CRA finds that MFT trailer fees paid to a dealer, and by it to its representatives, generally are GST/HST exempt

CRA indicated that where a dealer, who was a distributor of mutual fund units, received both up-front commissions and trailing commissions from the mutual fund manager, the trailing commissions were generally part of the consideration for the single supply made by the dealer to the manager, namely, arranging for the sale of the units, so that the trailing commissions also were exempt - even though there was an element of on-going servicing of the investors as well.

Regarding front end load funds, where the investor is ordinarily charged an upfront fee or commission directly by the dealer upon the initial purchase, but the dealer also receive an ongoing trailing commission from the manager, CRA indicated that if the agreement between the manager and dealer “is for the distribution of units or shares of the fund, the supply made under that agreement by the dealer to the manager would [generally] be one of arranging for a financial service” even though the trailers are the only consideration received.

The dealer uses agents, i.e., self-employed proprietorships, to solicit orders as its representatives, and pays them a portion of its trailer commissions. CRA indicated that such amounts also were generally exempt consideration for an arranging-for financial service.

217144 is similar, but narrower in scope.

Neal Armstrong. Summary of 13 January 2022 GST/HST Interpretation 187184 under ETA s. 123(1) – financial service – (l).