CRA indicates that trailer fees are GST-exempt except in exceptional circumstances

CRA indicated that, other than in “exceptional circumstances,” trailer fees (a.k.a., trailing commissions) paid by the manager of a mutual fund trust or corporation to a dealer generally would be regarded as part of the exempted consideration for the dealer’s services in arranging for the sale of shares or units, and not as consideration for a separate taxable supply from the dealer to the manager.

The referenced exceptional circumstances included where the dealer was not the same person who arranged for the initial sale of the mutual fund unit, and where the trailing commission was specifically linked in the agreement between the dealer and the manager to the provision of specific services and it could be determined that these services constituted a separate supply from that of arranging for the sale of shares or units.

CRA went on to note that the general exemption of trailer fees did not benefit the fund investors since such fees were paid by the manager out of taxable management fees charged by it to the fund.

Neal Armstrong. Summaries of 28 October 2021 GST/HST Interpretation 217144 under ETA s. 123(1) – financial service – para. (l), para. (q).