What Are Trailing Commissions?
Trailing commissions are ongoing payments that mutual fund dealers receive from investment funds based on a client’s holdings. Historically, many of these payments were treated as exempt financial services, meaning they were outside the scope of GST/HST.
The Proposed Change & Its Delay
CRA issued Notice 344: Application of the GST/HST to Mutual Fund Trailing Commissions in February 2026, which indicated that these commissions will now be considered taxable supplies rather than exempt financial services. This change was meant to take effect on July 1, 2026. (canada.ca)
Subsequently, after consultations, CRA delayed enforcement of this new treatment. It will now take effect on January 1, 2028, giving industry players more time to adjust. (blg.com)
Implications for Stakeholders
- Mutual fund dealers: You’ll need to rework accounting, invoicing, and possibly your contracts to distinguish between exempt and taxable supplies. For example, fee disclosures may have to change.
- Investors: There’s a possibility that taxable trailing commissions could be passed on to investors, through decreased returns or higher fees.
- Regulatory & compliance teams: Important to monitor CRA guideline changes and ensure your systems are ready for the 2028 implementation date.
Actionable Steps to Prepare Now
- Conduct a review of contracts and agreements to identify which trailing commissions might become taxable.
- Engage accounting and systems teams to adjust billing systems accordingly.
- Budget for potential tax input credits or offset for costs where applicable.
- Keep communication transparent with clients about impending changes in fee structures and tax treatment.
Practical Example
Imagine a mutual fund dealer earns a $1,000 trailing commission annually per investor. Under the new rule, that $1,000 becomes subject to 5% GST/HST (depending on the province). The dealer must then collect tax from the fund or client and remit it, increasing cost unless accounted for in fees.
Key Takeaway
This delay gives firms until January 1, 2028 to adapt to the new regime. Use this window to examine contracts, update systems, recalibrate fee models, and inform stakeholders of upcoming shifts in the tax landscape.