You must account to your client for money or other property you may receive from your client or on their behalf that you hold on trust for them. This is one of your obligations as a registered tax practitioner under the Code of Professional Conduct (Code item 3).
A trust generally arises when you receive money or other property from a client or on behalf of a client. This could include:
tax refunds or other payments received from the Australian Taxation Office (ATO) on behalf of your clients
money received from clients for specific purposes, such as setting up a company or paying a tax liability.
A trust relationship can arise from express or implied arrangements between you and your client.
Ways you can account for money or other property held on trust
Some ways you can account for money or other property held on trust for a client include:
keeping your personal or business funds separate from any trust money, most preferably through the use of a separate bank account
keeping accurate and up-to-date records of any dealings in relation to the money or other property held on trust
using a letter of engagement with your clients to expressly set out details about how money or other property held on trust will be dealt with
seeking prompt instructions from clients about how and where to pay money or other property received on their behalf, and then paying or providing that money or other property to the client in a timely manner
passing tax refunds on to clients within 14 days unless there are exceptional circumstances or some agreement between you and your client to the contrary
promptly answering any questions clients raise about money or other property held on trust
allowing clients access to any records relating to money or other property held on trust
reconciling the trust records and reporting to clients on an appropriate periodic basis, in the circumstances, to ensure that they are correct and up to date
maintaining up-to-date policies and procedures of the practice in relation to the handling of client money or other client property
applying money or other property lawfully in accordance with the directions of the client, and telling the client what has been done.
The above list is not exhaustive, and you should consider what steps are appropriate depending on the nature and size of your practice.
Examples of how a trust relationship can arise
Receiving a refund from the ATO for a client
A tax agent receives a refund for a client from the ATO and there is no letter of engagement, retainer or other contract between the agent and the client about how the refund should be handled.
In this case, the agent has received the refund on behalf of the client and keeps this money separate from the agent’s own money.
The TPB would consider that this refund is held on trust for the client.
Money given by a client for paying a tax liability
A client gives a cheque payable to their agent for the purpose of making a payment to the ATO for tax payable relating to a previous year’s income tax return. The agent will hold this money on trust as this money is held on behalf of the client and the client has directed the agent to apply this money to a particular purpose (paying the ATO) on the client’s behalf.
Failing to account for money or other property held on trust
If you fail to account to your clients for money or other property held on trust, we may find that you have breached the Code and may impose sanctions for that breach.
Agents should pass on refund monies to their clients promptly.
Any refund monies received by an agent on behalf of a client should be passed on to the client within two weeks, unless there are exceptional circumstances or an agreement between the agent and client specifying other payment arrangements.