Vancouver to Phoenix: Chips, the Flat-Rate Sunbelt, and Arizona's 2.5%

Phoenix's semiconductor fabs and tech employers recruit Vancouver's engineers, and the housing trade from Vancouver to the Valley is one of the largest on the map. The tax picture is a large cut: BC's combined top rate of about 53.5% becomes about 39.5% in Arizona.

Key takeaways

• BC's roughly 53.5% top rate 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.
• BC's 12% combined GST and PST becomes about 8.6% sales tax in Phoenix.
• 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. MSP 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%.

Who makes this move

Vancouver semiconductor and hardware engineers to the Chandler and north Phoenix fabs, BC software engineers to Phoenix's tech employers, Vancouver finance staff to the banks' Phoenix operations, and BC retirees to Scottsdale and the East Valley.

Worked example

A Vancouver hardware engineer moves to Chandler on May 31 with $200,000 of unrealized gain in a non-registered account, $350,000 in an RRSP, and a Vancouver condo sold in the departure year.

• Departure tax. $200,000 gain, $100,000 taxable, at about 53.5%: roughly $53,500.
• Condo. Sold as a resident under the principal residence exemption. No vacancy taxes.
• RRSP. No tax on departure; federal and Arizona deferral.
• Chandler. Combined top rate about 39.5%. Sales tax 12% becomes 7.8%. Property tax on a $600,000 home around $3,600.

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

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-Arizona is a housing arbitrage as much as a tax move, and the condo left behind is the mistake: three vacancy taxes in one year while Arizona charges almost nothing on the new home. Sell or rent it in the departure year.

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