defence Simulation, Federal Pensions, and Central Florida

The Ottawa-to-Orlando corridor is one of the more specific in the Canada-US map. Orlando is home to the US Army, Navy, and Air Force simulation and training commands, Lockheed Martin's training and logistics business, and the contractor ecosystem around UCF Research Park. Ottawa's defence, intelligence, and government IT workforce maps onto it directly. The tax questions are the Ontario departure, the treatment of a federal pension in Florida, and the residency start date when a security clearance requires a green card.

Key takeaways

• Ontario's combined top rate is about 53.5%, including a two-tier provincial surtax that ends the day you leave. Departure tax on a $300,000 unrealized gain is roughly $80,000.
• A Canadian public service pension paid to a Florida resident is taxed in the US, with Canadian withholding capped at 15% under the treaty once Form NR301 is on file.
• OHIP ends on permanent departure. Defence contractors usually provide day-one coverage; confirm the dates.
• Orange County sales tax is 6.5% against Ontario's 13% HST.
• No state or city income tax in Orlando.

Leaving Ontario

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 and list property on Form T1161 if it exceeds $25,000.

Ontario's provincial surtax applies to provincial tax above two thresholds and pushes the combined top rate to about 53.5%. It is part of what disappears on departure.

The federal pension

Under Article XVIII of the treaty, a pension 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%. Canada's default Part XIII withholding is 25%; file NR301 with the pension centre to have the treaty rate applied before the first post-departure payment. The US taxes the pension as ordinary income with a foreign tax credit for the 15%. Florida adds nothing.

CPP and OAS are taxable only in the US under the treaty, and the OAS clawback does not apply.

Orlando's side

Florida has no personal income tax and no estate tax; Orlando has no municipal income tax. Sales tax is 6.5% in Orange County. Property tax is higher than Ottawa's on a like-for-like home; homestead (own and occupy as your permanent residence on January 1, apply by March 1) takes up to $50,000 off assessed value and caps annual increases at 3%. Documentary stamp tax on the deed is 0.7%.

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.

Clearances and the residency start

Many Orlando defence roles require US citizenship or permanent residence for a clearance. If the employer sponsors a green card, US tax residency starts on the green card date unless the substantial presence test was met earlier. The Canadian departure date should be set with that date in view, not independently.

Worked example

A former DND engineer and spouse leave Ottawa on October 31 for a simulation contractor role. They carry a $40,000-a-year public service pension, $150,000 of unrealized gain in a non-registered account, $600,000 in RRSPs, and an Orleans 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 in the US with a foreign tax credit. No Florida tax.
• RRSP. No tax on departure; RRIF conversion and periodic withdrawals at 15%.
• Home. Sold as a resident under the principal residence exemption.
• Orlando. No state or city income tax. HST 13% becomes sales tax 6.5%.

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

"No tax upon estates or inheritances or upon the income of natural persons who are residents or citizens of the state shall be levied by the state, or under its authority." — Florida Constitution, Article VII, Section 5(a), http://www.leg.state.fl.us/statutes/index.cfm?submenu=3#A7S05

Practitioner note

The Ottawa-to-Orlando file has two dates that must agree: the Canadian departure date and the US residency start, which for a sponsored green card is the date the card is issued. When they diverge, income in the gap can be taxed by both countries or by neither, and neither outcome is what the client wants. We reconcile the two before the offer letter is signed.

See also: Ottawa to Miami and Ottawa to Tampa.

Next step

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