Toronto to Chicago: Bay Street to LaSalle Street, and Illinois's Flat 4.95%

Toronto and Chicago are the financial capitals of their respective regions, and the corridor between them runs on banking, derivatives, consulting, and increasingly tech. The move is a large tax cut: Ontario's combined top rate of about 53.5% becomes about 42% in Illinois, with no city income tax. Illinois charges high property tax and a 10.25% sales tax instead.

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.
• Illinois's flat 4.95% income tax; no city income tax in Chicago.
• Illinois follows the treaty's RRSP deferral and exempts most retirement income.
• 13% HST becomes 10.25% sales tax in Chicago.
• OHIP ends on permanent departure. Keeping the Toronto home means NR6, Section 216, and the Vacant Home Tax if empty.

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 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. The Toronto home: sell it, rent it under NR6 and Section 216, or face the Vacant Home Tax.

Chicago's side

Flat 4.95% state income tax; no city income tax; 10.25% sales tax; property tax near 2% effective in Cook County; estate tax above $4 million with rates to 16%.

The RRSP in Illinois

Federally deferred under Article XVIII of the treaty and deferred for Illinois. RRIF income later is generally exempt from Illinois tax as retirement income. Canadian withholding is 25% on lump sums, 15% on periodic RRIF payments within the treaty limit, with a US foreign tax credit federally.

Deferred compensation

Bay Street compensation carries deferred bonuses and restricted units. Vests after the move are split by working days between Canada and the US; Illinois taxes its share at 4.95%. Both payrolls may withhold on the full amount.

Who makes this move

Bay Street bankers and traders to Chicago's banks and derivatives firms, Toronto consultants to the Chicago offices of the large firms, Toronto tech workers to Chicago's software and fintech employers, and Ontario lawyers to Chicago offices.

Worked example

A Toronto trader moves to Chicago on June 30 with $300,000 of unrealized gain in a non-registered account, $650,000 in an RRSP, deferred compensation vesting over three years, and a Toronto condo sold in the departure year.

• Departure tax. $300,000 gain, $150,000 taxable, at about 53.5%: roughly $80,000.
• Condo. Sold as a resident under the principal residence exemption.
• Deferred comp. Split by working days; Illinois taxes its share.
• RRSP. No tax on departure; federal and Illinois deferral.
• Chicago. Combined top rate about 42%. HST 13% becomes sales tax 10.25%. Property tax on an $800,000 home around $15,000 to $17,000.

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

Effective July 1, 2017: 4.95 percent of net income. — Illinois Department of Revenue, Income Tax Rate, https://tax.illinois.gov/research/taxrates/income.html

There are 5 Ontario income tax brackets and 5 corresponding tax rates. — Government of Ontario, Personal income tax, https://data.ontario.ca/dataset/personal-income-tax-rates-and-credits

Practitioner note

Toronto-to-Chicago clients budget for the income tax cut and are surprised by Cook County property tax, which on a like-for-like home is several times what Toronto charged. We put the property tax by township in the same spreadsheet as the income tax savings.

See also: Weighing Florida instead? See the Canada-to-Florida guide, or the same city's Toronto to Miami guide.

Next step

Fairlight prepares the Ontario departure return, the property filings, and the first-year federal and Illinois returns. See cross-border pricing or book a call.