Managing payments within a project trust account
Payments into a trust account
Only amounts related to the contract for which the project trust is required may be paid into and held in the project trust account. Amounts owed under other contracts and/or for different projects must not be paid into the project trust account.
Any interest credited to the project trust account is considered to be lawfully deposited into the account.
All amounts due and payable by the principal/owner to the trustee for the contracted work must be paid only into the project trust account, not the trustee’s personal or business account or any other payment destination.
An amount is not required to be deposited into the project trust account by the principal/owner if:
- the amount is withheld because of a ‘payment withholding request ’ from a subcontractor,
- the amount is paid directly to a person in connection with a ‘subcontractors charge’,
- the amount is paid into court,
- the amount is due to be paid before the trust was established, or
- situations where the contracting party has a reasonable excuse.
The trustee may only deposit amounts into the project trust account that are to:
- pay a subcontractor beneficiary an amount the contracted party is liable to pay the beneficiary in connection with its subcontract (i.e. topping up the account)
- to transfer an amount paid by the contracting party incorrectly (e.g. paid to an incorrect account)
- repay an amount withdrawn from the account in error.
Withdrawals from a project trust account
An amount must only be withdrawn from the project trust account if it is for the purpose of paying a beneficiary an amount they are entitled to be paid. This includes:
Paying a subcontractor an amount the contracting party is liable to pay to the subcontractor in connection with its subcontract
- Depositing an amount into the retention trust account for a subcontractor beneficiary
- The trustee paying themselves but only to the extent the contracted party is not also liable to pay a subcontractor beneficiary for the same work;
- Returning an amount paid in error by the contracting party;
- Making payment relating to the contract in accordance with an adjudication decision or a decision of a court.
The trustee may also withdraw an amount equal to the interest earned on the account but not more than once every twelve months; and may withdraw the interest when transferring the account to a new financial institution and when dissolving the trust. Should the trustee make an unauthorised withdrawal, it must repay such amounts as soon as practicable after becoming aware the withdrawal is unauthorised.
Trustee cannot make investments from a project trust account
The trustee cannot invest the funds held in the project trust account in any form of investment. Note that earning interest on amounts held in the project trust account that is paid by the financial institution is not considered to be an investment and is therefore permitted.
Can a trustee use an agent or delegate to administer a project trust?
A trustee may employ or engage an agent to do any act relating to the project trust on their behalf. The trustee is responsible for all costs associated with employing or engaging an agent and these costs cannot be recovered from the funds held in the project trust or from its beneficiaries.
Despite the engagement of an agent to act on behalf of the trustee, the trustee remains liable for all acts and defaults of the agent. The law treats the agent’s acts and defaults as if they are the trustee’s acts and defaults. For further information, see the QBBC website.
Trustee’s obligation to maintain trust records
The trustee is responsible for keeping certain trust records and copies of related documents, in accordance with statutory requirements. For further details on the records for project trust accounts that must be maintained by the trustee see the QBCC website.
Transfer of payments in and out of a project trust account – Electronic record requirement
The trustee must ensure that only methods of transfer that create an electronic record can be used for project trust account transactions. Interest earned and deposited into the account, and fees charged and withdrawn from the account by the financial institution are allowable by the trust account laws, provided compliant recording of these amounts is made. Trustees are not entitled to recover payment for administration or bank fees from a beneficiary or from funds held in trust.
There are a range of general requirements that must be complied with by the trust for all trust records. These records must be retained for at least 7 years.
Trustees must ensure that any computer system they use to store trust records must comply with the following requirements:
- It must be capable of producing a report about transaction details for a particular trust account for particular periods and the details of the transactions for a particular beneficiary.
- It must not be capable of deleting all or any part of a record of deposit or withdrawal for the project trust account or the trust account ledger for the project trust account.
Trustee’s Bank reconciliation obligations
The trustee is responsible for completing a monthly bank reconciliation for the project trust account. This bank reconciliation must be completed within 15 business days after the end of each month.
Payments from a project trust
Who are the beneficiaries of a project trust?
A beneficiary is a person (individual or company) for whom amounts are held in trust. All beneficiaries must only be paid from a trust account.
A beneficiary of a project trust includes first-tier subcontractors (or additional tiers in cases where the subcontractor is a related entity – see discussion above) engaged by the trustee, but only to the extent they are performing ‘protected work’.
Protected work includes project trust work and additional work such as:
- Construction work such as roadworks, pipelines, water mains and drainage
- Installation of heating, lighting, power supply, water supply and drainage
- Site works such as earthmoving, foundations, scaffolding, site restoration and landscaping
- Painting and decorating.
However, protected work does not include:
- Drilling for, or extraction of, oil or natural gas;
- Extraction of minerals (including surface work, tunnelling, boring and constructing underground works for the purpose of extraction of minerals)
The trustee is also a beneficiary of the project trust.
How are beneficiaries paid from a trust account?
The trustee is required to notify all beneficiaries about the establishment of a trust account and their responsibilities to the beneficiary. This notice must be given either before entering a contract, or before cash retention amounts are withheld. The content of the notice must comply statutory requirements (see QBCC website for details).
All amounts related to the project must be paid through the project trust account. For beneficiaries, this means that there is no change to the way that they make payment claims or receive payment schedules. The trustee cannot pay subcontractor beneficiaries in cash or transfer amounts due under the contract through their personal bank account.
Subcontractor beneficiaries may only be paid into their nominated bank account, and this account must be an account that is only controlled by the beneficiary.
Beneficiaries must be given a notice from the trustee every time an amount is paid to them from the project trust or deposited into the retention trust account as cash retention amounts withheld on their behalf. This notice must be given within five business days of the transaction. The content of the notice must satisfy certain statutory requirements (see QBCC website for details).
What happens if there are insufficient amounts in the project trust account to pay subcontractors?
The trustee has a statutory obligation to top up a project trust if there is an insufficient amount available (a shortfall) to make a payment that is due to be paid to a beneficiary.
If amounts are owing to more than one subcontractor beneficiary and the trustee is not able to cover the shortfall and top up a project trust account before the amounts become due, the trustee is required to make proportional payments to each subcontractor beneficiary that is owed an amount from the trust at that time.
The trustee must notify the QBCC of a proportional payment and must ensure that the remaining amount owed is paid from the trust account when or as funds become available.
If a beneficiary has not been paid by the trustee and the due date for payment has passed, they may
- follow up on payment with the trustee
- access broader security of payment laws and payment dispute rights that are available
- notify the QBCC by lodging a trust account complaint form.
Payments to the trustee from a project trust account
The trustee is a beneficiary and is also paid from the project trust account. However, the trustee must only pay itself if sufficient funds will remain available in the account to pay what they are liable to pay to subcontractor beneficiaries at the time of the withdrawal.
The trustee is not entitled to be paid its costs for fees or administering the project trust from the funds held in trust or from project trust beneficiaries.
The trustee is, however, entitled to receive all interest earned on amounts held in the project trust account. The trustee can withdraw interest amounts only:
- once every 12 months,
- when dissolving the project trust, and
- if the withdrawal will not prevent the full payment of any other amount that must be paid from the account.