Application of the GST/HST to Mutual Fund Trailing Commissions

GST/HST Notices - Notice 344

February 2026

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Tax Act (ETA). The information in this publication does not replace the law found in the ETA and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the ETA or relevant regulation, or call GST/HST Rulings at 1‑800‑959‑8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, explains how to obtain a ruling or an interpretation.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1‑800‑567‑4692. You may also visit the Revenu Québec website at revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1‑855‑666‑5166.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The GST/HST rates are those that were in effect at the time of publishing. For the list of all applicable GST/HST rates (current and historic), go to GST/HST calculator (and rates).

If you are uncertain as to whether a supply is made in a participating province, refer to GST/HST Memorandum 3-3-2, Place of Supply in a Province – Overview.

Table of Contents

• Overview
• Mutual fund fees and commissions
• What changed in the industry
• Application of the GST/HST
• Transition
• Other trailing commissions

Overview

The past few years have generated both regulatory and operational changes in the mutual fund industry. These developments have prompted the Canada Revenue Agency (CRA) to revisit the application of the GST/HST to trailing commissions earned by mutual fund dealers in relation to mutual fund units held by investors.

As a result of these industry developments, the application of tax to trailing commissions has changed. Most services provided by mutual fund dealers in exchange for mutual fund trailing commissions no longer meet the definition of financial service and are now considered to be taxable supplies that are subject to the GST/HST. The CRA will enforce the application of the GST/HST to supplies made by dealers on or after July 1, 2026, in exchange for trailing commissions.

Mutual fund fees and commissions

When an investor chooses to invest in a particular mutual fund with the help of a dealer (or advisor), the dealer arranges for the mutual fund units to be issued to the investor's account. In most cases, the dealer earns a one-time trading fee for brokering the issuance of the units to the investor. The trading fee may be paid by the investor or, in some cases, by the mutual fund manager.

A dealer, who may be the original dealer that brokered the issuance of the units or a subsequent dealer that replaced the original dealer as the investor's advisor, often maintains a relationship with the investor by servicing their account and providing ongoing support and advice. During the period that the investor holds the fund units, the mutual fund manager may also pay ongoing commissions (monthly or quarterly) to the dealer. These commissions are known as trailing commissions (or trailer fees). Some dealers may utilize independent advisors to maintain the investor relationship, and will share the trailing commissions they earn with these advisors. 

What changed in the industry

The Canadian Securities Administrators (CSA) is an umbrella organization that is primarily responsible for developing a harmonized approach to securities regulation across Canada.

In September 2020, the CSA introduced regulatory changes to prohibit mutual fund managers from paying trailing commissions to dealers who do not (by industry rules) make suitability determinations in connection with an investor's purchase and ongoing ownership of the fund's units. The changes were adopted by all jurisdictions effective June 2022 and applied under National Instrument 81-105, Mutual Fund Sales Practices. This regulation applies to all mutual fund dealers and managers.

Accordingly, dealers are required to provide ongoing support and advice to an investor to earn a trailing commission in respect of the fund units held by that investor. Conversely, dealers that broker purchases to an investor's self-directed investment account are generally not eligible for trailing commissions because they do not provide ongoing support or advice.

Further, a number of larger dealers that supply ongoing investment account services to small and medium-sized personal investors calculate their account fees based on a percentage of assets under management (asset-based fees) instead of charging investors on a per-trade basis. Dealers are appropriately applying the GST/HST to their asset-based fees on the basis that the service supplied to the investor constitutes advice and/or asset management. We understand that in these cases the value of assets under management (upon which the asset-based fee is computed) excludes the value of mutual funds for which the dealer earns a trailing commission. We also understand that under industry rules, dealers must exclude the fund holdings from their fee base so they are not paid twice for performing the same function (referred to by the industry as double dipping). In other words, dealers perform the same service in exchange for trailing commissions as for the asset-based fees they earn, that being advice and/or an asset management service.

Lastly, we have found that most industry member websites generally explain that dealers are paid ongoing trailing commissions in exchange for enabling investors' access to the ongoing support, servicing, and advice supplied by their dealers.

These factors indicate that dealers generally provide ongoing services to their clients (investors) in exchange for the trailing commissions they receive.

Application of the GST/HST

Financial services (as defined in subsection 123(1)) supplied to Canadian residents are generally exempt from the GST/HST. Certain services supplied by dealers, such as brokering the issuance of mutual funds units in exchange for a one-time trading fee, are generally exempt supplies of financial services. This GST/HST treatment of brokering the issuance of mutual fund units remains unchanged.

However, the definition of financial service specifically excludes the supply of advice and the supply of an asset management service (also defined in subsection 123(1)). Generally, the services performed by a dealer in exchange for a trailing commission fall within one or both of these exclusions. Supplies of such services are subject to the GST/HST.

Regulatory and operational changes in the industry indicate that trailing commissions are generally not earned for brokering the issuance of mutual funds. Dealers typically earn a separate one-time trading fee for brokering mutual fund issuances, and for GST/HST purposes such brokering is now considered to be a separate supply from the ongoing services supplied in exchange for trailing commissions. In rarer cases where a dealer earns only trailing commissions in exchange for both brokering the unit issuance and for providing ongoing services to the investor, the combined supply is viewed to be predominantly advice and/or asset management.

The CRA's interpretation of financial services, as it applies to services supplied in exchange for trailing commissions, has neither been changed nor reversed. Rather, through regulation and operational practice, the industry has changed how it characterizes the service that dealers supply in exchange for trailing commissions. These industry developments have changed how the GST/HST applies to mutual fund trailing commissions. Accordingly, most services supplied by mutual fund dealers in exchange for trailing commissions no longer meet the definition of financial service. All mutual fund dealers that are registered or required to be registered for GST/HST purposes will have to apply, collect, and remit the GST/HST on supplies of services made in exchange for trailing commissions. While this publication refers only to dealers, this tax treatment applies equally to the services of independent advisors that are not employees of a dealer.

Transition

To provide the industry time to implement the necessary system changes and procedural adjustments, the CRA will enforce this tax treatment to dealer services supplied on or after July 1, 2026. However, dealers are encouraged to apply this tax treatment as soon as possible. Note there are circumstances where trailing commissions were already taxable and the tax status for those supplies has not changed.

The application of the GST/HST to mutual fund trailing commissions may result in some dealers being permitted or being required to register for the GST/HST. Refer to Guide RC4022, General Information for GST/HST Registrants, for more information regarding when persons are permitted or required to register for the GST/HST and the law governing GST/HST registrants. 

Other trailing commissions

The tax treatment discussed in this notice applies to the payment of mutual fund trailing commissions only. Trailing commissions can be paid in respect of other financial products. The tax status of services supplied in exchange for other types of trailing commissions will be considered on a case-by-case basis and is not the subject of this notice.

For information on the CRA's views of how the GST/HST previously applied to trailing commissions, refer to Excise and GST/HST News - No. 111.

Further information