Earlier this year the NSW Parliament passed legislation changing the frequency to which legal practices were required to calculate statutory deposits.
It is therefore timely to review the requirements across all states and territories to ensure practitioners are meeting obligations.
We start with an explanation of the concept itself.
The Statutory Deposit Scheme
The scheme provides a mechanism for interest on trust money to be calculated and remitted into a fidelity fund, administered by a regulatory body in each jurisdiction. The scheme is two-tiered: interest is calculated on the residual balances of all general trust accounts and additionally on separate statutory deposits that are removed from general trust and held in isolation within their own account. This differs from the approach taken by IOLTA schemes in the US where statutory deposits are not removed from general trust, with interest calculated on the entire balance.
The formulas applied to calculate the statutory deposit at first appear obscure, however, the overall intention is to preserve a core balance in the general trust account enabling continued operation – the ability to withdraw on behalf of multiple clients as and when required, all while ensuring the maximum deposit is isolated. The mechanism for recalling the deposit back to general trust must be efficient in order to ensure funds are available. After recall, all jurisdictions require recalculation of the deposit required in order to ensure participants do not simply recall at the commencement of the period to avoid the requirement.
Beneficiary of the Interest
Interest earned on statutory deposits and residual general trust funds are determined by each regulatory committed. The interest is removed and allocated to a separate fund, then used for legal aid, client reimbursement for loss of actual trust monies, to fund pro-bono legal work and other purposes that serve the public good.
Australian Capital Territory
The trust accounting years commences 1 April and finished on 31 March. The Law Society of the ACT maintains a bank account entitled ‘Statutory Interest Account’. The general aim is that 2/3rds of the total trust balance held (general trust + any existing statutory deposit) equals the required amount to be held in the statutory deposit account. If a practice believes it will be required to pay out a sum exceeding the reduced balance of general trust within a period of 7 days, it may recall the statutory deposit, however, after disbursing the funds it must recalculate the required amount.
New South Wales
Law practices have 20 works days after the end of each quarter to recalculate their statutory deposits. A convenient online calculator is located on the Law Society of NSW’s website here https://www.lawsociety.com.au/practising-law-in-NSW/trust-money-and-fidelity-fund/statutory-deposits/calculator. The requirement to calculate four times per annum is the most onerous existing provision.
Currently, there is no requirement for a separate statutory deposit account to be created.
The requirement for a ‘prescribed account deposit’ was abolished in Queensland in November 2016.
A law practice must deposit a sum into the ‘combined trust account’ within 14 days after each of 31 May and 30 November. The amount held in the combined account must be equal to or greater than 2/3rds of the lowest cashbook balance for the period.
With 14 days after each of 31 March, 30 June, 30 September and 31 December a law practice must ensure a sum is held separately in a ‘designated trust deposit account’. The sum to be held is equal to 2/3rds of the lowest cashbook balance for the period.
Like NSW, VIC is subject to the Legal Profession Uniform Law Application Act requiring a quarterly assessment and recalculation of the statutory deposit account.
The Public Purpose Trust receives currently receives 49% of all interest held on general trust account balances in WA. Commencing 1 July 2020 Western Australia will join NSW & VIC under the national Legal Profession Uniform Law Application Act and thus be subject to quarterly calculation of a statutory deposit account.
Statutory deposits, calculation of interest on general trust account and IOLTA schemes provide an interesting but effective approach to funding legal aid, fidelity funds and monies used for the public good. Where substantial monies are held on behalf of the client of a lawyer, the ability to provide a separate interest-bearing account (controlled money a/c) will always allow a mechanism to earn interest for the benefit of that client.