Twenty-five days is the window an Ontario law firm gets, once a month closes, to produce its signed trust comparison. Trust accounting for lawyers runs on deadlines that tight, and one $40,000 retainer moved to the general account before the bill goes out can turn a quiet month into a conversation with the Law Society.
Most trust problems start as bookkeeping problems. The rules are clear on paper; what slips is the monthly routine behind them when the practice gets busy.
JS CPA Strategic Solutions is a Toronto CPA firm, founded by Jonathan Soosaipillai, CPA, CGA, whose client work spans legal and professional services, technology, and other owner-led businesses. As an Intuit QuickBooks ProAdvisor Elite firm, we set up the reporting, controls, and month-end discipline that keep a practice’s books current and review-ready.
We are accountants, so we work alongside your law society’s guidance and your own counsel. The responsible lawyer always remains accountable for the trust account.
Here is how trust accounting works in Canada, what Ontario’s rules require, and how to build a reconciliation routine that holds up.
TL;DR — Trust Accounting for Lawyers
Here are the seven points to hold onto before your next month-end.
- Trust funds belong to clients, so they live in a designated trust account and never mix with the firm’s operating funds.
- Each province’s law society sets the rules; in Ontario, By-Law 9 governs deposits, withdrawals, records, and reconciliations.
- Fees leave trust only after a bill has been delivered, and never more than that client’s balance.
- The signed monthly trust comparison is due within 25 days of each month end, and it ties the bank, the books, and every client ledger.
- Ontario caps cash at $7,500 per client file, with narrow exceptions, and electronic transfers need individual logins and next-day confirmation review.
- New deadlines are arriving, including the Law Society of Ontario trust account authorization by March 31, 2027 and the CDIC re-attestation every April 30.
- HST on fees is generally triggered by the invoice, so billing and trust transfers belong in one routine.
Clean trust records protect your licence, and they also shape how lenders, partners, and buyers read your practice.
At JS CPA Strategic Solutions, our Growth Mosaic connects CFO-level reporting, tax compliance, and long-term planning so the back office supports the practice you are building. Book a CFO strategy session to put your month-end on a schedule you can trust.
What Trust Accounting Means for a Canadian Law Firm
Trust accounting is the record-keeping that proves, at any moment, whose funds are sitting in your trust account and why.
A law firm holds client funds for retainers, real estate closings, settlements, and estate matters. Those funds are never the firm’s property, so the firm must be able to show each client’s balance separately, even when everything sits in one pooled bank account.
Each provincial law society sets its own rules. British Columbia, Alberta, and Manitoba all publish detailed trust requirements, and the examples below use Ontario’s By-Law 9, the rules that apply where our firm is based.
Funds That Belong in Trust
By-Law 9 defines trust receipts broadly, so start with what triggers the obligation. Under section 7, a lawyer receives funds in trust when they receive funds that:
in whole or in part, such as settlement proceeds.
including funds held on a client’s direction or order.
a retainer for services not yet rendered.
for example, funds to cover filing or registration costs not yet paid.
Funds That Never Go Into Trust
The reverse list matters just as much, because depositing the wrong funds is also a breach. Section 8 bars the firm’s own funds, a general retainer that requires no accounting or services, fees for work already billed, and anything not directly related to legal services being provided.
| Item | Trust Account | General Account |
|---|---|---|
| Retainer for future services | Yes | No |
| Settlement or closing funds for a client | Yes | No |
| Payment of a bill already delivered | No | Yes |
| General retainer with no duty to account | No | Yes |
| Firm rent, payroll, and supplier payments | No | Yes |
| Funds unrelated to a legal service | No | No, refuse or return them |
8 Core Trust Account Rules Under Ontario By-Law 9
These eight rules from Ontario’s By-Law 9 carry most of the day-to-day weight in an Ontario practice. Your own law society’s wording may differ, so confirm the local version before you rely on any of them.
1. Deposit Trust Funds Immediately
Trust receipts go straight into a designated trust account at a bank, credit union, or registered trust corporation. By-Law 9 treats cash and cheques as held in trust if they reach the account no later than the following banking day.
2. Withdraw Only Permitted Amounts
Section 9 lists what may leave trust: payments to or for a client, reimbursement of disbursements properly made, fees once billed, transfers to another trust account, and amounts deposited by mistake. Anything else needs Law Society permission.
3. Deliver the Bill Before Transferring Fees
Fees can move to the general account only after a billing has been delivered to the client. Transferring first and billing later is a breach, even when the bill follows a day after.
