Moving from Canada to Hawaii: One of the Highest State Tax Bills in the US

Hawaii runs a graduated income tax with 12 brackets, topping out at 11% on income over $200,000 for a single filer or $400,000 for a married couple filing jointly. That puts it among the highest state income tax rates in the country, behind only California’s 13.3%. Add a cost of living that rivals California’s priciest metros, a state estate tax most other states don’t have, and a General Excise Tax that taxes almost every transaction (not just retail sales), and Hawaii is not a low-tax move by any measure. Canadians still move there, mostly BC and Alberta retirees chasing the climate on Maui and Oahu, plus a smaller group in tourism, healthcare, and the military presence around Pearl Harbor. This page covers what the move actually costs on the tax side, and where it still comes out ahead of staying in Canada.

How does Hawaii’s tax compare to provinces?

Hawaii’s top bracket (11%) sits close to what BC and Alberta retirees are used to seeing at the top of their Canadian bracket, but Hawaii layers it on top of the same federal income tax everyone in the US already pays, and it starts biting at a lower income than most people expect.

Jurisdiction	Top rate	Where the top rate starts
BC	20.5% (combined federal/provincial can run higher with surtax)	~$252,752 CAD
Alberta	15% (combined with federal, ~48% at the top)	~$246,752 CAD
Hawaii	11% (state only, on top of federal)	$200,000 single / $400,000 joint
California (for comparison)	13.3%	$1M+ single

The number that surprises people isn’t the top rate, it’s how many brackets Hawaii runs through to get there. Twelve brackets means the rate keeps climbing in small steps well before you hit the top one, so a retiree pulling $120,000 to $150,000 a year in taxable income is already well into the upper-middle brackets, not sitting at some low flat rate the way a state like Arizona would tax the same income.

What is the General Excise Tax?

It’s not a sales tax, even though it functions like one at the register. Hawaii has no traditional state sales tax. Instead it charges a General Excise Tax (GET) on businesses, at 4% generally (4.5% on Oahu), and the tax applies to virtually every transaction a business makes, including services, rent, and wholesale sales between businesses, not just retail goods sold to consumers.

Because the GET is a tax on the business rather than the buyer, and because it applies at each stage a transaction touches, businesses commonly pass it through to the customer and the pass-through math pushes the visible rate a business quotes up to roughly 4.166% (4.712% on Oahu) once the tax on the tax is worked in. The practical effect for a Canadian moving to Hawaii is that everything costs a bit more than the sticker price, and unlike most US sales taxes, the GET touches rent, professional services, and things a traditional sales tax would exempt.

How does Hawaii treat the RRSP?

Hawaii starts its income tax calculation from federal adjusted gross income, which is the detail that matters most for a Canadian bringing registered accounts. The RRSP treaty deferral keeps the plan’s internal growth out of federal AGI for as long as you qualify, and because Hawaii’s starting point is federal AGI, the state doesn’t independently tax RRSP growth the way California does. When you eventually take an RRSP withdrawal, it flows into federal AGI and from there into Hawaii’s return, taxed at your Hawaii marginal rate, which at higher income levels can mean an 8% to 11% state layer on top of the federal tax and the Canadian withholding already paid on the way out.

The TFSA doesn’t get the same treatment. It’s a foreign trust for US federal purposes, its income is already inside federal AGI as it’s earned, and Hawaii picks it up the same way. Most cross-border planning calls for closing the TFSA before departure rather than carrying it into a US filing.

What happens on the Canadian side?

The Canadian exit runs the same way it would for a move to any US state. You sever Canadian tax residency, Canada applies departure tax to the deemed disposition of most worldwide property (principal residence and a short list of other assets excluded), and you file a final Canadian return for the stub year. None of that changes because the destination is Hawaii instead of Arizona or Florida. What does change is what happens after you land: Hawaii’s own tax picks up where the federal return leaves off, and it picks up at a materially higher rate than most of the other states Canadians move to.

If BC or Alberta real estate, RRSPs, or non-registered investments stay behind after the move, those need their own reporting on both sides of the border, and the checklist for leaving Canada permanently walks through the sequence.

What other taxes does Hawaii have?

Estate tax. Hawaii is one of the minority of states with its own estate tax, separate from the federal estate tax. The Hawaii exemption is $5.49 million (indexed), well below the federal exemption, and rates run from 10% to 20% on the taxable estate above that threshold. For a couple with a paid-off Hawaii home plus Canadian assets, this is worth planning around well before it becomes relevant, and it’s a reason to look at cross-border estate structuring before, not after, the move.

Property tax. The effective rate on an owner-occupied Hawaii home typically runs 0.3% to 0.4%, among the lowest in the country, driven by a homeowner exemption that shrinks the assessed value considerably. The catch is the denominator: Hawaii home prices are among the highest in the US, so a low rate on a $1.2 million Maui property still produces a real annual bill, just not one that looks like the horror stories out of New Jersey or Texas.

Cost of living. This is the number that actually moves the needle for most people, more than any single tax line. Hawaii’s cost of living sits at or near the top of the US, alongside California’s most expensive metros. Housing, groceries, and energy all run at a premium, largely because so much gets shipped in. A retirement budget built on Alberta or BC costs doesn’t transfer without a serious upward adjustment.

No reciprocity. Hawaii has no reciprocal tax agreements with any other state, which mostly matters if you split time between Hawaii and a mainland property, but it’s worth knowing going in.

Is Hawaii worth it from a tax standpoint?

No, and it’s worth saying plainly. If tax efficiency were the goal, Hawaii wouldn’t make the shortlist. States like Nevada, Texas, or even Arizona get you a materially lower tax bill for the same US residency and the same federal treaty protections. Hawaii’s draw is the climate and the lifestyle, full stop, and the tax bill is the price of that, not a side effect that planning can make disappear.

Where Hawaii does come out ahead of staying in Canada is the specific mix that applies to a lot of retirees: Social Security isn’t taxed at all, qualifying pension income can be excluded, and the top combined US rate (federal plus 11% Hawaii) still tends to land below what a BC or Alberta resident pays once provincial tax, the higher inclusion rate on capital gains, and the absence of anything like the Social Security exclusion are all counted. The honest comparison isn’t Hawaii versus a no-tax state. It’s Hawaii versus Canada, and on that comparison it often still wins, just not by the margin people assume before they run the numbers.

What should I do next?

Get the departure tax and RRSP mechanics settled first, since those don’t change based on which US state you’re landing in, then run the actual Hawaii numbers against your specific income mix before assuming the state tax hit is manageable.

• Departure tax checklist, the full Canadian exit sequence
• Canada’s departure tax: T1161 and T1243, the deemed disposition forms and math
• US-Canada tax treaty explained, the treaty articles that carry over regardless of state
• RRSP and TFSA on a US move, what to keep and what to close before departure
• Your first US tax return as a new immigrant, the arrival-year federal filing
• State income tax for cross-border filers, comparing Hawaii to other states
• Moving from BC to California, the other high-tax, high-cost West Coast option
• Moving from Canada to Arizona, a warm-weather alternative with a flat 2.5% rate
• Retire in Canada or the US: a tax comparison, the broader retirement decision
• Cross-border estate planning, relevant given Hawaii’s own estate tax

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.