The proposal to harmonize the PST with the GST will effectively increase the management fee on a mutual fund investment by 8% (the PST) effective July 2010.

This is not in the best interests of mutual fund investors or the people of Ontario. The main reason is that higher fees mean lower returns.
The tax levied on mutual fund management fees is a large component of the Management Expense Ratio (MER). With the proposed tax harmonization, a typical mutual fund will see an increase of .18% in MER. This means a proportionate decrease in returns for the investors in the same mutual fund.

According to Peter Intraligi, president and chief operating officer of Invesco Trimark Ltd., in a letter posted on the company’s web site, “Collectively, Canadian mutual fund investors – not just Ontarians- will pay $1.6 billion in harmonized sales taxes to the province of Ontario each year – an increase of about $1 billion. This is being done at a time when interest rates are at historic lows, dividends are being cut and the market is down over 30% from its peak.”
Charging the harmonized tax on mutual fund management fees can also have detrimental long term effects on Ontario’s economy as some fund managers may decide to move their operations to provinces where taxation is more favourable and allows them to stay more competitive.

Therefore, it is in the best interests of all mutual fund investors as well as the province of Ontario to exempt mutual fund management fees from the harmonized sales tax. The province recently made changes to the HST rules for new homes with price tags of over $400,000 as a result of pressure from home builders. With enough pressure from investors, hopefully mutual fund management fees can be made exempt from HST as well. A chat with your local MPP would definitely help the cause.

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