Q&As from webinar
Are payments to suppliers also paid out of the project trust account or only subcontractor payments?
No, payments to a party who is NOT a beneficiary of the account, e.g. a head contractor’s employees and suppliers, cannot be made from the project trust account. The beneficiaries of the project trust are parties engaged by the head contractor to carry out ‘protected work’ or ‘related services’. Protected work is defined broadly to include all types of building and construction work.
The head contractor is able to withdraw funds from the project trust account during the project to pay themselves amounts they are entitled to be paid, which would include amounts to pay employees and suppliers.
There is further information on who is to be paid through a trust account in the trustee guides.
What about cabinet makers that supply only? Or window suppliers that make windows to order but the builder installs? Do they class as a subcontractor beneficiary and should be paid through the project trust or are they just a supplier?
It is the type of work carried out that determines who are subcontractor beneficiaries and whether they are to be paid from a project trust account. A party who is engaged by a head contractor to carry out ‘protected work’ or ‘related services’ are to be paid from the project trust account. Protected work is defined broadly to include all types of building and construction work.
Generally speaking, workers prefabricating complete buildings or components of a building (e.g. modules) would be considered subcontractor beneficiaries of a project trust (and therefore paid from the project trust account). However, it is not the intent to capture parties contracted to supply ‘on/to order’ building materials such as windows, doors, cabinetry or furniture.
When and how often can the head contractor pay themselves? How do you calculate the amount that can be transferred to their general account?
The trustee can pay themselves amounts that they are entitled to under their contract as long as it leaves sufficient funds in the account to pay subcontractors amounts that are due to be paid. For example, if the balance of the account was currently $1500, and there was a subcontractor due to be paid $1000 the next day, the trustee should only pay themselves the other $500 to leave sufficient available balance to pay the subcontractor the next day.
The amount the trustee is entitled to be paid will be determined by the terms of their contract and how much and when payments are due to be paid to subcontractors.
What if the reduction in the amount payable to the subcontractor is not in dispute?
We've provided a payment schedule showing why they are not due those monies yet, do we have to keep that money in the Trust Account?
It's a progress claim so will be dealt with in future claims?
It is a matter for the trustee to determine what they do with amounts not yet due to be paid to subcontractor beneficiaries. The BIF Act only requires that the trustee not withdraw funds from the account if the withdrawal will leave insufficient funds in the account to pay subcontractors amounts that are due to be paid.
Does a subcontractor’s progress claim (or scheduled amount) constitute the 'current liability' to a subcontractor?
i.e. this can be used to determine the funds required in the project trust account to cover the liabilities owed to subcontractor beneficiaries?
S10B of the BIF Act sets out when an amount is ‘liable to be paid’ to a subcontractor. This includes:
- when the amount is due under the terms of the subcontract
- when the amount is certified/assessed as being payable
- when an amount is included in a payment schedule
- when an adjudicated amount is due
- when the amount must be paid because of a binding dispute resolution process or court/tribunal order.
So, it can be a little broader than just the claimed or scheduled amount, but in most cases where there is no dispute, the claimed (or scheduled) amount will be the amount liable to be paid.
If you top up your trust account once the principal pays, are you able to take that money back once subcontractors have been paid or do you have to wait until project is finished?
It is a matter for the trustee to determine what they do with amounts in the trust account not yet due to be paid to subcontractor beneficiaries. The BIF Act only requires that the trustee not withdraw funds from the account
if the withdrawal will leave insufficient funds in the account to pay subcontractors amounts that are due to be paid.
Once all subcontractors have been paid for the month, can the Trustee withdraw amounts to their account to pay suppliers for that job?
At any time, the trustee can pay themselves amounts they are entitled to under their contract as long as it leaves sufficient funds in the account to pay subcontractors amounts that are due to be paid.
If the head contractor has been paid in advance by the principal, can these amounts be withdrawn and transferred to their general account as there is no current liability to pay sub-contractors as the works are yet to be performed?
It would be expected that the head contractor then deposits into the project trust when the liability to sub-contractor falls due i.e. a progress claim for the performance of these works is submitted to the head contractor.
It is a matter for the trustee to determine what they do with amounts in the trust account not yet due to be paid to subcontractor beneficiaries. The BIF Act only requires that the trustee not withdraw funds from the account if the withdrawal will leave insufficient funds in the account to pay subcontractors amounts that are due to be paid.
That is correct that there is the requirement for the trustee to top up the trust account to cover any shortfall in funds available in order to pay subcontractors when amounts are due.
If there is an adjustment to the retentions withheld in a payment claim that reduces the amount held, can we just transfer from any account following reconciliation? Or should all payments or credits of retention be done as a separate payment directly out of the retention trust account?
