Leaving PEI for the US: Departure Tax, Health PEI, and the Island Exit

Prince Edward Island's US movers come from a short list of sources: the aerospace cluster at Slemon Park, the bioscience sector in Charlottetown, healthcare, and retirees who have wintered in Florida for years. The province's top rate has climbed in recent years and now sits near 19%, for a combined top marginal rate around 52%, and the HST is 15%. Any US destination is a large drop.

Key takeaways

• PEI's combined top rate of about 52% sets the departure tax. On a $300,000 unrealized gain, roughly $78,000.
• Health PEI coverage ends on permanent departure.
• 15% HST becomes state and local sales tax between zero and roughly 9%.
• The Island home is excluded from departure tax but brings NR6, Section 216, and Section 116 if kept, plus PEI's own rules on non-resident land ownership.
• The RRSP is untouched and stays tax-deferred under the treaty.

The PEI departure

Departure tax applies to non-registered investments, private company shares, crypto, and foreign property at fair market value on the departure date. PEI real estate, RRSPs, TFSAs, and pensions are excluded. Report on Form T1243, list holdings on Form T1161 if the total exceeds $25,000, and post security under Form T1244 for illiquid assets.

PEI-specific items:

• Health PEI. Coverage ends when you leave the province permanently. Confirm the date and line up US coverage.
• Island property. Excluded from departure tax. PEI regulates land ownership by non-residents under the Lands Protection Act, which does not tax you but does constrain what a non-resident can hold above certain acreage limits without approval. If you keep a rental, NR6 and Section 216 apply; if you sell later, Section 116.
• Farm property. PEI has a large farming sector. Qualified farm property can access the lifetime capital gains exemption on the deemed disposition, and Canadian farmland is real property and therefore excluded from departure tax in any case.

The US side

• Florida (retirees): no state income tax; 6–7.5% sales tax; homestead on a permanent residence.
• Texas (aerospace, healthcare): no state income tax; sales tax around 8.25% in the major cities.
• North Carolina (aerospace, bioscience): flat 4.5% and falling; no city income tax.
• Massachusetts (bioscience): 5% flat plus a 4% surtax above roughly $1 million.

The federal return is the same everywhere: dual-status in the arrival year, RRSP treaty deferral, FBAR on Canadian accounts, and Form 8938 above thresholds.

Worked example

A Charlottetown bioscience researcher leaves on August 31 for a North Carolina employer with $100,000 of unrealized gain in a non-registered account, $350,000 in an RRSP, and a Stratford home sold in the departure year.

• Departure tax. $100,000 gain, $50,000 taxable, at about 52%: roughly $26,000.
• Home. Sold as a resident under the principal residence exemption.
• RRSP. No tax on departure; periodic withdrawals later at 15%.
• North Carolina. 4.5% flat state tax; RRSP deferral respected. HST 15% becomes sales tax about 7%.

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

Prince Edward Island personal income tax rates and brackets are published by the provincial Department of Finance. — Government of Prince Edward Island, Personal Income Tax, https://www.princeedwardisland.ca/en/information/finance/personal-income-tax

PEI's Lands Protection Act sets limits on land holdings by non-residents and corporations. — Government of Prince Edward Island, Lands Protection Act, https://www.princeedwardisland.ca/en/legislation/lands-protection-act

Practitioner note

PEI retiree files often include a cottage kept "for the summers." It is excluded from departure tax, but as a non-resident owner you will face NR6 and Section 216 if it is ever rented, Section 116 when it is sold, and the principal residence exemption will only cover the years it was your principal residence. Decide before you leave whether it is a rental, a personal-use property, or a sale.

Next step

Fairlight prepares the PEI departure return, the property decision, and the first-year US return. See cross-border pricing or book a call.