GST/HST on Mutual Fund Trailing Commissions: CRA Update

The Canadian Revenue Agency (CRA) announced a shift in the GST/HST treatment of mutual fund trailing commissions, ending a longstanding position that treated these amounts as non-taxable. The decision, which was confirmed in an interpretation letter published in late December 2025, has wide-ranging operational and tax implications for the industry and requires planning.

The Impact on the Mutual Fund Industry

Mutual fund managers typically rely on mutual fund dealers to distribute their products to investors, with the relationship governed by agreements under which dealers sell fund units in exchange for compensation. This compensation typically takes the form of upfront trading fees, trailing commissions, or a combination of both. Under the CRA’s previous position, mutual fund dealers were generally treated as making a single exempt supply for arranging the transfer of financial instruments.

As a result of the previous CRA's position, dealers were unable to recover GST/HST paid on their operating expenses and capital assets through ITCs, and were classified as financial institutions for GST/HST purposes. Consequently, they were subject to a separate, more complex set of tax rules and compliance obligations.

The CRA stated that, effective July 1, 2026, it will treat trailing commissions paid to mutual fund dealers as consideration for taxable supplies, requiring dealers to charge and remit GST/HST on these commissions. While the new CRA's position on this matter may reduce certain tax costs for some dealers, particularly through expanded input tax credit recovery, it also creates substantial technical and practical challenges.

Therefore, dealers must reassess how the change applies to their specific business models, update systems and processes to properly charge and account for tax, and review contractual arrangements, billing mechanisms, and internal tax functions. Moreover, the shift in taxability rules necessitates re-examining GST/HST registration status, filing frequencies, financial institution classification, ITC eligibility and allocation methods, and any obligations under the selected financial institution regime.

An additional issue for dealers and the mutual fund industry is the uncertainty at the provincial level. For example, Quebec has not yet indicated whether it will adopt a similar interpretation for QST purposes.

Conclusion

Given the complexity of the transition, dealers may consider postponing significant capital property purchases until after July 1, 2026, if it makes business sense. Regardless of the fact that, due to the significance of the change in position and tax treatment, it is expected that the CRA will provide further guidance in the coming months, mutual fund dealers should begin preparing now to ensure a smooth and compliant transition to the new GST/HST treatment of trailing commissions.

Source: EY, KPMG