Canada Revenue Agency to Expand GST/HST to Mutual Fund Trailing Commissions as of July 2026

The Canada Revenue Agency (CRA) has made a significant reversal of its longstanding administrative position on the GST/HST treatment of mutual fund trailing commissions. Historically treated as exempt financial services, the CRA will begin treating trailing commissions paid by mutual fund managers to licensed dealers, and by dealers to agents, as subject to GST/HST effective July 1, 2026.

Trailing commissions received by mutual fund dealers have been treated as additional consideration for facilitating the initial sale of shares or units in a fund and, thus, a GST/HST-exempt financial service. In 2022, the CRA updated its administrative guidance and introduced some limitations. Under the revised guidance, the trailing commission has been treated as taxable where:

1. The dealer receiving the trailing commission did not make the original sale of the fund units
2. The dealer made the original sale, but the right to receive trailing commissions was not established at the same time or under the same agreement
3. The dealer made the original sale, but the trailing commission relates to other ongoing services that are not closely connected to the original sale (i.e., not a single supply)

This change by the CRA appears to reflect its new view that trailing commissions are not part of a “single supply” of facilitating the original sale and are always paid in exchange for ongoing investment account support and advisory services. Its position appears to be based on publicly available prospectuses, securities regulatory documentation and websites from members of the mutual fund industry that summarize the purpose of mutual fund trailing commissions. Somewhat surprisingly, the CRA does not explain why it no longer views the ongoing services as forming part of a “single supply” of facilitating the original sale.

The new position has only been communicated in a private ruling issued to an industry association, but the CRA has indicated public guidance will be released soon. Notably, and very unusual for a technical ruling, the CRA states that the new position will apply to trailing commissions earned on or after July 1, 2026, to allow the industry time to adjust systems and procedures to reflect this change.

The addition of GST/HST to trailing commissions should not negatively impact mutual funds in any material way from a tax perspective. Mutual fund managers who pay trailing commissions plus GST/HST to dealers, and dealers who make similar payments to their agents, should be eligible to claim full offsetting input tax credits on those taxes. However, as a practical matter, because mutual fund dealers and agents earning trailing commissions have historically only provided exempt services, many may not be registered for GST/HST or have experience filing GST/HST returns and claiming input tax credits. Accordingly, while in the long run the change in CRA position may even be beneficial for the mutual fund industry by allowing dealers and agents to claim input tax credits, it may require significant administrative changes, and associated costs, in the short term.

Affected dealers and advisors should begin assessing GST/HST registration requirements, invoicing practices, and potential systems and contractual changes ahead of the effective date.

For more information, please contact the authors or any other member of our Tax group.