In the situation described, retention amounts should be released to the beneficiary from the retention trust account, trust records updated and a notification of the payment provided to the beneficiary.
In our system we have the ability to release retention within a payment claim (this is useful if the approved value of contract changes and the amount we can hold will be recalculated).
This sometimes results in essentially giving back an amount previously held as part of the payment claim / schedule.
Under the new framework do we now have to override this calculation and release it separately?
And only do this directly from the retention trust account?
This creates a lot of manual process so just wanting to be sure we can no longer deal with this as part of the claim and just reconcile the amounts in the retention trust account as part of the transfer for the month.
That is correct, there are restrictions on where funds can be transferred to and from with both the project and retention trust account.
Retention amounts withheld in the retention trust must be transferred to the beneficiary from that account only.
How do proportional payments to subcontractors work with the trustee top up requirements when there are insufficient funds in a trust account?
The trustee must top up the project trust account to cover any shortfall in funds available to pay subcontractors when amounts are due. It is an offence to fail to do so and it is also an offence to fail to pay amounts owed and liable to be paid by the due date for payment.
Proportional payments apply when there are insufficient funds to pay beneficiaries and the trustee is unable to top up the account. An example of this may be when a company is in administration or insolvency.
Record keeping requirements
How often are you required to submit trust records?
Is it every time you make a payment? Every month? At the end of each project? Or only if requested by QBCC?
You are required to keep trust records for any project and retention trust.
You are may be required to make copies of these records available for review or provide copies of these records as part of the account review process and upon request from a beneficiary.
A trustee must engage an independent auditor to complete an account review yearly for their retention trust account. The auditor will be checking for the trustee’s compliance with the trust account requirements – including the record keeping requirements.
The QBCC may also direct a party to carry out an account review of a project trust account, and as part of its oversight and auditing powers can request copies of the trust account records
Beneficiaries can also request certain trust records and information from the trustee at any time. The trustee must meet this request but is only required to provide information that relates to the beneficiary that is requesting it.
Are you aware of particular accounting programs that can record the required information correctly? E.g. Xero/ MYOB
We understand that there are some challenges with the existing accounting software available and there may be work around required in the meantime by a trustee in order to record all required information correctly.
We are working towards finalising a “Trustee Guide – Trust Accounting” which will cover off in further details the administration and record keeping requirements of a trust account.
We strongly encourage you to provide feedback to your software provider on improvements that would be beneficial.
If beneficiary requests a copy of statement of balance for trust account. What is this document?
This can be the individual trust ledger for the beneficiary.
For a project or retention trust, a beneficiary may request in writing that the trustee provide the following information (to the extent it relates to them only):
- a statement of balance for the retention trust account;
- a copy of the transactions affecting the retention trust account;
- a copy of the trust records.
For a project trust only, a beneficiary may also request a copy of any supporting statements that the trustee (as head contractor) has given to the contracting party.
Is an account review is only required when QBCC request it?
For a project trust – yes, an account review need only be completed if directed by the QBCC.
For a retention trust, a review must be conducted annually and upon closure of an account.
How do I know that the auditor is registered and okay to complete my account review?
Ideally you should:
- Request/sight evidence from the Auditor of their ASIC registration
- Check the ASIC register of registered company auditors (if you are unable to verify from the Auditors evidence)
- Check the QBCC register to make sure that they’re not excluded.
What are the professional auditing standards that an auditor must meet and how are they relevant when auditing a trust account?
Certified Practicing Accountants (CPAs) in Australia and New Zealand must comply with standards set by the Accounting Professional and Ethical Standards Board (APESB).
CPA Australia members have a responsibility to act in the public interest. They must comply with the fundamental principles of integrity, objectivity, professional competence, due care, confidentiality and professional behavior in all dealings. This includes when engaged and conducting an account review for a trustee.
Is it likely and common practice that an auditor will come on site to inspect all documentation and records?
This depends on the agreement that you have in your terms of engagement and should be discussed and agreed upon at the outset.
Are trust accounts only required for Government jobs? Or are they required for private sector projects as well?
Currently yes, trust accounts are only required for eligible State government projects. However, from 1 January 2022, trust accounts will be expanded to also be required for eligible private sector projects. Read about the timing of the phase’s rollout and eligibility criteria.
When do I need to submit notices to the QBCC on changes to the trust account?
Notification must be provided to the QBCC when changing the name of an account, changing financial institution or upon closure of an account.
Notifications to the QBCC must be made using an approved form – this can be online via myQBCC or a manual PDF form and must be given within certain timeframes (e.g. within 5 business days of making the change or closing the account).
Please note that you may also be required to provide notice of these events to the contracted party and/or beneficiaries. These notices must include certain information but don’t need to be in a specific format.