From 1 July 2024, there are new changes to the statutory trusts framework in the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (‘SOP Act’).
According to the Queensland Government, the reforms have been introduced in response to industry feedback and are designed to reduce the complexity and cost of complying with the framework.
The trust account framework requires head contractors on eligible projects to establish a project trust account (PTA) and a separate retention trust account (RTA) for any retention monies.
The principal must pay any monies owed to the head contractor into the PTA, rather than directly to the head contractor. The head contractor must then pay the first-tier subcontractors out of PTA. The head contract cannot withdraw amounts from the PTA to pay itself, or make any other payment, unless there would still be enough funds in the account to pay all amounts owed to subcontractor beneficiaries. This regime was introduced to ensure subcontractors are paid for the work they do and reduce the risk of subcontractor insolvency.
The trust account framework currently applies to:
- eligible State Government and hospital and health service contracts of $1 million or more; and
- local government and private sector contracts of $10 million or more.
In 2025, the application of the framework will expand to apply to private sector contracts and local government contracts valued at:
- $3 million or more (1 March 2025); and
- $1 million or more (1 October 2025).
The key reforms commencing 1 July 2024
New meaning of subcontractor beneficiaries
Previously the framework required subcontractors performing ‘project trust work’ to be paid from the trust accounts. In response to industry feedback about the complexity of assessing whether a subcontractor’s scope falls within the meaning of ‘project trust work’, the new reforms delete this term and instead require subcontractors of a ‘project trust subcontract’ to be paid from the trust account.
A ‘project trust subcontract’ is a subcontract where the work under the subcontract requires a relevant licence or registration under the Architects Act 2002, Professional Engineers Act 2002, Building Act 1975, Electrical Safety Act 2002, Plumbing and Drainage Act 2018, Queensland Building and Construction Commission Act 1991, or a regulation made under the Work Health and Safety Act 2011. A project trust subcontract also includes a subcontract for other kinds of work such as earthmoving, excavating, installation of prefabricated building components, cleaning of buildings and landscaping when associated with a building.
Removal of requirement for mandatory retention trust training
Parties who manage a retention trust account are no longer obliged to attend a compulsory short training course and assessment to understand their management obligations prior to withholding a retention amount. This obligation has been removed from the Building Industry Fairness (Security of Payment) Regulation 2018.
Simplifying trust record keeping requirements
Record keeping obligations have been simplified and made less prescriptive to align more closely with standard accounting practice. The trustee must prepare trust account ledgers, monthly reconciliation statements and copies of the related source documents (contracts, payment claims etc.).
The records for each trust must be kept separately from the business records and maintained for at least 7 years after the trust is dissolved.
Removal of independent account reviews
Trustees are no longer required to engage an external ‘registered company auditor’ (registered under the Corporations Act) to carry out account review reports. These obligations have been suspended until suitable software is available to support these obligations. According to the Queensland Government, suitable software is expected to become available from late 2024 onwards.
Amendments to contracts
Even if a contract was not originally eligible for a project trust when it was entered into, if the contract is amended so that it becomes eligible, a project trust account will be required provided that the amendments to the contract either:
- increase the original contract price by 30% or more; or
- increase the original percentage of the contract price that is for ‘project trust work’ by 30% or more.
Other Changes
Further statutory trust changes
There are a few other minor changes to the framework which will be introduced on a date still to be set by proclamation.
These incoming changes will confirm that retention monies held in retention trust accounts must include GST.
Other changes in the Amendment Act
There are also amendments to the Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018.
Amounts held in building trust accounts are no longer included for the purposes of calculating revenue and assets in relation to the minimum financial requirements for QBCC licence reporting.
If you require assistance with statutory trust compliance, please get in touch.
