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Accounting for a legal practice in Canada means keeping two kinds of money apart. Client money sits in a trust account and never counts as your revenue, while earned fees go through the general account. In Ontario the trust side is reconciled every month, and other provinces set their own rules through their law societies.
Most of the rest is ordinary small business bookkeeping with a few sharp edges. Here’s where those edges are.
What goes in the trust account, and what doesn’t?
Money you hold for a client belongs to the client. A retainer paid before any work is done, funds for a real estate closing, a settlement cheque waiting to be paid out: all of that is trust money. It goes into a trust account, and you don’t touch it until it’s earned or the client says where it goes.
Your own money is different. When a bill has been issued and the fee is earned, it moves from trust to the general account. Leave earned fees sitting in trust and you’ve mixed funds, which is exactly what the rules exist to stop. So does pulling a fee out before you’ve billed it.
Picture a lawyer in Hamilton who takes a $5,000 retainer. Until a bill goes out, all $5,000 stays in trust. Then she bills $3,200 in fees plus $416 of HST, a $3,616 invoice. Only that $3,616 moves to the general account. The other $1,384 stays in trust, still the client’s, and the client ledger shows it.
The Law Society of Ontario asks for three records to agree each month: the bank balance, the list of what you owe each client, and your own cash book. If the three don’t match, you find out why before the deadline, not after. The full text of the by-law wasn’t something we could open, so read the current version on the society’s site before you build your process around it.
How do the books differ from a normal business?
You’ll run a client ledger for each matter. It shows every dollar in and out of trust for that client, and its balance can never go below zero. A negative balance means you’ve spent one client’s money on another’s matter.
The general side looks familiar: fees, rent, wages, software, insurance, the lot. Disbursements you pay for a client and get back are the part people trip over. Track them per matter so you can bill them and so your expenses aren’t overstated.
| Item | Where it lives | Counts as your income? |
|---|---|---|
| Retainer received | Trust account | No, not until earned and billed |
| Earned fee moved out | General account | Yes |
| Client funds for a closing | Trust account | No |
| Office rent and wages | General account | These are your expenses |
| Disbursement paid for a client | Trust or general, per matter | Only what you bill on top |
Do legal fees carry sales tax?
The tax point is worth a plain example. Say you bill a $10,000 fee in Ontario. The GST/HST calculator puts HST at 13%, which is $1,300, for a total of $11,300. That $1,300 isn’t yours. You collect it and remit it, so it shouldn’t show up in your profit. Whether a given service is taxable, and how to treat disbursements, is a question for your accountant or the CRA’s GST/HST pages, and every case hasn’t been tested here.
What does a clerk cost once payroll is added?
Firms often forget that wages cost more than the pay. Take a clerk earning $3,000 every two weeks in Ontario. The payroll remittance calculator shows about $961 to send the CRA each pay period, made up of the amounts held back from the clerk plus your own CPP and EI share. The real cost of that clerk is about $3,228 per pay period, not $3,000.
If you’re a sole practitioner, your own income tax follows different rules, and the self-employed tax calculator gives a rough picture. For a professional corporation, try the corporate tax calculator on your expected profit. It uses a blended 2026 Ontario small business rate that isn’t published as a single number, so treat that result as a ballpark.
Which mistakes cause the most trouble?
Three come up over and over. Late reconciliations, because month end gets busy. Fees taken from trust before the bill goes out. And bookkeeping software set up for a shop, with no client ledgers at all. A general accounting package can work for the general side, but check that it can hold client ledgers and produce the trust reports your law society expects.
Records matter too. The CRA’s guidance says to keep records for six years from the end of the last tax year they relate to. Law society rules can ask for longer on trust records, so keep whichever period is longer.
And a short one: your bookkeeper can do the work, but you’re the one responsible. That’s true for the CRA, and it’s true for your regulator.
What does a month-end trust reconciliation look like?
Here is a made-up Ontario firm with three client files. The trust bank statement shows $48,250.00. A deposit of $3,000.00 made on the last day has not cleared, and $5,400.00 of cheques are outstanding. The adjusted bank balance is $48,250.00 + $3,000.00 - $5,400.00 = $45,850.00.
The client ledgers read $21,400 for the first client, $12,950 for the second and $11,500 for the third, which add up to $45,850. The firm’s own trust cash book also shows $45,850.00. All three agree, so the month is done. If the ledgers had added up to $45,350 instead, the $500 gap would be the first thing to chase. A common cause is a payment posted to the wrong client. Our guides on accounting versus bookkeeping and on when to hire an accountant help you decide who in the office owns this task.
Cash is its own question. A bookkeeping guide from the Law Society of Ontario, as we saw it quoted, says a lawyer may not accept more than $7,500 in cash for any one client file except as By-Law 9 allows. We could not open the by-law text, so confirm that figure on the society’s site before you build a rule around it.
What if the trust account doesn’t balance?
Don’t wait for month end to sort it out. Start with the three records and find which one disagrees. Usually it’s a deposit not yet entered, a cheque still outstanding, or a payment posted to the wrong client. Fix the entry, note what happened and when you caught it, and keep that note with the reconciliation.
If you can’t explain a shortfall, or you’ve found money that clearly belongs to a client in the wrong place, call your law society’s practice advice line or your accountant that day. A few bucks of difference is still a difference, and trust accounts don’t have a rounding allowance.
What this page is based on
The six year record period comes from the CRA pages on where to keep your records and for how long and keeping records (RC188), read in November 2026. Payroll and corporate figures come from our calculators using 2026 federal and Ontario data. The monthly trust reconciliation and its 25 day window come from Law Society of Ontario guidance as quoted in secondary sources, because we could not open By-Law 9 itself. We did not confirm other provinces. This is an independent information site, not affiliated with the CRA or any law society.
Frequently asked questions
Is trust money my income?
No. It belongs to the client until it is earned and billed. Only then does it move to your general account and count as revenue. A $5,000 retainer stays in trust in full until a bill goes out, and if the bill is $3,616 with HST, only that amount moves, leaving $1,384 in trust.
How often do I reconcile a trust account in Ontario?
Every month. Guidance for Ontario lawyers says the reconciliation may be completed within 25 days after the end of the period on the bank statement, and the three records that must agree are the bank balance, the list of client balances and your cash book. Check By-Law 9 on the Law Society of Ontario site for the current wording.
Can I use regular accounting software?
For the general side, often yes. Check that it can hold a ledger for each client matter, that the client balance can never go below zero, and that it produces the trust reports your law society asks for. A package built for a shop with no client ledgers will cause trouble in a law office.
Do other provinces follow the Ontario rules?
Each province’s law society sets its own rules, and they differ on reconciliation timing, record retention and cash. We only looked at the Ontario material, so read your own society’s rules before you set up the process. Where a society asks for a longer retention period than the CRA’s six years, keep records for the longer one.
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