The Canada Revenue Agency (the “CRA”) recently revisited the application of GST/HST to trailing commissions earned by mutual fund dealers and announced in GST/HST Notice 344: Application of the GST/HST to Mutual Fund Trailing Commissions that such commissions no longer meet the definition of “financial service” and are now considered taxable supplies. This announcement updates the CRA’s longstanding position that such services were exempt financial services.

What’s changed?

Following regulatory and operational changes in the mutual fund sector, the CRA revisited the GST/HST treatment of mutual fund trailing commissions paid to dealers and advisors. In its recent notice, the CRA concludes that these commissions generally:

  • No longer qualify as exempt “financial services”; and
  • Should instead be treated as taxable supplies.

What does this mean for dealers and advisors?

For dealers and advisors earning mutual fund trailing commissions, this shift can trigger GST/HST registration obligations and a requirement to charge and collect tax on amounts that were previously treated as exempt. However, dealers and advisors may also now be entitled to claim input tax credits to recover GST/HST it pays to suppliers and vendors for related property or services.

Key implementation issues include:

  • Registration: Determining whether the dealer/advisor must now register for GST/HST. 
  • Invoicing: Updating invoices to show GST/HST on mutual fund trailing commissions where required.
  • Systems and reporting: Updating accounting systems to charge GST/HST on trailing commissions and at the correct tax rate, reporting GST/HST collectible, and creating internal systems to calculate input tax credits and retain required supporting documentation.
  • Compensation and agreements: Reviewing compensation structures and dealer agreements to ensure GST/HST is properly addressed.

How should fund managers respond?

Fund managers that pay trailing commissions may, in many cases, be entitled to claim input tax credits to recover the GST/HST charged by dealers and advisors. To support these claims, managers should:

  • confirm that invoices meet statutory information requirements;
  • ensure that internal systems capture the tax correctly; and
  • model cash‑flow impacts.

What about section 150 and 156 elections and financial institution status?

The CRA’s updated position may also affect tax elections under sections 150 and 156 of the Excise Tax Act and impact whether a business is a financial institution under the legislation. Broadly speaking, section 150 and section 156 elections under the Excise Tax Act allow certain supplies between eligible members of closely related groups to be made free from GST/HST.

Corporate groups should:

  • reassess whether section 150 election conditions are still met and whether the election still produces the intended results;
  • consider whether a section 156 election is desirable in light of the new treatment; and
  • review whether an entity continues to be a “financial institution” under the legislation, which includes a person whose principal business is as a trader or dealer in, or as a broker or salesperson of, financial instruments or money.

What to do before July 1, 2026?

Given that the CRA has signalled it will enforce the new GST/HST treatment of trailing commissions starting July 1, 2026, affected entities should not delay in assessing the impact. A structured review of registration status, contracts, invoicing practices, systems and tax elections can help support compliance and reduce uncertainty.

For further insights and assistance, please contact a member of the Miller Thomson Sales, Commodity and Indirect Tax Group.