The Canada Revenue Agency (CRA) has announced a significant change to the GST/HST treatment of trailing commissions paid by mutual fund managers to dealers. This article explains what’s changing, who will be affected, and the key considerations businesses should be aware of to stay compliant and prepared.
1. What’s changed?
Effective July 1, 2026, the Canada Revenue Agency (“CRA”) will treat all trailing commissions paid by mutual fund managers to dealers as taxable supplies subject to GST/HST.
Previously, the GST/HST treatment varied depending on whether dealer earned the trailing commissions as the original seller or as a successor dealer. The new CRA policy standardizes the approach, all trailing commissions are now subject to the GST/HST.
If you earn or pay trailing commissions, GST/HST will now apply regardless of how the commission was earned.
2. Why did the CRA changed its position?
In a recent GST/HST interpretation letter released in December 2025 to an industry stakeholder group, the CRA concluded that trailing commissions are paid for ongoing services provided to investors, such as account servicing and client management, rather than for the initial sale of mutual fund units.
As these ongoing services are generally taxable under the Excise Tax Act (“ETA”), the CRA concluded that trailing commissions should also be subject to the GST/HST.
As this is a change in the CRA’s administrative position, there are no legislative changes being proposed to the ETA, and this will apply prospectively.
Trailing commissions are now viewed as payment for ongoing, taxable services — not exempt sales activity.
3. Who is affected by this change?
For dealers:
GST/HST registration required if annual taxable revenues exceed $30,000.
Must charge and collect GST/HST on trailing commissions earned on or after July 1, 2026.
Required to file GST/HST returns.
May claim input tax credits (“ITCs”) on related expenses.
You may have new GST/HST registration, invoicing, and filing obligations.
Mutual fund managers should note that:
GST/HST will apply to trailing commissions paid on or after July 1, 2026.
GST/HST paid is generally recoverable as an ITC if the mutual fund manager is a registrant.
GST/HST paid on trailing commissions may be recoverable, but processes may need updating.
4. What should I do to prepare by July 1, 2026?
For dealers:
Register your business with a GST/HST account here.
Update invoicing templates and accounting systems to reflect GST/HST.
Apply the correct GST/HST rate based on place‑of‑supply rules.
Track GST/HST paid on expenses to support ITC claims.
GST/HST paid on trailing commissions may be recoverable, but processes may need updating.
Mutual fund managers should:
Update accounts payable processes to capture GST/HST on trailing commissions.
Review and update dealer agreements and invoicing terms to cover GST/HST payments.
Collect and retain the following information to support the ITC claims in the event of a CRA audit:
Legal name of the dealer.
Dealer’s GST/HST number (must have the “RT”).
Dealer’s invoice clearly separating the trailing commission and the GST/HST being charged.
Clear documentation and updated agreements will support smoother GST/HST recovery.
What are other considerations to keep in mind?
Upfront commissions for arranging the initial sale of mutual fund units remain GST/HST exempt and are not affected by this change.
As of now, Revenu Quebec has not yet announced whether it will adopt a similar position for the QST.
If your business earns or pays trailing commissions, now is the time to review your obligations before July 1, 2026. Baker Tilly can help you assess the impact, update your processes, and meet your GST/HST requirements. Reach out to your Baker Tilly advisor to get started.
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