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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.

Historic GST/HST Treatment of Trailing Commissions

For more than 30 years, the CRA took the administrative view that GST/HST generally did not apply to mutual fund trailing commissions, as dealers’ activities were characterized by the CRA as “arranging for” the issuance or transfer of a financial instrument – activities within paragraphs (d) and (l) of subsection 123(1) of the Excise Tax Act.

This approach was reaffirmed in 2022 in the CRA’s GST/HST technical interpretation.

CRA Reversed Its Position on Trailing Commissions

While it is unusual for the CRA to articulate a new administrative position for the first time in a ruling, a GST/HST ruling issued on December 22, 2025 changed the CRA’s longstanding approach. The ruling stated that mutual fund trailing commissions paid by fund managers to both original and subsequent dealers will generally be treated as subject to GST/HST, effective July 1, 2026.

The CRA explained that this change reflects its assessment of regulatory developments and prevailing practices in the mutual fund industry. Specifically, the CRA noted that recent securities regulatory changes in 2020 — which require dealers to provide ongoing advice to investors in order to earn trailing commissions — have reshaped the nature of dealers’ services, with trailing commissions now understood as compensation for ongoing asset management services rather than for arranging the original sale of mutual fund units. This is discussed in more detail in the CRA’s GST/HST Notice.

Practical Implications for Industry Participants

The CRA’s position reflects its administrative and assessing view, and it remains to be seen whether it will be challenged before the Tax Court, and what the Tax Court will decide is the proper GST/HST treatment of trailing commissions.

From a practical standpoint, the CRA’s revised position will require mutual fund dealers and agents to reassess their GST/HST registration obligations. Fund managers will also need to ensure that appropriate information is obtained to support the claiming of Input Tax Credits (“ITCs”) that they may be entitled to on the payment of GST/HST on trailing commissions.

These changes are likely to result in significant compliance burdens, increased administrative costs, and new compliance risks.

Takeaways

The CRA has announced that mutual fund trailing commissions that were historically exempt will be treated as subject to GST/HST effective July 1, 2026. Fund managers, dealers, and agents should take proactive steps to review their GST/HST compliance status well in advance.

For help with GST/HST on Trailing Commissions, please click here.

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