Toronto to Detroit: Auto, the EV Transition, and Michigan's Flat 4.25% Plus City Tax

Toronto and Detroit share an auto industry across the Windsor-Detroit border, and the EV transition has pulled Ontario's engineers, software developers, and finance staff into the Detroit suburbs. The move is a large tax cut: Ontario's combined top rate of about 53.5% becomes about 41.25% in most of Michigan.

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.
• Michigan's flat 4.25% plus Detroit's 2.4% city tax; most suburbs have no city tax.
• Michigan follows the treaty's RRSP deferral.
• 13% HST becomes 6% sales tax.
• 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.

Detroit's side

Michigan's flat 4.25% state income tax; Detroit's 2.4% city income tax on residents (1.2% on non-residents who work in the city), with most suburbs (Troy, Novi, Birmingham, Ann Arbor) charging none; 6% sales tax with no local additions; property tax among the higher effective rates in the US, softened by the Principal Residence Exemption and a taxable-value growth cap; no estate tax.

The RRSP in Michigan

Federally deferred under Article XVIII of the treaty and deferred for Michigan because the state starts from federal AGI. Withdrawals face 25% Canadian withholding on lump sums, 15% on periodic RRIF payments within the treaty limit, a US foreign tax credit federally, and Michigan's 4.25%. Michigan phases in a retirement income deduction by birth year that can cover RRIF income.

Equity

RSUs vesting after the move are split by working days between Canada and the US; Michigan taxes its share at 4.25%. Both payrolls may withhold on the full amount.

Who makes this move

Toronto and Waterloo software engineers to the automakers' technology groups, Ontario mechanical and electrical engineers to the EV and battery programs, Bay Street finance staff to the automakers' treasury and finance functions, and Toronto consultants to the Detroit offices of the large firms.

Worked example

A Toronto software engineer moves to Troy on June 30 with $220,000 of unrealized gain in a non-registered account, $450,000 in an RRSP, RSUs vesting after the move, and a Toronto condo sold in the departure year.

• Departure tax. $220,000 gain, $110,000 taxable, at about 53.5%: roughly $59,000.
• Condo. Sold as a resident under the principal residence exemption.
• RSUs. Vests split by working days; Michigan taxes its share.
• RRSP. No tax on departure; federal and Michigan deferral.
• Troy. Salary taxed at 4.25% state; no city tax. HST 13% becomes sales tax 6%.

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

Michigan's individual income tax rate and the list of cities that impose a city income tax are published by the Michigan Department of Treasury. — Michigan Department of Treasury, City Income Tax, https://www.michigan.gov/taxes/citytax

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-Detroit clients budget correctly for the income tax cut and incorrectly for Michigan property tax, which on a like-for-like home is well above Toronto's. We put the property tax by district 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, Michigan, and city returns for Detroit-area clients. See cross-border pricing or book a call.