One of the ironies of harmonization is the outcry from the mutual fund industry that a HST will be an additional strain on the savings of ordinary investors. CI Financial Corp. even issued a news release on the topic:

Harmonization of Ontario’s sales tax with the federal GST would lead to a massive tax on the savings of ordinary citizens, notes CI Financial Corp., which manages or administers approximately $75 billion on behalf of Canadian investors.

“A harmonized sales tax could drain over half a billion dollars a year from the investment accounts of Ontario residents,” said Stephen A. MacPhail, CI President. “Ontarians need to be aware of all of the implications of harmonizing the GST and the provincial sales tax. We urge the provincial government to avoid any new tax on savings, especially under the guise of a consumption tax.”

There is no doubt that harmonization will cost investors and it is legitimate to question if savings should be taxed. What is ironic, though, is the fund industry suddenly getting the religion on expenses and shedding crocodile tears on the plight of average investors. The average Canadian mutual fund costs investors about 2.5% per year in expenses; the HST will add 20 basis points to it. Is the MER or the HST a bigger burden on investors? How many investors in the iShares CDN LargeCap 60 (XIU) or the TD e-Series mutual funds are losing sleep over the couple of extra basis points they now have to shell out? Did the same fund industry pass along the savings to investors when the Federal Government cut the GST from 7 percent to 5 percent?

This article has 15 comments

  1. That’s a good one. The mutual fund industry characterizes the HST on mutual fund fees as a tax on savings rather than a tax on their outrageous fees. The half billion figure is interesting. Dividing by 8% gives a total of $6.25 billion in mutual fund fees.

  2. Michael, you beat me to the punch. That was my first thought – those overall fees (incl. HST) would be lower if the MERs were not so outrageous. But then again we’re not investing with actively managed funds now are we?

  3. Boy, I miss the old days when I was a CIX shareholder, I used to love their press releases. That management team earned me bundles of cash. Sigh. ;0)

  4. I doubt that mutual fund companies (or any other kind of company) will pass on the savings to us.

  5. Will HST affect mutual fund or ETF holders outside of Ontario?

  6. This is why I’m getting out of mutual funds – those fees … there’s no way they’ll pass any savings on to us investors.

  7. The solution is simple: pack up and move to Alberta.

  8. I am from Alberta and I don’t think it helps. In this case, the increase in fees caused by Ontario will be realized in all Provinces. i.e. MERs don’t vary from Provence to Provence – Alberta will subsidize Ontario.

  9. Canadian Capitalist

    Dan: It seems that investors in other provinces will end up paying HST. The more interesting question is — will the financial industry migrate en masse to Calgary to dodge the HST in Ontario?

  10. What I meant is that if the funds and their management companies migrate to Alberta, the provincial portion will not apply on the management fees, as well as other applicable expenses like unitholder reporting fees, auditor and legal fees. The management company would also benefit from the lower corporate tax rates and lack of capital tax rates. Not that they will pass on the savings in the form of lower management fees!

  11. Oops. I meant lack of capital and payroll taxes.

  12. Dan,
    I believe the BC government touts that province as the one with the most business-friendly tax regime. However, that aside, the bank offices will likely stay where they are: in the major population centres.

    Any services or goods provided to a consumer in another province are usually charged taxes based on residency. Thus the banks charge Ontario rates to Ontarians, and Newfoundland rates to Newfoundlanders, and BC rates to British Columbians.

    DAvid

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