The trust accounting process can be complicated, with various regulations, obligations and legislation depending on the laws that apply in your State.
With significant amounts of money flowing through your trust accounts – and serious penalties if you don’t get it right – it is imperative you not only understand the basic ins and outs of trust accounting in real estate, but also use a qualified expert to keep your trust accounts compliant and efficient while you focus on building your business rather than getting tied up in bureaucracy and paperwork.
What is real estate trust accounting?
At its most basic level, a real estate trust account holds money that is received for or on behalf of another person in relation to a real estate transaction, known as trust money. All real estate agents who hold or receive trust money are required to open and maintain trust accounts with an authorised financial institution to properly account for trust money in their possession.
Trust accounting refers to the bookkeeping of trust accounts to maintain appropriate financial boundaries and to ensure that trust money is not misappropriated.
Payments into trust accounts
Trust accounts are set up to manage the following payments:
Rental bonds or security deposits on:
- Residential land, buildings and company assets
- Holiday accommodation that exceeds a 90-day period
- Industrial, commercial or storage buildings, land and other necessary assets
Deposits on payments for:
- Sales of businesses
- Sales of land, buildings, and other accompanying assets
- Shares in an organisation that entitles the shareholder to occupy land, properties and any other relevant assets
- Options to purchase buildings, land and other accompanying assets
- Options to purchase shares in an organisation that entitles the shareholder to occupy property, land and other necessary assets
Rent on:
- Commercial, industrial or residential leased properties, land and associated assets
- Residential accommodation for a term that exceeds 90 days
Fees received ahead of advertising for:
- Organisations for sale
- Property/buildings, land and other relevant assets for either lease or sale
Advances for costs:
- Utilities and outgoings related to the property/buildings, land and accompanying assets for either sale or lease
Basic real estate trust account requirements
Opening and using a trust account has some very specific requirements, which include:
- Licensees must notify the deposit-taking institution in writing that the account is a trust account
- The trust account must be in the name of the corporation if it is held by a corporation.
- If the account is not held by a corporation, the trust account must be in the name of the licensee or firm
- The name of the licensee, firm or corporation needs to appear as a prefix of the account name, followed by any other necessary identifier or the trust account
- The words “trust account” must also be included in the name of the trust account and all cheques drawn on the trust account
Meeting trust account legal requirements
Real estate agents must set up and maintain the trust account of a client as per the legal obligations of the state or territory in Australia. The legal requirements for real estate trust accounting procedures vary from state to state or territory, with guidelines posted and updated online.
The laws and regulations exist to ensure that the trust money held by real estate agents, real estate accountants, dealers, auctioneers or debt collectors is properly dealt with and can be accurately accounted for at all times. There are serious penalties for the misuse of a client’s trust money which includes heavy fines and imprisonment.
If you need more clarity on the information or you need to seek professional legal advice for your specific situation, you can take the help of an expert.
Use an expert for trust accounting
The process of trust accounting can be complicated and requires specialist experts that not only work towards being compliant with Fair Trading regulations but also help you deal with property tax and real estate trust accounting. Having expert advice to help you to deal with the challenges of trust accounting can make a big difference to your bookkeeping, investment and accounting processes.
Our experience in real estate finance means we understand how onerous the obligations around trust account management can be – and also how important. Our expert team can keep your operations compliant and efficient, saving you the time, money and headspace you need to focus on what you do best: prospecting new leads, generating sales and servicing existing clients.
Our outsourced trust accounting solution includes:
- Receipting and reconciliation – we complete daily receipting and reconciliation of your trust account, removing an item from your to-do list every single day.
- Invoicing – allow us to quickly and accurately process invoices to ensure a consistent and predictable flow of cash.
- Disbursements – we manage payments efficiently and effectively to keep your landlords and tradespeople happy without you falling short.
- End of month and mid-month processing – use the end of the month to celebrate performance, not crunch numbers by leaving this process in our capable hands.
- Reporting and recommendations – at Hot Toast, we don’t just push numbers and make pretty graphs. Advisory is at the heart of our business and we provide reporting and recommendations on how to make your business more efficient and profitable no matter your investment with us.
- Full compliance with State, Territory and Federal regulations – our team is fully qualified and certified to manage trust accounts within Australia and continually up-to-date with the latest rules and regulations.
- Cloud-based accounting solutions – we can implement and train staff in the right mix of property management software that will drastically improve efficiency, visibility, accountability and profitability across the business.
It all starts with a conversation
Our team is ready and eager for a first consultation to explore how we can build the perfect outsourced finance solution to support your unique needs and help your business thrive. Phone Sarah today on 0426 217 167 or email info@hottoast.com.au