4. Never Overdraw a Client’s Ledger
You cannot withdraw more for a client than that client has on deposit, even when the pooled account holds plenty. Section 14 also requires sufficient balances at all times to cover every trust obligation.
5. Respect the $7,500 Cash Limit
A licensee cannot accept more than $7,500 in cash on any one client file. Exceptions include cash from a financial institution or public body, bail or fines, and cash for fees or disbursements, provided any refund of those payments is also made in cash.
6. Follow the Electronic Transfer Controls
Every user of the electronic transfer system needs a unique login, and each transfer needs a signed requisition in Form 9A. By the close of the next banking day, someone must print the bank confirmation, match it to the requisition, note the client and file, then sign and date it.
7. Move Funds Out Once the Work Is Done
Section 8.1 bars holding funds in trust beyond a minimally reasonable time after the legal services are performed. Review client ledgers monthly and either bill and transfer or refund what is left.
8. Keep Trust Records for Ten Years
Most financial records must be kept for at least six years, but the core trust records, including the trust journals, client ledgers, monthly comparisons, and bank statements, must be kept for ten. Electronic records are fine if a paper copy can be produced promptly on request.
Books and Records Every Law Firm Must Keep
Section 18 of By-Law 9 sets the minimum, and a well-configured accounting system produces most of it automatically. The records that matter most for trust work are:
- ●Trust receipts journal: every deposit by date, method, payer, amount, purpose, and client.
- ●Trust disbursements journal: every payment out, with the cheque or transfer identifier and the client it relates to.
- ●Clients’ trust ledger: a separate running balance for each client.
- ●Trust transfer record: each movement between client ledgers, with the reason.
- ●Fees book or billing file: a chronological record of every bill issued.
- ●Monthly trust comparison: the signed reconciliation, supported by a client listing and a bank reconciliation for each trust account.
- ●Valuable property record: any non-cash property held in trust, with its value and dates of possession.
- ●Bank evidence: statements, cleared cheque images, deposit slips, signed electronic transfer requisitions, and confirmations.
A cash receipts book with signed duplicate receipts is also required when the firm accepts cash. Strong records are the base of sound financial risk management for any practice.
How to Complete a Monthly Trust Reconciliation in 6 Steps
The monthly comparison is where trust accounting either holds together or falls apart. Many firms call it a three-way reconciliation because it ties three totals: the reconciled bank balance, the trust journal balance, and the sum of every client ledger.
Step 1. Post Every Transaction for the Month
Enter all receipts, disbursements, and transfers before you start. By-Law 9 expects records to be current at all times, so month-end should be a check, never a catch-up.
Step 2. Reconcile Each Trust Bank Account
Start from the bank statement balance, add deposits in transit, and subtract outstanding cheques and transfers. The result is the adjusted bank balance.
Step 3. Produce the Client Trust Listing
List every client with a trust balance at month end. A negative balance on any line is an immediate red flag that needs investigation.
Step 4. Compare the Three Totals
The adjusted bank balance, the trust journal balance, and the client listing total should all agree. If they do not, the difference must be found, explained, and corrected.
Step 5. Document the Reasons for Any Difference
By-Law 9 requires the comparison to show the reasons for any difference between the totals. A timing item such as an uncleared deposit is normal; an unexplained gap is not.
Step 6. Sign and File Within 25 Days
The licensee who prepared or approved the comparison signs it, along with the supporting listing and bank reconciliation. The deadline is 25 days after the last day of the month.
Here is how a clean month looks in practice, using illustrative figures for a small firm:
| Line | Amount |
|---|---|
| Bank statement balance at month end | $186,400 |
| Add deposits in transit | $8,350 |
| Less outstanding cheques and transfers | ($12,750) |
| Adjusted bank balance | $182,000 |
| Trust journal balance | $182,000 |
| Client listing total (three clients: $95,000, $47,000, $40,000) | $182,000 |
| Difference | $0 |
These figures are illustrative only. Your own reconciliation depends on your accounts, your matters, and your law society’s requirements.
