The Canada Revenue Agency (CRA) announced that services provided in exchange for mutual fund trailing commission are now considered taxable supplies. Notice 344 application of the goods and services tax and the harmonized sales tax (GST/HST) to mutual fund trailing commissions released by the CRA in February 2026 explains the change in policy. The following is a summary of the issues that are likely to impact clients who may earn (or pay) trailing commissions in relation to mutual funds.

The CRA indicates that, as of July 1, 2026, most trailing commissions paid by mutual fund managers to dealers will be treated as taxable supplies.

Prior to this announcement, trailing commissions were treated as “arranging for” a financial service and were therefore exempt from GST/HST. Upon reviewing current industry practices and regulations, the CRA made the following determinations.

• Fees earned for the initial broker services related to mutual funds fall into the category of “arranging for” a financial service and are therefore exempt.
• The exemption for the supply of a financial service excludes the supply of providing advice and asset management services. Trailing commissions are payments for ongoing advisory and/or asset management services. As a result, trailing commissions are not exempt and are therefore taxable.

The CRA states that this new policy is not the result of a change in the legislation or in the interpretation of the legislation. Rather, it was prompted by regulatory and operational changes within the industry, particularly the requirement for dealers to provide ongoing suitability determinations and advice to continue earning trailing commissions.

Implications for mutual fund dealers

Starting on July 1, 2026, most mutual trailing commissions will be treated as payments for taxable supplies. Mutual fund dealers, managers, agents and advisors may be required to become registered for GST/HST purposes, many for the first time. Registration for GST/HST is generally required where taxable supplies exceed $30,000 in a calendar quarter or over four consecutive quarters. Becoming registered for GST/HST purposes brings new reporting and compliance requirements.

We recommend that persons who may be affected by the change in the treatment of trailing commissions take the following steps.

• Review agreements and reports to identify taxable trailing commissions.
• Be able to identify fees earned for initial services relating to mutual fund commissions and trailing commissions earned on an ongoing basis.
• Determine whether GST/HST is required. We note that a person who is not required to become registered can do so on a voluntary basis.
• Prepare for the compliance and reporting obligations for GST/HST registrants.

Melo can assist with the registration process, preparation and implementation of GST/HST collection and reporting and ongoing support.

Please contact us to discuss the steps that should be taken now to prepare for the implementation date of July 1, 2026.

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