By Dellendo Farquharson, BOMCAS Canada
Tax year: 2026. Trust and GST/HST sources reviewed November 1, 2026.
Quick answer: Law firm trust accounting in Canada for 2026 still turns on a hard wall between trust money and firm money, monthly trust reconciliations, and GST/HST on most legal fees. Software such as PCLaw can host the ledgers; it does not replace Law Society of Alberta Rules or Law Society of Ontario By-Law 9.
Law firm accounting fails in public when trust and general funds mix. It fails quietly when billing, disbursements and GST/HST are posted late. This guide is for Alberta and Ontario practices (with notes that other provinces have parallel regimes) and for bookkeepers who export from practice-management tools including PCLaw. BOMCAS Canada provides bookkeeping and tax support from Edmonton and remotely; we are not a law firm and we do not supervise trust compliance for the societies.
Related pages: services, bookkeeping services, payroll services, and bomcas.com/services.
Tax year note: GST/HST references follow CRA registrant guidance reviewed November 1, 2026. Trust examples cite Law Society of Alberta trust-operation materials and Law Society of Ontario By-Law 9 resources reviewed the same day. Always open the current Rules PDF or by-law text for your licence.
Trust money versus general money
Trust money is client property. General-account money is the firm’s operating cash after fees are earned and properly billed. Every Canadian law society builds its rules around that split. Depositing a retainer into the operating account “because payroll clears tomorrow” is the classic failure mode.
Ontario (By-Law 9): Subject to listed exceptions, every licensee who receives money in trust for a client must immediately pay it into an account at an eligible bank, credit union or registered trust corporation, kept in the licensee’s or firm’s name and designated as a trust account. Mixed trust accounts pool more than one client’s money; interest on mixed trust accounts goes to the Law Foundation of Ontario, not the firm. Separate interest-bearing trust accounts can hold one client’s funds with interest belonging to that client. Licensees must report trust accounts through LSO Connects and, under the staged Trust Account Authorization Requirement, provide authorizations for new accounts within 30 days of opening beginning May 1, 2026, with existing accounts due by March 31, 2027.
Alberta (Part 5 Rules / Trust Safety): Firms operate pooled (mixed) trust accounts and general accounts under Law Society oversight, with a Responsible Lawyer accountability model. On receipt of trust money, lawyers must obtain written client confirmation that the money is held in trust, any conditions, and any payee instructions. Withdrawals and transfers require lawyer approval recorded in paper or digital form. Prescribed financial records must be maintained and kept retrievable for a minimum of ten full years. Monthly trust bank reconciliations are a core control. Interest on pooled trust accounts funds the Alberta Law Foundation.
What the monthly trust package must prove
Regardless of software, a defensible month-end package usually includes:
- trust bank reconciliation (book balance to bank balance) with outstanding cheque and deposit lists;
- client trust listing (trial balance by matter) that equals the reconciled trust book balance;
- trust receipts and disbursements journals;
- matter-to-matter transfer reports with lawyer approval and client direction where required;
- billing journal and accounts receivable support for amounts moved to general.
Alberta guidance notes that an external accounting firm may prepare reconciliations, but the Responsible Lawyer remains responsible for timely, accurate reconciliations and for exceptions. Conflicts can also arise if the same firm later needs to prepare a society Accountant’s Report.
PCLaw and other practice ledgers
Many Canadian practices still run trust and general subledgers in PCLaw or successor practice-management suites. Treat PCLaw as a system the firm may use, not as a certification badge. Whatever the product:
- map trust banks and general banks to separate control accounts;
- post fees to income only when a statement of account is rendered and trust transfers follow the Rules;
- code taxable disbursements and non-taxable disbursements correctly for GST/HST;
- export month-end PDFs or digital captures that satisfy “print or digitally capture” record rules where they apply;
- restrict user rights so trust cheque printing and electronic payments require the approvals your society demands.
BOMCAS Canada can help clean exports, rebuild missing reconciliations and prepare corporate or sole-practitioner tax filings from those ledgers. We do not claim any partnership with PCLaw’s vendor and we do not replace your Responsible Lawyer or licensee duties.
Retainers, flat fees and transfers
Unearned retainers belong in trust. After you bill, move only the billed amount following withdrawal rules. Alberta Law Society FAQs stress that on a flat-fee retainer held in trust, the entire fee cannot move until agreed services are performed; partial transfers need to match work completed and any written prearrangement. Ontario By-Law 9 lists the only categories of money that may be withdrawn from trust (for example, money properly required for payment to the client or to the licensee for fees and disbursements pursuant to a bill). Read the current section before improvising.
Credit balances in accounts receivable often signal money that should be in trust or a posting error. Investigate them monthly.
GST/HST on legal services
Most supplies of legal services are taxable (see Guide RC4022). Law practices that exceed the $30,000 small-supplier threshold (or that register voluntarily) charge GST/HST on fees using place-of-supply rules for services, which differ from the goods rules used in the ecommerce articles. Taxable disbursements billed to clients generally follow the tax status of the underlying supply; firm overhead recovered as “other charges” is often part of the fee, not a true disbursement (Alberta guidance notes printing and similar charges are normally fees or other charges, not disbursements).