Deadlines and New Requirements to Plan For
Trust compliance now has a calendar beyond month-end, and two of the newer obligations are easy to miss. The dates below apply to Ontario lawyers holding trust funds.
| Requirement | Deadline | Who It Applies To |
|---|---|---|
| Signed monthly trust comparison | Within 25 days of each month end | Every Ontario licensee with a trust account |
| Annual Report Filing | March 31 each year | All Ontario licensees |
| Trust account authorization, existing accounts | March 31, 2027 | Licensees or designated firm signers |
| Trust account authorization, new accounts | Within 30 days of opening | Licensees or designated firm signers |
| CDIC professional trustee re-attestation | April 30 each year | Firms with designated professional trustee accounts |
The Law Society of Ontario Trust Account Authorization
Convocation approved By-Law 9 amendments in February 2026 that require an irrevocable authorization directing your financial institution to release trust account records to the Law Society on request. Firms can have one designated licensee with signing authority provide it, and a separate authorization is needed for each financial institution. The Law Society’s authorization guidance explains how to submit through LSO Connects.
The CDIC Professional Trustee Attestation
Lawyers acting as trustees qualify as professional trustees under the federal deposit insurance rules. To keep an account designated as a professional trustee account, the firm must re-attest with its financial institution every April 30, as set out in CDIC’s trustee rules.
HST Timing When Fees Move From Trust
The trust transfer and the tax point are two separate events, and many firms treat them as one. Under the Excise Tax Act, a deposit is not consideration for a supply until it is applied, and consideration generally becomes due on the earliest of the invoice date and related days, as the CRA’s guidance on deposits explains.
In practice, the bill is usually what creates the HST obligation, so the bill should drive both the tax entry and the trust transfer. Consider this illustrative Ontario example at the 13% HST rate:
| Step | Amount |
|---|---|
| Retainer deposited to trust | $10,000 |
| Fees billed and delivered | $6,000 |
| HST on fees at 13% | $780 |
| Transfer from trust to general after billing | $6,780 |
| Balance remaining in trust for the client | $3,220 |
7 Trust Accounting Mistakes That Draw Law Society Scrutiny
Each of these breaks a specific By-Law 9 requirement. All seven are preventable with a routine and a second set of eyes.
- ●Transferring fees before the bill is delivered: the transfer is only permitted once a billing has gone to the client.
- ●Borrowing from one client to cover another: a pooled account can hide a single overdrawn ledger until the reconciliation catches it.
- ●Late or unsigned monthly comparisons: a reconciliation done on day 40, or never signed, fails the requirement even if the numbers balance.
- ●Accepting cash over the limit: a large cash retainer on one file can exceed $7,500 without anyone noticing the running total.
- ●Leaving stale balances in trust: small leftover amounts from closed matters pile up and breach the minimally reasonable holding rule.
- ●Sharing a login for trust transfers: By-Law 9 requires each user to have their own login and password or access code.
- ●Letting the bank charge fees to the trust account: the account agreement should direct service charges to the general account.
Many of these errors trace back to manual workflows. Sensible finance automation for practices removes duplicate entry and flags exceptions before month-end.
Trust Controls That Protect Firm Value
When a firm’s general ledger, billing, and trust records agree month after month, its cash position becomes easier to forecast. That visibility supports better cash flow risk management, especially for practices where large closings or settlements swing the trust balance from week to week.
The same discipline matters at exit. If you ever plan on selling a law practice, years of signed, on-time reconciliations tend to make due diligence faster and keep the conversation on value.
We have seen how quickly disorganized books erode options. A growing Canadian IT firm came to us with bookkeeping that looked complete but hid discrepancies in its accounting system; once we filed what was outstanding, corrected the financials, and restructured, the owner gained access to $3M in tax-free funds through the Lifetime Capital Gains Exemption (LCGE). The sector was different, but the lesson carries straight into a law practice.
Every engagement starts by reviewing the prior three years of returns, then building the reporting a practice needs going forward. For smaller firms, our guide to CFO services for small businesses explains what that oversight looks like without a full-time hire.
Frequently Asked Questions (FAQs)
Below are answers to questions lawyers and practice managers often ask us about trust accounts.
Conclusion
Trust accounting is less about complex math and more about a routine that never slips. Deposit promptly, bill before you transfer, reconcile all three totals every month, and sign within the deadline.
The newer requirements, from the Law Society authorization to the CDIC attestation, reward firms that already run a tight month-end. Building that routine now costs far less than fixing years of records later.
Remember: every dollar in trust has an owner, and your records should name that owner at any moment.
At JS CPA Strategic Solutions, we help legal and professional services firms build the reporting, controls, and tax compliance that keep their practices review-ready and growing. Schedule a consultation with our team to strengthen your month-end before your next filing deadline.