CRA Shocks Advisors With New GST Rule on Trailing Commissions
A major tax shift is now sending shockwaves through Canada’s financial advisory industry and it could change how thousands of independent advisors do business.
The Canada Revenue Agency, the CRA, has confirmed that independent financial advisors will soon have to collect and remit GST or HST on the trailing commissions they earn from mutual funds. This marks a dramatic reversal of a position the agency held for more than three decades.
So what exactly is happening here?
Trailing commissions are ongoing fees paid to advisors for servicing clients who hold mutual funds. For years, those payments were generally treated as part of financial services, which are typically exempt from GST or HST. But now, the CRA says many of these services no longer meet the definition of a “financial service” under tax law. The agency argues that advice and asset management are specifically excluded from that definition. And that means they are taxable.
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The key distinction lies in employment status. Advisors who are employees of dealer firms will not have to collect the tax themselves. But independent advisors, those operating as contractors or principal agents, will be required to register for GST or HST if their taxable revenue exceeds $30,000. They will then need to charge, collect and remit sales tax on those trailing commissions.
For many in the industry, this is not just a policy tweak. It is a logistical challenge. Firms say most independent advisors are not currently registered for GST or HST. That means new filings, new systems, new compliance procedures and added administrative costs. And all of this is expected to take effect on July 1.
Industry leaders warn that the timeline is tight. Some argue it may be nearly impossible to fully implement the changes by the deadline. Others say the shift could disproportionately affect mutual fund–licensed advisors, many of whom operate independently rather than as employees.
There is also debate about whether this move will even increase government revenue. Because dealers and advisors can claim input tax credits, some experts suggest the net gain to Ottawa may be limited. Yet the compliance burden could be significant.
The broader question now is whether this signals a tougher interpretive stance from the CRA on financial services taxation. For advisors across Canada, this is not just about paperwork. It is about business models, margins and long-term planning.
We will continue to track industry reaction and any potential challenges to the July 1 deadline. Stay with us for the latest developments on this evolving tax story and what it means for financial professionals and investors nationwide.
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