Fee From Refund: Setting It Up at Engagement

Fee from refund lets your client authorise your practice to receive their tax refund, deduct the agreed fee and pay them the balance. Set up the separate client account and signed authority before lodgment, with another payment option available.

How Fee From Refund Works

With written authority, the ATO pays the refund into your practice’s trust account, you deduct the authorised fee and transfer the balance to the client. The client chooses this payment method. Offer direct payment of your invoice as an alternative, with the refund going to the client’s own account.

The money moves through these steps.

1. Agree the fee and payment choice at engagement. Obtain the signed authority before lodging the return.
2. Enter the authorised refund account in the return and have the client approve the return’s banking details.
3. Lodge the return. The ATO assesses it and applies any debt offsets before releasing the available refund.
4. Match the money received to the client and assessment. Transfer only the authorised fee to your business account.
5. Pay the balance to the verified client account and send a statement showing the refund received and each deduction.

TPB tax-time guidance says most digital returns are processed within two weeks. Additional information or a locked taxpayer record can delay the refund. Your practice’s payment period starts after receipt, so explain that these are separate waiting periods. Bank clearing and transfer times also affect when the client sees the balance.

A third-party refund transfer service receives and distributes the money under its own arrangements. Tell the client who receives it and obtain express authority for that destination. The TPB’s trust-money guidance explains the risk of sending a refund to a third party without authority. A refund transfer arrangement is separate from a loan or advance against an expected refund.

The Client’s Written Authority

Get the client’s signed authority before lodging, with both receipt of the refund and deduction of your fee expressly covered. Put it in the engagement letter or attach a separate form that the letter identifies.

The authority needs enough detail for the client to understand what happens to their money.

• Identify the client, return and income year covered.
• State the fee including GST, or the agreed calculation method and any approval needed for a changed amount.
• Identify the receiving account’s holder, bank and account details.
• Record the client’s own account for the balance and the payment period after receipt.
• Explain how an offset, adjustment or delayed refund affects payment, including how the client pays a fee shortfall.
• Record the client’s signature and signing date, and provide them with a copy.

Use a fresh authority for each return as your practice procedure. Obtain changed instructions before using a different receiving account or deducting a fee outside the agreed amount. An earlier payment choice does not establish what the client wants for a later engagement.

Sample Authority Clause

The following is an adaptable example. Complete the fee schedule and bank details in the engagement letter before sending it for signature.

I choose fee from refund for the return and income year identified in this engagement letter. I authorise the ATO to pay my refund into the practice’s client trust account identified in the attached bank details. I authorise the practice to deduct the agreed fee, including GST, shown in the fee schedule. The practice will transfer any balance to my verified account within three business days after receiving cleared funds. If the refund is reduced, delayed or insufficient, I remain responsible for the unpaid fee under the invoice payment terms. Any increase outside the agreed fee requires my written approval before deduction.

Keep the signed version with the fee schedule, bank instructions and any later amendments. A signature on the tax return declaration alone does not explain the fee deduction or your onward-payment terms.

Setting Up the Trust Account

Open a separate account for client refunds, with “Trust Account” in its title. APES 310 permits “client account” or similar wording only after reasonable efforts to obtain the required title fail. Keep client money separate from practice money, subject to the standard’s narrow exceptions.

Agree the bank’s treatment of client money and set written responsibilities for approving payments. Keep one record per client showing receipts, deductions, transfers and the running balance. Match those records to bank activity regularly, investigate differences and retain the authority and supporting payment records.

Under APES 310, reconcile trust records at least every 25 business days. Disburse within three business days of receiving instructions or according to the engagement terms. The TPB’s refund guidance expects prompt payment within 14 days, subject to exceptional circumstances or an agreed alternative. Use a shorter written payment period your practice can meet.

In your tax software, select the agent trust-account refund option where available. Enter or select the authorised BSB, account number and account name for that return. Compare the final declaration with the authority before lodgment. Keep the client’s personal account separately for the onward transfer. Review carried-forward bank details at every re-engagement.

TPB Code and APES 310 Obligations

Code item 3 requires you to account to your client for money you receive on their behalf and hold on trust. Section 30-10(3) of the Tax Agent Services Act applies to a refund you hold, including the fee portion before the agreed conditions for deduction are met.

APES 310 applies to members in public practice dealing with client monies. Written approval is required before paying professional fees from trust. Members must arrange annual reasonable assurance within three months of the applicable year-end, subject to the standard’s exceptions. Deficiencies must be reported to the professional body and auditor within five business days. Use the full APES 310 guide for the wider account, reporting and assurance requirements.

For income-tax refunds, the nominated account must be maintained in Australia and held by an eligible recipient, including the client’s registered tax agent. The statutory bank-account rule allows the ATO to retain refunds while suitable details are obtained.

The ATO checks returns for errors and fraud. It can require further information before release, and a compromised or locked record can require client contact. Complete identity checks and confirm authority before changing refund instructions. Independently confirm an unexpected change to the client’s onward-payment account through a known contact method.

If your practice cannot meet the applicable trust-money requirements, collect the fee separately and have the refund paid directly to the client. The TPB Code guide explains the wider professional duties.

When the Refund Does Not Cover the Fee

An expected refund does not guarantee payment of your invoice. The ATO can apply credits against tax debts, including debts on hold. Other government recovery arrangements can reduce the amount released.

Check the assessment and account transactions against the refund received. Explain the offset or adjustment to the client, deduct only the authorised available amount and issue an invoice for the remaining fee. The engagement terms must already explain that the client remains liable for a shortfall and when payment falls due.

In this invented example, the service fee includes GST. The expected refund is $1,200 and the agreed fee is $330. An ATO debt offset of $1,000 leaves $200 for the trust account. With authority to apply that amount to the fee, the practice deducts $200, pays no balance to the client and invoices the remaining $130. If the offset were $600, the practice would receive $600, deduct $330 and pay the client $270.

If the ATO holds the refund, check the return status and any request for information. Resolve that request with the client and give them the revised payment expectation. Do not spend an expected refund or use another client’s money to cover the fee. If an assessment changes after payment, reconcile the new amount and explain the resulting invoice or refund to the client.

Offering Fee From Refund at Onboarding

Present the payment choice when you issue the engagement letter, so the client signs the authority in the same step. Agree the fee and payment terms before collecting the signature.

Collect the payment choice, the client’s own bank details for the balance and any known ATO or other government debts. Confirm identity and record how you checked the bank instructions. Give the client the receiving account details and explain the fee deduction separately from the ATO’s assessment.

Send a written explanation of your payment period after receipt, the possibility of offsets or delays and the shortfall invoice terms. Add the authority clause to your practice’s engagement letter and retain the signed copy with the client file.

Before lodging the first fee from refund return, have a second staff member compare the signed authority with the return’s receiving account and fee schedule. The file is ready when those details match, the onward-payment account is verified and someone owns the refund reconciliation and transfer.