Tax & Trade Blog

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NO ITCS FOR CREDIT CARD LOYALTY EXPENSES - FOR BANKS

FCA SKATES FINE LINE: CONCLUDES ITCS FOR PC BANK BUT NOT FOR AMEX!

In a long running tax issue in Canada, the question has been whether Financial Institutions like banks and credit card companies are entitled to take Input Tax Credits (“ITCs”) when incurring Goods and Services Tax (“GST”) on expenses related to associated loyalty point programs. The Tax Court of Canada (“TCC”) has been fairly consistent on this question (answering it in the negative) but the Federal Court of Appeal (“FCA”) has now come to opposite conclusions in two decisions involving PC Bank and Amex points cards.

In its more recent decision in Amex, the FCA seems to have signalled that ITCs are not going to be available where the primary motivation is driving its own credit card business!

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TRAILING COMMISSIONS NO LONGER EXEMPT?

CRA REVERSES POSITION ON MUTUAL FUNDS TRAILING COMMISSIONS

For decades, mutual fund trailing commissions paid by mutual fund managers to licensed dealers — and by dealers to their agents — were generally treated as consideration for an exempt financial service and therefore not subject to GST/HST. In a GST/HST ruling released on December 22, 2025, however, the Canada Revenue Agency (“CRA”) reversed this longstanding administrative position. A subsequent February 10, 2026 GST/HST Notice confirms and details the CRA’s new position.

Under the revised approach, mutual fund trailing commissions will become taxable effective July 1, 2026. This change will have significant implications for fund managers, dealers, and other stakeholders in the mutual fund industry, and is expected to impose additional GST/HST compliance obligations and burdens.