Mutual Fund Trailing Commissions Now Taxable: CRA's GST/HST Position and What Comes Next
Published:
10 avril 2026
Author(s):
Canada Revenue Agency (CRA) recently announced an update to its administrative position concerning the application of GST/HST to trailing commissions earned by mutual fund advisors and dealers.
What fees are payable on investment in a mutual fund?
When investors use a dealer to assist with investing in a mutual fund, the dealer arranges for the mutual fund units to be issued to the investor. Usually, a mutual fund investment is subject to a management fee that is payable to the mutual fund manager (referred to as a management expense ratio, or MER). The MER is the fee paid to a mutual fund manager from the return an investor earns on their mutual fund. The MER is typically expressed as a percentage of the annual earned return on the mutual fund.
In addition to the MER, the dealer typically earns a trading fee for brokerage services. The trading fee may be paid to the dealer directly by the investor, or by a mutual fund manager. The dealer will often maintain a relationship with the investor, perhaps providing ongoing client support, account service or advice. As long as the investor maintains the investment in the mutual fund units, the dealer may also earn a trailing commission.
What is a trailing commission?
A trailing commission is an ongoing payment that is made to a mutual fund advisor or dealer. The payment continues as long as an investor continues to hold the mutual fund that was purchased through the dealer (i.e. if an investor sells the mutual fund, the trailing commission is discontinued). Trailing commissions are ordinarily paid to dealers from the MER; they are not separate fees charged to investors.
How has CRA historically considered the applicability of GST/HST to trailing commissions?
Until recently, CRA considered dealer services resulting in trailing commissions to be exempt financial services, meaning that GST/HST did not apply to those trailing commission payments. This also meant that the recipient of the trailing commission (dealer) could not claim input tax credits (ITCs) for any GST/HST paid on business related expenses.
This characterization for GST/HST purposes arises from the Excise Tax Act definition of "financial service", together with CRA GST/HST Technical Information Bulletin B-105. Advisors and dealers in the financial services industry have long relied on CRA's historical position and have not collected or remitted GST/HST on their trailing commissions.
What has changed concerning the applicability of GST/HST to trailing commissions?
As of February 2026, CRA has updated its administrative position by way of GST/HST Notice 344 and now considers a trailing commission to be a taxable supply of services (and not an exempt financial service). CRA notes that its interpretation of financial services, as applied to trailing commissions, has not changed. Rather, it points to changes within the mutual fund industry regarding the characterization of the service that dealers provide in exchange for trailing commissions. As a result, the services supplied by dealers in exchange for trailing commissions no longer meet the definition of financial service under the Excise Tax Act.
Where trailing commissions are compensating dealers for things like ongoing investor account servicing, providing support and advice, managing client relationships, record keeping functions, or promotional activities, CRA now considers those services to be beyond assisting with the issuance of the mutual fund units to the investor. Instead, they are advice and asset management services and are subject to GST/HST.
As a result, trailing commissions earned by mutual fund dealers will be subject to GST/HST and those mutual fund dealers will have to register for GST/HST purposes. Advisors and dealers who receive trailing commissions will be required to collect and remit GST/HST on those trailing commissions. In harmonized sales tax provinces like Atlantic Canada, this will mean 14% or 15% HST collected on top of the trailing commission.
These changes will affect taxable supplies made on or after July 1, 2026.
Fortunately, those advisors and dealers who are required to collect and remit GST/HST on their trailing commissions will be entitled to claim ITCs for any GST/HST paid on business related expenses.
Note that arranging for the initial issuance of mutual fund units remains an exempt supply of financial services. In other words, the initial commissions payable upon issuance of the mutual fund units will be exempt from GST/HST.
Direction for people earning trailing commissions
Advisors and dealers ought to review any existing contracts with mutual fund managers concerning their trailing commissions. If those trailing commissions are stated to be inclusive of tax (or are silent as to GST/HST), those advisors and dealers may be required to remit GST/HST out of the trailing commission amounts that they receive. Advisors and dealers may also have to register for GST/HST purposes (where supplies exceed $30,000 per year).
The update to CRA's administrative position presents an opportune time to revise trailing commission agreements. Barring any language in an agreement regarding GST/HST and who is responsible for remittances, a mutual fund manager may agree to remit any GST/HST on behalf of the advisor or dealer.
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