Ottawa to Seattle: Cloud Security, the Defence-to-Tech Pipeline, and the Capital Gains Excise

Seattle's cloud giants run some of the largest security organizations in the world, and they recruit from Ottawa's CSE and DND cybersecurity workforce. The move is a 16-point rate drop on salary: Ontario's combined top rate of about 53.5% becomes a federal-only 37%. Equity is the exception: Washington's capital gains excise applies to large stock sales.

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.
• Washington has no income tax on wages or ordinary investment income.
• Washington taxes long-term capital gains above roughly $270,000 a year at 7%, plus 2.9% above $1 million.
• A Canadian public service pension paid to a Washington resident is taxed federally with Canadian withholding capped at 15% under the treaty once NR301 is filed; Washington adds nothing.
• 13% HST becomes about 10.35% sales tax. 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. OHIP ends on permanent departure.

The federal pension

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. Washington adds nothing. CPP and OAS are taxable only in the US.

Seattle's side

No state income tax on wages or ordinary investment income; a 7% excise on long-term capital gains above roughly $270,000 a year (indexed), plus 2.9% on gains above $1 million, with exemptions for real estate and retirement accounts but not stock or RSU sales; sales tax about 10.35% in Seattle; B&O gross receipts tax on businesses and consultants; property tax near 1% in King County; estate tax with an exemption near $3 million and rates to 35%.

The RRSP in Washington

Untouched on departure, federally deferred under the treaty, no state income tax to break the deferral, and exempt from the capital gains excise as a retirement account. Withdrawals face 25% Canadian withholding on lump sums, 15% on periodic RRIF payments within the treaty limit, with a US foreign tax credit.

RSUs and the excise

Vests are ordinary income, split between Canada and the US by working days, and not subject to the excise. Sales of vested shares are capital transactions: a large sale in one year can cross the threshold and trigger the 7%. Sell in tranches, or realize gains in Canada before departure.

Who makes this move

CSE and DND cybersecurity professionals to the cloud giants' security groups, Ottawa software engineers to Amazon, Microsoft, and the Seattle startup scene, federal IT staff to Seattle's enterprise employers, and Ottawa aerospace engineers to Boeing.

Worked example

An Ottawa cybersecurity engineer moves to Seattle on April 30 with $180,000 of unrealized gain in a non-registered account, $450,000 in an RRSP, RSUs vesting quarterly after the move, and a Kanata 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; exempt from the excise.
• RSUs. Vests split by working days; subsequent sales above the threshold face the 7% excise. Sell in tranches.
• Seattle. No state income tax. HST 13% becomes sales tax 10.35%.

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

Washington's capital gains tax is "a 7% tax on the sale or exchange of long-term capital assets such as stocks, bonds, business interests, or other investments and tangible assets." — Washington State Department of Revenue, Capital gains tax, https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax

Practitioner note

Ottawa-to-Seattle files are equity files. The salary side is a clean cut; the RSU side needs a sale schedule mapped against Washington's annual threshold, built before the move and revisited each January when the threshold is indexed.

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 equity timing plan, and the first-year US return for Seattle-area clients. See cross-border pricing or book a call.