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Interest Accrued on Section 86 trust bank accounts and Rule 54.14.16 – Legal Practitioners Act (28 of 2014)

MUST BE PAID OVER TO THE LEGAL PRACTITIONERS FIDELITY FUND ( THE FUND) AND VESTS IN THE FUND

SECTION 86(2) TRUST SAVINGS ACCOUNTS OR OTHER INTEREST BEARING ACCOUNTS

In terms of Rule 54.14.16.1  made under the authority of Section 95 (1) of the Legal Practice Act, 28 of 2014, 100% of trust interest earned, less approved recoverable bank charges, will be paid monthly to the Fund

Rule 54.14.16.1 Any interest referred to in section 86(5) of the Act which relates to a trust banking account opened in terms of section 86(2) of the Act which has accrued on money deposited during the course of a calendar month, shall be paid over to the Fund or its nominee on or before the last day of the next succeeding calendar month; provided that the Fund may, in its discretion, exempt a practitioner from this obligation.

Rule 54.14.16.5 A legal practitioner shall be guilty of misconduct if he or she fails to pay over, in accordance with this rule 54.14.16, any interest that vests in the Fund.

In terms of rule 54.14.16.1 it is  mandatory for legal practitioners to pay over 100% of trust interest earned on section 86(2) trust bank accounts, less approved recoverable bank charges, to the Fund   on a monthly basis.

A number of  South African Banks offer products for legal practitioners that automate the monthly collection process in a seamless fashion with little or no legal practitioner involvement.

Recoverable bank fees/charges, as defined by the Fund, are automatically set of against the interest earned before the Banks make payment of the net interest to the Fund

Practitioners are urged to make use of this Automated Monthly Transfer System (AMTS) that the Banks offer to their legal practitioner clients.

The Fund will upload the information received from the Banks into its Fund Collection Management System (FCMS).

The AMTS works as follows:

  • All transaction fees/charges and credit interest accumulate during the course of the month in the trust bank account
  • This information is often reflected in a memorandum column on the bank statement and is then aggregated and debited to the trust bank account on a certain day which is normally the last working day of the month or very close thereto
  • On the day that the accrued bank fees/charges and interest are posted to the trust bank account, the VAT exclusive portion of the bank fees/charges is compared against the interest credited to the trust bank account during the month
  • If the interest credited to the trust bank account during the month exceeds the VAT exclusive value of the bank fees/charges, the Bank pays over such excess to the bank account of the Fund
  • If the VAT exclusive value of bank fees/charges exceeds the interest credited to the trust bank account the Bank will debit the business current account of the practitioner with the excess value of the VAT exclusive bank fees/charges
  • In all cases, the value of VAT raised on bank fees/charges during the month must be debited by the Bank to the practitioner’s business current account. Such VAT should be claimed as a VAT input credit by the practitioner when the legal practitioner submits the regular VAT return to SARS. Legal practitioners who are NOT VAT registered may recover such VAT from the Fund by completing the annual claim form accordingly
  • The Bank will generate a monthly report to the Fund in respect of each practitioner firm, indicating:
    • Interest credited to the trust current banking account
    • VAT exclusive bank fees/charges debited to the trust current banking account
    • Net amount paid over to the collecting law society
  • Should a legal practitioner choose not to use the AMTS product offered by the banking industry, the legal practitioner is required to pay over the net interest earned in the trust current banking account to the Fund, on a monthly basis. (Rule 54.14.16.1)

 

SECTION 86(3) TRUST SAVINGS ACCOUNTS OR OTHER INTEREST BEARING ACCOUNTS

In terms of Rule 54.14.16.3  made under the authority of Section 95 (1) of the Legal Practice Act, 28 of 2014, 100% of trust interest earned  will be paid annually to the Fund

Rule 54.14.16.3 Any interest referred to in section 86(5) of the Act which relates to an account opened in terms of section 86(3) of the Act accrued on money deposited in respect of any period ending on the last day of February in each year shall, on or before the last day of May in that year, be paid to the Fund or its nominee.

Generally speaking the rate of interest earned on a section 86(3) interest bearing account can be up to 45% higher than the rate of interest earned on a section 86(2) trust bank account.

Legal practitioners are urged to engage with their banks and transfer money, which is not immediately required for any particular purpose, from their trust accounts into an interest-bearing account in terms of section 86(3).

This in turn will result in the Legal Practitioners Fidelity Fund (the Fund) receiving more income to assist the Fund in carrying out its mandate in terms of  the Legal Practice Act 28 of 2014.

This increased interest earned by the firm will result in the 20% net interest subsidy increasing which will increase the firm’s annual audit fee subsidy where a firm’s audit fees are currently not fully covered by the 20% of net interest subsidy.

The Fund  actively engages with legal practitioners so as to encourage firms to invest section 86(3) funds, which are not immediately required for any particular purpose, into an interest-bearing account in terms of section 86(3) so as to benefit from a higher rate of interest.

SECTION 86(4) TRUST SAVINGS ACCOUNTS OR OTHER INTEREST BEARING ACCOUNTS

In terms of Rule 54.14.16.4  made under the authority of Section 95 (1) of the Legal Practice Act, 28 of 2014, interest accrued on money deposited in terms of this section must be paid over to the person referred to in  subsection (4): Provided that 5% of the interest accrued on money in terms of this paragraph must be paid over to the Fund, with effect from 1 March 2019, and vests in the Fund.

Rule 54.14.16.4 Any interest referred to in section 86(5) of the Act which relates to an account opened in terms of section 86(4) of the Act, accrued on money deposited during the course of a calendar month or on maturity shall be paid over to the Fund or its nominee on or before the last day of the next succeeding calendar month.