Handling client money is one of the most regulated responsibilities for ACT law practices. In the ACT, the Legal Profession Act 2006 sets strict rules to protect it. It sets strict rules for trust money, controlled money and transit money. Misclassifying these funds can lead to serious breaches and penalties of up to 50 penalty units.
This article explains the differences clearly and how to handle each correctly.
Breakdown of the Three Money Types
Under the Legal Profession Act 2006, all client money falls into one of three distinct categories. Each type has specific handling rules, and mixing them up can land you in serious trouble.
Here is what you need to know about General Trust Money, Controlled Money, and Transit Money.
A. General Trust Money
This is the most common type of client money. General trust money is simply any trust money that does not fit the other two categories. You receive it, and you hold it in your law practice’s general trust account.
Typically, you do not have exclusive control over these funds. The account often requires joint signatures or third-party authority to release money. This provides an extra layer of protection for the client. You must deposit this money into your general trust account as soon as practicable after receiving it.
B.Controlled Money
Controlled money works differently. You receive this money with a specific written direction from your client. That direction tells you to deposit it into an account that is not your general trust account. Most importantly, you must have exclusive control over that account.
This usually happens during big transactions. For example, a property purchase often requires the lawyer to have sole signing power to settle the deal on time. You hold the funds in a separate account just for that client.
The rules here are strict. Section 224 of the Legal Profession Act 2006 prohibits pooling. You cannot mix controlled money from one client with funds from another person. The account name must include your practice name and the words “Controlled Money Account” or “CMA.”
This clearly shows the account’s purpose. You can only withdraw money according to the client’s written direction, or a later written direction from them. You must deposit the money into the specified account “as soon as practicable.”
C. Transit Money
Transit money is the simplest category. It covers money you receive with clear instructions to pay or deliver it to a third party. That third party cannot be an associate of your practice.
A common example is a cheque made out to a barrister or a government registration body. The money simply passes through your hands. You are a conduit.
Section 225 sets clear rules for transit money. You must pay or deliver it within the period stated in the instructions. If the instructions do not specify a timeframe, you must act “as soon as practicable.” You also need to account for the money as the regulations require.
Do not delay with transit money. Failing to comply with these rules is a strict liability offence. This means the regulator does not need to prove you intended to break the rules. The fact that you did is enough. The maximum penalty is 50 penalty units.
Record-Keeping and Compliance
ACT law practices must maintain detailed records for controlled money. Each transaction requires a separate entry in the controlled money register, showing the client, the purpose of the funds, and the account used.
Regular reporting is also required. Controlled money must be included in trust account statements provided to clients or auditors. Accurate documentation ensures transparency and demonstrates compliance with the Legal Profession Act 2006.
You can implement a standard template for controlled money entries. Consistency reduces errors and makes external examinations smoother, saving time and protecting your practice.
Written directions are your foundation
For controlled money, the written direction is everything. It authorises the deposit into a specific account. It governs how you disburse the funds. You must keep these directions for the period the regulations prescribe. If you lose them, you lose your proof of authorisation.
Trust ledger accounts are mandatory
Every transaction involving trust money needs a clear record. The ledger should show the date, the amount, the source, and the purpose. The ledger must include deposits, withdrawals, and any interest earned. It must link directly to the client matter. This creates an audit trail that regulators can follow.
Registers matter for specific situations.
Depending on your practice, you may need to keep additional registers. For example, matters involving powers of attorney or estates often require separate records. Check the regulations to see what applies to your firm.
Monthly reconciliation is non-negotiable.
Monthly reconciliations are essential, and discrepancies must be investigated immediately. These records are separate from general trust ledgers to avoid misclassification. This means your internal ledgers should match exactly what the authorised deposit-taking institution holds. Discrepancies need immediate investigation. Do not let them slide.
Penalties and Enforcement
The ACT regulator takes trust money breaches seriously. The Legal Profession Act 2006 backs this up with real consequences.
Strict liability applies
For controlled money and transit money offences, the law does not require proof of intent. If you breach Section 224 or 225, the fact that you did it is enough. You cannot argue you did not mean to break the rules. This high standard exists because client protection is paramount.
The financial hit is significant
Contravening these sections carries a maximum penalty of 50 penalty units. In the ACT, one penalty unit currently equals $160. That means a single breach can cost your firm up to $8,000. Multiple breaches add up fast.
Who pays the price?
Liability extends beyond the individual lawyer. It covers the practice entity itself. For firms and partnerships, each principal shares responsibility. This means one person’s error can financially impact every partner in the practice.
Reputational damage matters too.
Fines are not the only risk. The ACT Legal Practitioners Disciplinary Tribunal can publish findings. Your firm’s name appears in decisions. Trust is everything in legal practice. Losing it costs clients and referrals.
You can run regular internal audits instead of waiting for the Law Society to ask questions. Check your trust records quarterly. Spot issues early and fix them before they become formal complaints. Prevention is cheaper than penalties.
Check our Trust account Audit in ACT
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Disclaimer
This article provides general information only. It does not constitute legal advice. The content is based on the Legal Profession Act 2006 (ACT) as at the time of writing. Legislation can change, and interpretations may vary. For authoritative guidance, consult the full text of the Legal Profession Act 2006 (ACT) or contact the ACT Law Society.
You should not act on this information without first seeking qualified professional advice tailored to your specific circumstances. Laws and regulations affect each situation differently.
Are you confident your practice classifies trust, controlled, and transit money correctly every time?
If you are not 100 per cent confident your practice classifies trust, controlled and transit money correctly every time, you are far from alone. Misclassification is one of the most common issues identified in ACT external examinations. Number Solutions Tax & Accounting can help you streamline trust accounting procedures, set up compliant accounts, and train staff so that funds are handled accurately from the moment they are received.
Our team understands ACT trust rules and can review your systems, correct inconsistencies, and reduce audit risk. With clear processes and ongoing support, you can be confident in your compliance and focus more on client work.
Ready to ensure your practice is accurate and compliant? Book now to get expert guidance and trust accounting support that works for your firm.
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