Vancouver to Chicago: Tech, Derivatives, and Illinois's Flat 4.95%

Vancouver's software engineers and quantitative analysts have a market in Chicago's tech employers and trading firms, and the move is a large tax cut: BC'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, and the Vancouver home left behind is the planning item.

Key takeaways

• BC's roughly 53.5% top rate 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.
• BC's 12% combined GST and PST becomes 10.25% sales tax in Chicago.
• A Vancouver home kept empty faces three vacancy taxes. MSP ends on permanent departure.

The BC departure

Departure tax applies to non-registered investments, private company shares, crypto, and foreign property at fair market value on the departure date. BC 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 Vancouver home is excluded, but kept empty it invites BC's Speculation and Vacancy Tax, Vancouver's Empty Homes Tax, and the federal Underused Housing Tax; rent it under NR6 and Section 216, or sell in the departure year.

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.

Who makes this move

Vancouver software engineers to Chicago's tech employers, BC quantitative analysts to Chicago's trading firms, Vancouver consultants to the Chicago offices of the large firms, and BC finance professionals to Chicago's banks.

Worked example

A Vancouver quantitative analyst moves to Chicago on May 31 with $250,000 of unrealized gain in a non-registered account, $400,000 in an RRSP, and a Vancouver condo sold in the departure year.

• Departure tax. $250,000 gain, $125,000 taxable, at about 53.5%: roughly $67,000.
• Condo. Sold as a resident under the principal residence exemption. No vacancy taxes.
• RRSP. No tax on departure; federal and Illinois deferral.
• Chicago. Combined top rate about 42%. Sales tax 12% becomes 10.25%.

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

BC's Speculation and Vacancy Tax applies annually to residential property in designated taxable regions, with rates that depend on the owner's residency and tax status. — Government of British Columbia, Speculation and vacancy tax, https://www2.gov.bc.ca/gov/content/taxes/speculation-vacancy-tax

Practitioner note

Vancouver-to-Chicago clients trade one of the lowest property tax rates in North America for one of the highest. The housing trade still releases cash, but the annual carrying cost of a Chicago home is a line item most Vancouverites have never had.

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

Next step

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