Accounting for legal services

Whether you’re a lawyer, notary, or firm manager, you know that accounting for a legal practice in Quebec leaves no room for approximation. Funds received from clients must be processed through a trust account, which requires separate record-keeping, monthly reconciliations, and an annual report mandated by the Quebec Bar Association or the Chamber of Notaries. In addition, you must track work in progress on a case-by-case basis, distinguish between reimbursed disbursements and firm expenses, and manage provisions, all while ensuring client funds are never commingled with the practice’s funds.

Since the end of accrual-based accounting, work in progress is now included in taxable income: your accountant must know how to value it correctly. Add GST and QST to fees, the choice of business structure (self-employed, SENCRL, or a corporation authorized by your professional association), and payroll for support staff, and the need for an accountant who understands the legal profession becomes clear. We’ll connect you with the right accountant for this sector, for free, for as long as you need, and we’ll stay by your side. No obligation.

• Flawless trust account bookkeeping: separate ledgers for each client, monthly reconciliations, and no disbursements until fees are billed.
• Include work in progress in taxable income following the abolition of invoice-based accounting, valued at the lower of cost and fair market value.
• Track profitability by case: hourly rates, flat fees, and contingency fee arrangements are not managed in the same way.
• Distinguish between disbursements incurred as an agent (often exempt from GST/QST) and taxable disbursements that are re-billed: court stamps, bailiffs, expert witnesses.
• Managing cash flow dependent on settled cases: protracted litigation, fixed-fee legal aid cases, long-standing accounts receivable, and provisions for doubtful accounts.
• Choosing the right business structure: self-employed, SENCRL, or corporation, each with different tax and protection implications.
• In Quebec, aim for approximately 5,500 paid hours per year to take full advantage of the small business deduction: a real challenge for small incorporated law firms.

• Separate accounting for trust accounts, monthly reconciliations, and an annual trust accounting report as required by the Quebec Bar Association or the Chamber of Notaries.
• Registration for GST (5%) and QST (9.975%) when taxable supplies reach $30,000, and collection of tax on fees; the Quick Method is not available to legal professionals.
• GST/QST treatment of disbursements based on their nature: disbursements incurred on behalf of the client are non-taxable; disbursements specific to the firm are taxable.
• T2 and CO-17 returns for corporations, T1/TP-1 with income statement (T2125) for self-employed individuals, and information returns (T5013 and RL-1) for various professional limited liability companies (SENCRLs).
• Source deductions (DAS) for support staff: income tax, QPP, QPIP, HSF, and CNESST, with T4 forms and RL-1 slips to be filed annually.
• Inclusion of work in progress in the calculation of income (end of the exclusion for designated professionals) and rigorous tracking of advances received from clients.
• Retain accounting records and supporting documents for 6 years (CRA and Revenu Québec), in addition to the records required by your professional association.

Are you familiar with the rules governing trust accounts? Yes. Several accountants in the Bankeo network provide support to lawyers and notaries, including maintaining separate trust accounts, performing monthly reconciliations, and preparing the annual report required by the Barreau du Québec or the Chambre des notaires. Please specify your professional association and your practice management software in your request: we’ll match you with a vetted accountant who is already familiar with these requirements.

Is my firm’s work in progress subject to tax? Yes. Since the abolition of invoice-based accounting, legal professionals have been including their work in progress in their taxable income, valued at the lower of cost and fair market value. An accountant specializing in this sector sets up case-by-case tracking, documents the valuation, and keeps billing, provisions, and disbursements in order. We’ll connect you with the right accountant for this sector, for free.

How much does an accountant cost in this sector? According to the Bankeo Fee Barometer, based on 1,248 real-world cases (2024-2026), the median cost for this sector is around $1,500 per year. The cost varies depending on whether you are a corporation or a self-employed individual, as well as the volume and complexity of your work. The Bankeo matching service is free: you pay your accountant directly.

How can I switch accounting firms for my law practice without any stress? We’ll handle it with you. You describe your practice to us (trusts, management software, practice structure), and we’ll introduce you to a vetted accountant who’s already familiar with these requirements. The transition is seamless: we’ll handle the transfer of your ledgers, reconciliations, and tax records without interrupting your obligations to your professional association. The matching service is free, and we’ll continue to support you even after the transition.

Local or Remote Accountant for a Law Firm? Both work very well. Trust accounting, billing, and annual reports are now managed remotely using secure cloud-based tools. What matters is that your accountant is well-versed in the rules of the Barreau du Québec or the Chambre des notaires: we’ll match you based on this expertise first, and near you if that’s your preference.

Can I pay my fees directly from the trust account? Only after fees have been billed to the client, never before. Funds held in trust belong to your clients until the work is billed, and every withdrawal must be documented and reconciled. An accountant familiar with legal practice will set up a billing and withdrawal procedure that complies with your professional association’s rules and keeps your annual report in perfect order.