In Brief
Effective July 1, 2026, the Canada Revenue Agency (“CRA“) has reversed its longstanding position on the GST/HST treatment of mutual fund trailing commissions and will now consider these payments to be consideration for taxable supplies. Industry participants should review their existing arrangements and systems in advance of the effective date, especially for potential new GST/HST registration and collection obligations.
In Depth
As recently as 2022, CRA’s stated administrative position was that mutual fund trailing commissions – which describe the commissions earned by dealers (and their downstream agents) who arrange for the sale of fund units to investors – were generally consideration for exempt financial services. Historically, taxable treatment only arose in narrow situations where the payments were clearly for separate, ongoing advisory or servicing work. This significantly shaped industry expectations since most dealers (and their agents) would not, nor were required to, become GST/HST registered.
CRA has now abandoned this approach. In a December 2025 CRA Ruling, CRA disavowed its previous position, recharacterizing the nature of the services provided in exchange for commissions. In particular, CRA now views these commissions as consideration for ongoing account support and investor communications, among other services, rather than ‘arranging for’ the initial sale of fund units. In other words, a one‑time tax-exempt financial service gives way to ongoing, taxable asset management services. CRA suggested that its revised view was consistent with current industry practices and its review of public-facing Canadian Securities Administrators (“CSA“) materials. In particular:
- CSA sample Fund Facts language which described trailing commissions as “an ongoing commission… paid as long as you own the fund… for services and/or advice that your representative and/or their firm provide to you…”;
- CSA National Instrument 81-105 (effective June 1, 2022) which generally prohibits fund managers from paying trailing commissions to dealers who do not make investor suitability determinations for their clients at the time of purchase and during their ongoing ownership of fund units; and
- Evolving dealer practices to charge asset-based fees (vs. per-trade fees) on non-mutual fund assets and, in turn, collect GST/HST on those fees – but not on trailing commissions. CRA viewed the taxable dealer services provided in respect of non-mutual fund assets as no different from the services supplied in exchange for trailing commissions. (The implication being that different tax treatments of the same service only arose because of CRA’s previous administrative position.)
That said, CRA has confirmed that up-front trading fees/commissions tied to initial issuance of units should continue to be characterized as exempt financial services as they relate to the ‘arranging for’ the issuance of a “financial instrument.”
Going forward
Overall, this marks a substantial departure from industry practices, and accounting systems will need significant adjustment in time for the July 1 deadline. Fortunately, the change appears to be on a go-forward basis, which should soften retroactive assessment concerns.
Nevertheless, this raises several considerations for stakeholders:
- Fund managers and investors – GST/HST paid on trailing commissions is potentially unrecoverable depending on the extent to which managers engage in (non-exempt) commercial activities, among other factors. These costs will presumably be packaged into fund costs and on to investors – changing the economics of fund offerings.
- Dealers and agents – Many dealers (and their sales agents) in this space have not historically been GST/HST registered, which is now a real possibility once the $30,000 small supplier threshold is exceeded. Registration triggers a slew of ongoing collection, remittance, and reporting obligations which will require dealers (and agents) to implement new systems to track and comply with same – all within strict legislative timelines.
To the extent input tax credits are available for any party, new processes will also be required to satisfy the prescribed information requirements.
*****
Nick Turco, Articling Student, has contributed to this legal update.