Legal, accounting and actuarial services are among the businesses the CRA excludes from the GST/HST Quick Method, so do not elect Quick Method for a law practice. File on the assigned frequency and keep ITCs supported by supplier invoices.
Payroll, partners and corporations
Associate salaries, clerk wages and contractor articling arrangements need remittances, T4/T4A slips and ROEs when applicable. Partner draws in a partnership are not wages. Professional corporations add T2 filings and salary or dividend planning for the lawyer-shareholder. Our corporate tax and personal tax pages describe how we support owner-managers from Edmonton without inventing staffing claims.
Record retention and software exits
Alberta’s ten-year prescribed-record period is longer than the usual six-year income-tax retention many firms quote. Plan backups and exit exports before you change practice-management systems mid-year. Ontario By-Law 9 bookkeeping resources likewise expect durable journals, ledgers, source documents and reconciliations. Image both sides of cleared trust cheques when the bank provides images.
Electronic trust payments and ATM deposits
Alberta Rules allow electronic withdrawals from trust when the conditions in Rule 119.31 and related forms are met, and they allow ATM deposits to trust only with deposit-only cards, next-banking-day pooling, and proper identification on the ATM receipt. Ontario licensees likewise need banking arrangements that produce monthly statements and cheque images By-Law 9 expects. Before enabling online bill pay from trust, map the approval trail: who authorises, how the authorisation is stored with the reconciliation, and how the payee and matter are evidenced.
Never let a bank sweep or service charge hit the trust account. Alberta guidance is explicit that service charges on trust should be recovered from the general account under the bank mandate. An unexpected bank fee on trust is a shortage until you replace it and document the fix under shortage-reporting rules where they apply.
Disbursements versus office overhead on the bill
Clients understand third-party disbursements (filing fees, agency fees, courier to opposing counsel) differently from photocopy or file-opening charges. Mislabeling overhead as a disbursement can distort GST/HST and create trust-transfer errors when only part of a bill is meant to clear from trust. Keep a firm billing policy that lists which costs are true disbursements, which are other charges included in fees, and how tax applies to each line. Train timekeepers so PCLaw (or other) codes match that policy.
A sober 2026 checklist for law bookkeepers
- Confirm every trust receipt hit a designated trust account on time.
- Complete the monthly trust reconciliation and client trust listing equality test.
- Clear only billed fees from trust with lawyer approval evidence.
- Reconcile GST/HST collected on fee bills to the return.
- Review AR credit balances and stale trust balances with the licensee.
- Verify Law Foundation interest directions remain in force on mixed or pooled accounts.
- File society annual trust reporting on the society’s calendar (Alberta self-report deadlines; Ontario annual report trust questions).
To discuss a cleanup or monthly engagement, use bomcas.ca/contact-us or bomcas.com/contact.
Frequently asked questions
Can a non-lawyer sign trust cheques in Alberta?
The Law Society of Alberta materials state that the Rules no longer allow a non-lawyer to have unilateral signing authority on a firm trust account. Cheques must bear a lawyer’s signature; a non-lawyer may only provide a second signature where permitted. Confirm Rule 119.27 and 119.30 for your situation.
How quickly must Ontario licensees deposit trust money?
Law Society of Ontario guidance tied to By-Law 9 says that whenever you receive trust funds you must immediately deposit them into a properly designated trust account, and at a minimum by the end of the next banking day.
Do mixed trust account interest earnings belong to the firm?
In Ontario, interest on mixed trust accounts must be remitted to the Law Foundation of Ontario. In Alberta, interest on pooled trust accounts is the primary revenue source described by the Alberta Law Foundation. Do not treat that interest as firm income.
When can fees move from trust to the general account?
Only after you render a proper statement of account and follow the withdrawal rules in your law society’s by-law or Rules. Alberta materials emphasise that flat-fee retainers held in trust cannot all move until agreed services are performed, subject to permitted partial transfers.
Is PCLaw required by the law societies?
No. Practices may use PCLaw or other systems that can produce the prescribed trust and general records. The obligation is the recordkeeping and trust safety outcome, not a named software product.
Does GST/HST apply to legal fees?
Most supplies of legal services in Canada are taxable. Registrants charge GST/HST on fees and taxable disbursements following place-of-supply rules for services, and claim ITCs on eligible inputs. Confirm zero-rated or exempt exceptions before omitting tax.
Disclaimer: This article is general information about bookkeeping and tax concepts that often arise for Canadian law practices. It is not legal advice, not a substitute for Law Society guidance, and not tax advice. Trust accounting rules are set by each law society; confirm the Rules and by-laws that apply to your licence before you change a process. PCLaw is mentioned only as software a practice may use; BOMCAS Canada makes no partnership, reseller or certification claim about that product.
Talk to BOMCAS Canada
Need help separating trust and general ledgers, or cleaning up a PCLaw export for year-end? Call BOMCAS Canada at 780-667-5250 or email info@bomcas.ca. Law practices outside Edmonton are served remotely. Hours are 9:00 a.m. to 5:00 p.m.
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