Withdrawals from a Retention Trust Account
What amounts can be withdrawn from a Retention Trust Account?
There are very strict rules around what money can be withdrawn from a Retention Trust Account with heavy penalties for a breach of those rules.
In order to work out when you can withdraw an amount from a Retention Trust Account, you first need to work out when:
- the head contractor is entitled to have recourse to the subcontractor’s retention under the terms of its Retention Trust Contract; and
- the subcontractor is entitled to have retention released under the terms of its Retention Trust Contract.
The head contractor is not permitted to withdraw any amounts from the Retention Trust Account unless it is for the following payments:
- paying a subcontractor an amount that is due to be released to the subcontractor under the terms of its Retention Trust Contract;
- paying a different subcontractor beneficiary if the amount is for the rectification of defects or omissions in the original subcontractor’s work and only if:
- the terms of the original subcontractor’s Retention Trust Contract permit the head contractor to use the retention for that purpose; and
- there is a sufficient amount withheld from the original subcontractor’s Retention Trust Contract to cover the different subcontractor’s costs to rectify; and
- paying itself if permitted by the terms of the Retention Trust Contract (e.g. to recover a debt due from the subcontractor to the head contractor under the Retention Trust Contract, or to reimburse the head contractor for the cost to rectify the subcontractor’s defects or omissions where the rectification work was carried out by the head contractor, or it otherwise secure, wholly or partly, the performance of the subcontract) BUT these amounts cannot be withdrawn until the end of the defects liability period for that particular Retention Trust Contract.
Withdrawing an amount that doesn’t fall within one of the above categories carries a serious penalty (max penalty: 300 PU ($43,125) or 2 years imprisonment).
The only exceptions is interest that the head contractor can withdraw at certain times – see here for more details.
The BIFA does not permit any fees charged by the bank for the Retention Trust Account to be withdrawn from the Retention Trust Account or the Project Trust Account. Accordingly, we recommend that you ensure that the Retention Trust Account is structured in such a way that any fees charged by the bank for the Retention Trust Account are withdrawn from your business account. The fees associated with the Project Trust Account may be withdrawn from that account but not the Retention Trust Account.
Releasing retention to the subcontractor
All cash retention to be released to the subcontractor must be made from the Retention Trust Account and deposited into a bank account that is under the control of the subcontractor and held at a financial institution (max penalty: 200 PU ($28,750) or 1 year’s imprisonment). The head contractor is required to give written notice to the subcontractor of the payment (max penalty: 100 PU ($14,375)). The information to be included in the written notice can be found here.
Can the head contractor withdraw an amount from the Retention Trust Account if it has the right to that money under the terms of the Retention Trust Contract?
If the terms of the Retention Trust Contract allow the head contractor to have recourse to a subcontractor’s retention (perhaps because there is a debt owed by the subcontractor to the head contractor under the Retention Trust Contract), then the head contractor has the beneficial interest in the amount the Retention Trust Contract allows it to have recourse to, however, the head contractor is not permitted to withdraw that amount from the Retention Trust Account until the end of the defects liability period that applies to that Retention Trust Contract. This applies regardless of whether the Retention Trust Contract says something different.
This does not mean that the subcontractor is entitled to that money – the head contractor is the beneficiary of that money but it is just not able to withdraw that money until the end of the defects liability period. However, any amounts that are held in the Retention Trust Account for the benefit of the head contractor can be considered an asset for the purposes of the Minimum Financial Requirements under the Queensland Building and Construction Commission (Minimum Financial Requirements) Regulations 2018 for the head contractor’s licence, if applicable.
When the head contractor is permitted to withdraw that money, the head contractor is required to give written notice to the subcontractor within 5 business days after the withdrawal, unless the head contractor has a reasonable excuse (max penalty: 100 PU ($14,375)). The information to be included in the written notice can be found here.
Can the head contractor recover the cost to rectify defects or omissions?
In this situation, the head contractor is entitled to withdraw the cost to rectify defects or omissions in the subcontractor’s work from the Retention Trust Account but only if that money is paid from the Retention Trust Account to a different subcontractor beneficiary who has been engaged to actually carry out the rectification work and only if the original Retention Trust Contract gave the head contractor the right to recover that amount from the subcontractor. The head contractor is required to give written notice to the subcontractor within 5 business days after the withdrawal, unless the head contractor has a reasonable excuse (max penalty: 100 PU ($14,375)). The information to be included in the written notice can be found here.
However, if the head contractor carried out the rectification work itself, it cannot withdraw the rectification costs it incurred until the end of the defects liability period for the Retention Trust Contract but it does hold the beneficial interest in that amount at the time it became entitled to that money under the Retention Trust Contract.
FAQs
The head contractor must deposit that amount back into the Retention Trust Account as soon as practicable after it becomes aware of the mistake (max penalty: 300 PU ($43,125) or 2 years imprisonment).
For example, subcontractors who are not doing protected work or supplying related services. As long as the subcontractor is not a beneficiary for the Project Trust, the retention can be held in the head contractor's business account or in other ways. It cannot be held in the Retention Trust Account.
This page considers the situation where Retention Trusts apply to subcontracts. Unless noted otherwise, all references to a ‘subcontractor’ in relation to a subcontract Retention Trust refers to a subcontractor that is a beneficiary of the associated Project Trust.
If a head contract requires a Retention Trust, the rules set out on this page are the same but the principal is the ‘trustee’ and all head contractors are ‘beneficiaries’ for head contracts that are Project Trust Contracts.
If a lower-tier subcontract also requires a Retention Trust, the rules set out on this page are the same but the higher tier subcontractor is the ‘trustee’ and its subcontractors are ‘subcontractor beneficiaries’.