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Taxes The grass isn’t always greener. How tax and living costs compare in eight Canadian and U.S. cities

Paul and Andrea are good friends of ours. They moved to the United States about 15 years ago when Paul’s employer transferred him there – to Orlando, to be exact. Paul has wondered over the years whether they are better off financially for making the move.

In the case of Paul and Andrea, they’re better off financially for two reasons: Lower effective tax rates in Florida than in Ontario, and a lower cost of living to boot. But this raises the question: Will you always be better off living and working in the United States than Canada?

The correct answer really depends on where you’re moving from, and where you’re moving to. Let’s compare the tax and living costs in four Canadian and four U.S. cities to see how they stack up.

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Tax costs

Let’s assume that you’re able to earn $100,000 annually regardless of where you live. In each case, you’ll be earning and spending in the local currency. The table shows the amount of tax that you can expect to pay in various cities. If you were to live in Toronto, you can expect to hand 27.8 per cent of your earnings to the taxman in 2019. If you were to follow Paul and Andrea to Orlando, on the other hand, you’d pay an effective tax rate of 22.9 per cent, an improvement over Toronto by 4.9 percentage points (there’s no state income tax in Florida).

Interestingly, New York State and California tax their residents at rates that are higher than any Canadian province except Quebec. Your overall tax burden in New York and Los Angeles would be 28.5 per cent and 29 per cent, respectively.

As far as taxes are concerned, the cities rank as follows, from best to worst: Orlando, Phoenix, Vancouver, Toronto, Calgary, New York, Los Angeles, then Montreal. Fifteen years ago, I did a similar comparison and the order was the same except that Los Angeles was in third place, not seventh place as it is today.

Most people are surprised to see the comparison here, because the assumption is that, as Canadians, we are more highly taxed than our American cousins. Although that’s generally true, the gap is not as wide as you think for most taxpayers. And taxes are only one part of the comparison. The cost of living matters too.

Living costs

Costs of living can have a huge impact on whether you’ll be better off in one city over another. Consider an individual living in Toronto, earning $100,000 annually. She’ll have $72,178 available after paying taxes. These after-tax dollars can be used to buy a “basket” of goods and services. If a particular basket of goods and services costs $1 (Canadian dollars) in Toronto, then she could buy a total of 72,178 “baskets” in Toronto (her relative purchasing power in Toronto).

An individual living in New York, on the other hand, will have to pay US$1.45 for that same basket of goods and services. With disposable income of US$71,485, he’ll be able to buy just 49,310 “baskets” in New York. That’s almost a third less than our friend in Toronto can purchase with her disposable income.

You can see from the table that your standard of living in each city – strictly from a financial perspective – ranks as follows, from best to worst: Orlando, Montreal, Calgary, Phoenix, Vancouver, Toronto, Los Angeles, then New York, with these last two coming in well behind the others.

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None of this speaks to the non-financial aspects of life in each city. But the moral is clear: The financial grass isn’t always greener on the U.S. side of the fence.

Tax and cost of living burdens in cities across North America

Canadian cities use Canadian dollars; U.S. cities use U.S. dollars

CategoryVancouverCalgaryTorontoMontrealLos AngelesPhoenixNew YorkOrlando
Income (A)$100,000$100,000$100,000$100,000$100,000$100,000$100,000$100,000
Federal tax$16,330$16,330$16,330$13,927$15,247$15,247$15,247$15,247
Provincial / State / Local tax$6,722$8,063$7,883$15,719$6,144$3,411$5,618$0
CPP / QPP / Social Security$2,749$2,749$2,749$2,991$6,200$6,200$6,200$6,200
EI / Medicare$860$860$860$860$1,450$1,450$1,450$1,450
Total Taxes (B)$26,661$28,002$27,822$33,497$29,041$26,308$28,515$22,897
Effective tax rate26.7%28.0%27.8%33.5%29.0%26.3%28.5%22.9%
Disposable income (C = A - B)$73,339$71,998$72,178$66,503$70,959$73,692$71,485$77,103
Cost of living factor*1.00590.887610.78111.17160.97041.44970.8817
Relative purchasing power (C/D)72,90981,11572,17885,14060,56675,94049,31087,448

Source: Our Family Office Inc.

* Cost of living factors come from www.expatistan.com, a crowdsourced dataset of living costs around the world

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.

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