How to Record and Bill Disbursements and Expenses in Australian Law Firms

Disbursements are a source of frequent confusion and occasional friction between lawyers and their clients. They appear on every legal bill, they can add significantly to the total cost, and the rules around GST treatment, trust account handling, and disclosure are more nuanced than many practitioners realise. Mismanaging disbursements can lead to costs disputes, trust account breaches, and GST errors that compound over time.

This guide explains how to properly record, bill, and recover disbursements in Australian legal practice.

What Counts as a Disbursement

A disbursement is an out-of-pocket expense incurred by the law firm on behalf of the client in the course of carrying out legal work. Disbursements are distinguished from professional fees (the lawyer's time charges) and are typically passed through to the client at cost, without any mark-up.

Common disbursements in Australian legal practice include:

• Court and tribunal filing fees — Federal Court, Family Court, Supreme Court, Local Court, AAT, and similar bodies
• Barrister's fees — brief fees, conference fees, appearance fees, and advice fees
• Expert reports — valuations, medical reports, forensic accounting, handwriting analysis, building inspections
• Search fees — ASIC searches, land title searches, personal property securities register searches, bankruptcy searches
• Process server fees — service of originating process, subpoenas, and other court documents
• Travel expenses — mileage, flights, accommodation, and meals when travel is required for the matter
• Transcript fees — court transcripts, hearing recordings, and examination transcripts
• Photocopying and printing — large-scale copying for court bundles, discovery, or document production
• Postage and courier costs — registered post, express courier for urgent documents
• Registration and lodgement fees — stamp duty, transfer registration, company registrations

The GST Question: Agent vs Principal

The GST treatment of disbursements is one of the most commonly misunderstood areas of legal billing in Australia. The key distinction is whether the law firm incurs the expense as an agent of the client or as a principal in its own right.

Agency disbursements (GST-free on pass-through)

When the law firm pays an expense on behalf of the client as the client's agent, the payment is treated as the client's own expense. The firm is simply making the payment as a convenience. These disbursements are passed through to the client without GST on the pass-through, because the GST (if any) is between the supplier and the client, not between the firm and the client.

Common examples include court filing fees (which are GST-free in any event), barrister's fees (where the barrister is engaged by the client through the solicitor), and third-party expert fees where the expert's retainer is with the client.

Principal disbursements (GST applies)

When the law firm incurs the expense in its own right and then recovers it from the client, the recovery is treated as a supply by the firm to the client and GST applies. The firm claims the input tax credit on the original expense and charges GST on the recovery.

Common examples include photocopying and printing on the firm's own equipment, internal database or search subscriptions used for the client's matter, and postage through the firm's own accounts.

The practical test is: who is the supplier contracted with? If the third party is engaged by the client (even if the firm handles the arrangement), it is an agency disbursement. If the third party is engaged by the firm, it is a principal disbursement. For more on GST and legal billing generally, see our guide to GST on legal fees.

Recording Disbursements

Accurate recording of disbursements is essential for billing, trust account compliance, and GST reporting. Each disbursement should be recorded with:

• The date the expense was incurred or paid
• The matter and client it relates to
• A clear description of the expense (not just "disbursement" or "search fee")
• The amount, specifying whether it includes or excludes GST
• Whether it is an agency or principal disbursement
• The source of payment — trust account, office account, or credit card
• A copy or reference to the invoice or receipt

Practice management systems like Actionstep, LEAP, and Clio all have disbursement recording functionality, but the quality of the data depends entirely on the accuracy and timeliness of the recording. A disbursement recorded three weeks after it was incurred, without a description or receipt, is a billing problem waiting to happen.

Trust Account Considerations

Disbursements paid from the trust account require particular care. Under the trust account provisions of the Legal Profession Uniform General Rules, money held in trust can only be disbursed for the purpose for which it was received. Before paying a disbursement from trust, verify that the client has provided funds for that purpose (or that the costs agreement authorises the use of trust funds for disbursements), the payment is properly authorised, the payment is recorded in the trust account ledger against the correct client matter, and a receipt or invoice supports the payment.

Trust account breaches — even inadvertent ones — are treated extremely seriously by the relevant regulatory authorities. For more on the intersection of trust accounting and billing, see our article on trust accounting and billing.

Disclosing Disbursements to Clients

The costs disclosure requirements under the Legal Profession Uniform Law extend to disbursements. Section 174 requires disclosure of an estimate of the approximate costs of any disbursements that the law practice considers are likely to be incurred.

In practical terms, this means your costs disclosure should list the types of disbursements likely to be incurred in the matter, provide estimates where possible (for example, "court filing fees of approximately $1,500-$2,000"), note that additional disbursements may arise as the matter develops, and state that disbursements will be charged at cost without mark-up.

If a significant unanticipated disbursement arises during the matter — for example, the need for an expert report that was not originally contemplated — provide updated costs disclosure before incurring the expense, and obtain the client's instructions to proceed.

Common Disbursement Billing Errors

Marking up disbursements. Some firms add a handling fee or percentage mark-up to disbursements. While not unlawful, this practice must be disclosed in the costs agreement and is increasingly challenged by clients and costs assessors. If you mark up disbursements, make this absolutely clear in the retainer.

Charging internal costs as disbursements. Overhead costs — rent, electricity, IT systems, general stationery — are not disbursements and should not appear on the bill as such. They are covered by the firm's hourly rates. Charging clients for printer toner or general office supplies erodes trust.

Double-counting. Charging a disbursement for a search and also recording time for "conducting search" risks double-counting. The time entry should describe the analysis of the search results, not the act of running the search itself (which is what the disbursement covers).

Failing to pass through GST correctly. Applying GST to agency disbursements that should be GST-free, or failing to apply GST to principal disbursements, creates cumulative errors in BAS reporting that may only be discovered during an audit.