How to Handle Trust Accounting (NSW)
This month we are taking things right back to basics and discussing Trust Money.
For those new to the industry, or looking to enter this elite crowd, there is a lot of new jargon to understand. So let’s start right at the top.
Trust Money and Trust Accounting.
To the average Joe off the street, Trust Money and Trust Accounting is as familiar as snow in North Queensland.
Let’s break it down.
What is Trust money?
Trust money is money you receive from a third party that is held in a trust account on someone’s behalf. It accrues zero interest and zero charges. There are also separate legislative rules that govern how Trust money is handled and activities reported.
What is a Trust Account?
A Trust Account is used to hold the money received by a Real Estate Agency and is not to be used to hold monies for any other purpose.
What are the different types of Trust monies?
The most common types of Trust money you’ll receive are:
- Residential rent
- Residential bonds
- Commercial & retail rent
- Commercial bonds (excluding bank guarantees)
- Strata levies or body corporation fees
- Payment for goods, chattels and equipment
- Sale deposits
How do you handle Trust money?
The Property and Stock Agents Act 2002 and Property and Stock Agents Regulation 2014 outline the rules and regulations around Trust money including banking, record keeping, receipts, payments and exemptions. It is important that all Property Managers and Licensees understand the Act from front to back to ensure you don’t incur a breach through the Office of Fair Trading.
The 2020 NSW Licensing Reforms
New NSW Licensing reforms came into effect in 2020 that outlined the following changes after a rise in Trust Account fraud and to help regulate the industry.
In summary, there is now a requirement to have a separate trust account for sale and rental monies, only licensees can approve trust transactions, one person must be nominated to be the licensee in charge of each corporation and finally, Agents must have Owner’s approval for withholding funds at EOM.
Breaches are to be expected for non-compliance.
Can I spend Trust Account money?
The short (and long) answer is NO!
Unfortunately, there have been cases of Trust Account fraud in the past where unauthorised spending of Trust Account money has occurred. You are strictly prohibited from spending money Trust Account money. You are only able to spend Trust Account money on relevant Landlord expenses.
If you would like a rundown of how best to manage your Trust Account, simply reach out to our team. Better yet, we offer outsourced Trust Accounting to completely take the stress of Trust Accounting off your hands. Simply get in touch with us to enquire.
Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 24 years’ industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.