Toronto to Phoenix: Chips, Finance, and Arizona's Flat 2.5%

Phoenix's semiconductor fabs, its financial back offices, and its growing tech sector recruit Toronto's engineers and finance professionals, and Toronto retirees choose Scottsdale. The move is a large tax cut: Ontario's combined top rate of about 53.5% becomes about 39.5% in Arizona.

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.
• Arizona's flat 2.5%; no city income tax.
• Arizona follows the treaty's RRSP deferral.
• 13% HST becomes about 8.6% sales tax in Phoenix.
• 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 under the principal residence exemption, rent it under NR6 and Section 216, or face Toronto's Vacant Home Tax if it sits empty. OHIP ends on permanent departure.

Phoenix's side

Arizona's flat 2.5% state income tax, the lowest flat rate of any state that taxes income; no city income tax anywhere in Arizona; sales tax about 8.6% in Phoenix and 7.8% to 8.3% in Scottsdale and the East Valley; property tax among the lowest in the US, near 0.6% effective; no estate tax.

The RRSP in Arizona

Federally deferred under Article XVIII of the treaty and deferred for Arizona 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 Arizona's 2.5%.

Equity

RSUs vesting after the move are split by working days between Canada and the US; the state and any local authority tax their share. Both payrolls may withhold on the full amount; the excess is recoverable on the first-year returns.

Who makes this move

Toronto engineers to the Chandler and north Phoenix semiconductor fabs, Bay Street finance staff to American Express, JPMorgan, and Wells Fargo's Phoenix operations, Toronto software engineers to Phoenix's tech employers, and Ontario retirees to Scottsdale and the East Valley.

Worked example

A Toronto finance manager moves to Phoenix on June 30 with $220,000 of unrealized gain in a non-registered account, $500,000 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; Arizona taxes its share at 2.5%.
• RRSP. No tax on departure; federal and Arizona deferral.
• Phoenix. Combined top rate about 39.5%. HST 13% becomes sales tax 8.6%.

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

New Tax Rate of 2.5% for All Income Levels and Filing Status. — Arizona Department of Revenue, Individual Income Tax Highlights, https://azdor.gov/forms/individual-income-tax-highlights

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-Phoenix is one of the simplest US-side files we prepare: a flat 2.5%, no city tax, low property tax, and a state that follows the treaty. The Ontario side is the whole file.

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 Arizona returns for Phoenix clients. See cross-border pricing or book a call.