While many people are drawn to Florida for its endless sunshine and warm nights, when examining the tax environment between Canada and Florida, the argument in favor of moving south becomes even more compelling.
In this blog, we will examine the tax rates for a Canadian province (Ontario) and a sunshine state (Florida) from the perspective of someone resident for tax purposes in those places.
We will compare the tax rates and the income levels at which they kick in. Note that Ontarians who snowbird in Florida but maintain a closer connection to Canada would not get the lower U.S. rates and would continue to be subject to Ontario’s higher rates.
Also, as Florida has no state income tax, the numbers below for Florida are for Federal tax rates only while the numbers for Ontario combines Federal and Provincial tax rates and brackets.
Interest Income (Ordinary Income)
Canada and the United States both tax interest income at ordinary income rates. Canadian rates are generally much higher and kick in at lower income levels than do U.S. rates.
The United States also has different income thresholds dependant upon Filing Status, whereas Canada does not.
In addition, in the United States, it is possible to purchase municipal bonds that pay tax-free interest, however, Canada does not have a comparable opportunity.
Canadian and Ontario integrated tax rates for 2018 are as follows:
|2018 Taxable Income (CAD)
|over $42,960 up to $46,605
|over $46,605 up to $75,657
|over $75,657 up to $85,923
|over $85,923 up to $89,131
|over $89,131 up to $93,208
|over $93,208 up to $144,489
|over $144,489 up to $150,000
|over $150,000 up to $205,842
|over $205,842 up to $220,000
As there is no state income tax in Florida, the tax rates are the same as U.S. Federal tax rates as follows:
|2018 Taxable Income (USD)
||Married Filing Joint
||Married Filing Separate
||Head of Household
|$0 – $9,525
||$0 – $19,050
||$0 – $9,525
||$0 – $13,600
|$9,526 – $38,700
||$19,051 – $77,400
||$9,526 – $38,700
||$13,601 – $51,800
|$38,701 – $82,500
||$77,401 – $165,000
||$38,701 – $82,500
||$51,801 – $82,500
|$82,501 – $157,500
||$165,001 – $315,000
||$82,501 – $157,500
||$82,501 – $157,500
|$157,501 – $200,000
||$315,001 – $400,000
||$157,501 – $200,000
||$157,501 – $200,000
|$200,001 – $500,000
||$400,001 – $600,000
||$200,001 – $300,000
||$200,001 – $500,000
With the passing of the American Taxpayer Relief Act in 2013, an additional 3.8 % surtax has been imposed on most forms of investment income, including interest, dividends, and most capital gains.
This additional surtax is added when adjusted gross income exceeds a certain threshold. The threshold is $250,000 for married filing jointly, $125,000 for married filing separate, $200,000 for single, and $200,000 for head of household.
As shown above, in Ontario, the maximum rate of 53.53% kicks in at an income of $220,000 Canadian dollars.
In Florida, the top rate is only 40.8% (including the surtax) and does not kick in until income exceeds between $300,000 and $600,000 USD, depending on filing status.
Canada includes 50% of the realized capital gain in taxable income. A resident of Ontario would therefore pay a maximum rate of 26.765%, equal to half of the maximum rate for Ordinary Income.
The U.S. capital gains rate depends on the type of asset being sold, the length of time that the asset has been held, and how much income you have earned. For investments held one year or less, capital gains are taxed as ordinary income, just like interest.
For the sale of most types of investments held greater than one year, refer to the chart below. The 3.8% surtax may also be applicable, as discussed above. As such, the maximum rate would be 23.8%
|Up to $51,699
||Up to $77,199
|Up to $425,799
||Up to $478,999
Canada allows capital losses to be utilized against capital gains in the current year.
To the extent that there are no capital gains in the current year or the gains are not sufficient to offset the amount of capital losses, you can apply capital losses against any capital gains in the three prior years.
Any unutilized losses can be carried forward and applied against future gains.
In the U.S., capital losses can also be used to offset capital gains in the current tax year.
To the extent that capital losses exceed capital gains, up to $3,000 USD (Married Joint), or $1,500 (Single or Married Filing Separate) can be used to reduce other taxable income. Any excess can be carried forward.
Canada provides a gross-up of certain Canadian dividends. In Ontario, the net tax rate on a Canadian eligible dividend would be as high as 39.34%, and the rate on a Canadian non-eligible dividend would be 46.85% (in 2018). Foreign dividends are taxed at ordinary rates.
In the United States, non-qualified dividends would be taxed at ordinary marginal income tax rates (as high as 40.8% including the surtax).
Qualified dividends are taxed in a similar manner to long-term capital gains, as per the table above. As such, the maximum U.S. rate would be 23.8%. It is possible for foreign dividends to be treated as qualified dividends.
While a move from Ontario to Florida can be beneficial from an income tax standpoint, there are many other items that must be considered ahead of time including immigration, estate planning, health care and Canadian “departure tax.”
If you are considering making the move to the U.S. from Canada, make sure you reach out to a qualified cross-border financial advisor that can assist you in making a smooth financial transition.