Withdrawals from a Project Trust Account
What amounts can be withdrawn from a Project Trust Account?
There are very strict rules around what money can be withdrawn from a Project Trust Account with heavy penalties for a breach of those rules.
In order to work out when you can withdraw an amount from a Project Trust Account, you first need to work out whether:
The head contractor is not permitted to withdraw any amounts from the Project Trust Account unless it is for the following payments:
- paying a subcontractor an amount the head contractor is liable to pay the subcontractor in connection with its subcontract;
- paying itself as long as the head contractor is not also liable to pay a subcontractor for the same work;
- returning an amount paid in error by the principal;
- transferring an amount into a Retention Trust Account;
- making a payment in accordance with an adjudication decision;
- making a payment as ordered by a court;
- making another payment prescribed by regulation (there is nothing in regulation at this time).
Withdrawing an amount that doesn’t fall within one of the above categories carries a serious penalty (max penalty: 300 PU ($41,355) or 2 years imprisonment).
The only exceptions are fees charged by the bank for the Project Trust Account or interest that the head contractor can withdraw at certain times – see here for details of when interest may be withdrawn.
However, the head contractor cannot pay itself, or another payment prescribed by regulation (there is nothing in regulation at this time) from the Project Trust Account unless there is a sufficient amount left in the account after the withdrawal to pay all amounts that the head contractor is liable to pay a subcontractor at the time of the withdrawal (max penalty: 300 PU ($41,355) or 2 years imprisonment).
Making payments to subcontractors
All payments to subcontractor beneficiaries for the Project Trust must be made from the Project 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 ($27,570) or 1 year’s imprisonment). The head contractor is required to give written notice of the payment to the subcontractor within 5 business days after the withdrawal, unless the head contractor has a reasonable excuse (max penalty: 100 PU ($13,785)). The information to be included in the written notice can be found here.
We recommend that head contractors consider including a requirement in their subcontracts for the subcontractor to nominate its bank account at the time of entering into the subcontract to avoid delays to payments. It is important that head contractors ensure that invoices submitted by subcontractors during the project with different bank account details are checked to ensure that the name of the bank account matches the name of the subcontractor entity and that the account is held at a financial institution.
Whilst we understand that a head contractor cannot confirm the name of a bank account, it should at least ensure that the name of the account noted on the invoice (if applicable) matches the subcontractor entity. Consideration may also be given to requesting subcontractors provide evidence of this by giving the head contractor a copy of the header to a bank statement at the start of the project.
What if there is not enough money in the PTA to pay all of the subcontractors?
If the head contractor is unable to make full payment to the subcontractors on the day the money is due to be paid, it must pro rata the payments from the money that is in the Project Trust Account. [Example]
The head contractor must also notify the Queensland Building and Construction Commissioner of the pro rata payment using the approved form as soon as practicable after making the payment (max penalty: 100 PU ($13,785)).
While the head contractor remains unable to make full payment of all amounts that are due to be paid to its subcontractors from the Project Trust Account, it must continue to make pro rata payments as they fall due and cannot withdraw an amount to pay itself until the subcontractor beneficiaries have been paid what is due to be paid to them (max penalty: 100 PU ($13,785) or 1 year’s imprisonment).
Retention withheld from subcontractor payments
Where permitted by the subcontract, the head contractor may withhold cash retention from a progress payment due to a subcontractor. However, under a Project Trust, all retention amounts must be deposited into a Retention Trust Account. More information can be found here for Retention Trusts.
As the transfer of retention from the Project Trust Account to the Retention Trust Account is a withdrawal from the Project Trust Account, the transfer must comply with the obligations applicable to other types of withdrawals. This includes giving the subcontractor written notice of the transfer within 5 business days after it is made. The information to be included in the written notice can be found here.
If a subcontractor for a Project Trust is a beneficiary of the trust, then all payments made to it by the head contractor must be made from the Project Trust Account. It is an offence to make a payment to a subcontractor beneficiary from the head contractor's business account or by any other means (max penalty: 200 PU ($27,570) or 1 year's 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 subcontractor must be paid from the head contractor's business account or by other means. It cannot be paid from the Project Trust Account.
No. A head contractor is only required to ensure that there is a sufficient amount in the Project Trust Account on the day that payment is due to be paid to a subcontractor. The fact that the head contractor becomes liable to pay an amount to the subcontractor when there may not be anything in the account is irrelevant. Provided there is a sufficient amount left in the account to cover the liabilities that exist at the time of the withdrawal, the head contractor is permitted to withdraw all other amounts from the account even if that results in a nil balance in the account.
This page considers the situation where Project Trusts apply to head contracts. Unless noted otherwise, all references to a ‘subcontractor’ in relation to a head contract Project Trust refers to a subcontractor that is a beneficiary of the Project Trust.
If a subcontract also requires a Project Trust, the rules set out on this page are the same but the subcontractor is the ‘trustee’ and its subcontractors are ‘subcontractor beneficiaries’.
Last updated: 1 January 2022