Mandatory Trust requirements for the building and construction industry were first introduced in Queensland in March 2018. These requirements are governed by the Building Industry Fairness Act (Security of payment) Act 2017 (BIF Act) and its Regulation.
Commencing 1 March 2021, changes were made to the BIF Act to support a revised trust account framework. Under the revised framework, project bank accounts (PBAs) were phased out and replaced by project trust accounts (PTAs).
Under the changes, a PTA is required for specified building contracts and a separate single retention trust account is required for the holding of cash retentions.
- Commencing 1 January 2022, PTAs will be required for a wide range of private sector contracts valued over $10 Million.
- From 1 July 2022, private sector contracts over $3 million will require a PTA.
- From 1 January 2023, eligible private sector contracts over $1 Million will require a PTA.
What is a project trust?
Project trusts are statutory trusts formed under the BIF Act. Project trusts become established under the BIF Act for specified building contracts (called project trust contracts).
A project trust is a trust over the following amounts:
- amounts paid by the contracting party (e.g. a principal or developer) to the contracted party (e.g. the head contractor) under a project trust contract;
- amounts paid by the contracted party to subcontractors for the project trust contract;
- any other amounts deposited in the project trust account as required by the BIF Act.
The trustee for a project trust is typically the head contractor, although there are some instances where a subcontractor may be required to be a trustee for a project trust.
What is a project trust account?
A PTA is an account through which project trust funds are received and paid. The trustee is responsible for setting up and administering the project trust account for the project trust.
In the most common situation, the principal or developer pays progress payments into the project trust account for work completed in accordance with the project contract with the head contractor. The head contractor then pays all subcontractors that have been engaged for the building project out of this account. The head contractor also pays themselves out of the project trust account.
The project trust account must be separate to the head contractor’s personal or business account. The funds in the project trust account must also be kept separate from funds used for other projects being undertaken by the head contractor and other cash flow.
The owner or principal is not required to pay the full contract value into the project trust account upfront. Progress payments still apply. Suppliers engaged by the head contractor and the head contractor’s employees are not beneficiaries of the trust and must not be paid from the trust account. The head contractor’s other business and operating costs must also not be paid from the trust account.
Are subcontractors ever required to be a trustee and administer a project trust?
In most instances a PTA will not need to be established by a subcontractor for its sub-subcontractors. The only time when a subcontractor is required to establish a project trust account and become a trustee for their sub-subcontractor(s) is if the subcontractor is classed as a “related entity subcontractor”.
A subcontractor will become a “related entity subcontractor” if all the following apply:
- the subcontract is a first-tier subcontract for a head contract, and
- a project trust is required for the head contract, and
- the subcontractor is a beneficiary of the project trust for the head contract, and
- the subcontractor is a “related entity” for the contracted party for the head contract (e.g. they are related bodies corporate, they are members of the same family, the individual subcontractor is a majority shareholder in the head contractor company).
What contracts require a project trust account?
The legislation governing when a trust account is required is very complex. The Queensland Building and Construction Commission has developed a simple online tool to allow contractors to quickly identify whether they require a project trust account.
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