Brief'd
Construction statutory trust accounts have now been introduced in Queensland and will affect projects above $1m by 1 January 2023. They have been introduced to combat the misuse of money and limit the impact of insolvencies.
Queensland Construction Statutory Trust Accounts Webinar
An introduction to the new statutory trusts regime was presented to the Chartered Accountants at their Brisbane office by Omar Ameer from the Queensland Building & Construction Commission was hosted by Adam Thorpe from The Little CFO.
Direct link to the presentation here:
A copy of the slides are here:
Statutory Trust Accounts
On 1 March 2021, a new trust account framework commenced under the Building Industry Fairness (Security of Payment) Act 2017 (the Act). The framework creates statutory trusts over money paid and payable under eligible contracts with the primary aim of protecting the payment rights of subcontractors in the Queensland building and construction industry.
This applies to parties to eligible contracts, that have obligations under the trust account framework, including:
parties to State Government or Hospital and Health Service contracts valued at $1M or more; and
parties to other contracts valued at $10M or more from 1 January 2022, $3M or more from 1 July 2022, and $1M or more from 1 January 2023; and
parties that withhold cash retention amounts under an eligible contract under a project trust project.
note: that the trustee of the trust accounts can delegate authority to the monitoring and maintenance of the account to an advisor.
Snapshot of Obligations
Snapshot of project trust obligations
Money payable to head contractors and subcontractors for work done by them for eligible contracts must be held in trust by the head contractor for the primary benefit of the subcontractors. The head contractor must open a project trust account with an approved financial institution. The principal has an obligation to ensure they deposit all contract payments into that trust account. The head contractor must ensure that the trust account is operated in accordance with the Act, including ensuring that subcontractors are paid only from the trust account. The head contractor must also maintain proper records of the trust account.
Snapshot of retention trust obligations
Cash retention amounts withheld from contractual payments must be held in trust if the head contract is an eligible contract. This includes:
retention amounts withheld from contractor payments by a private sector principal;
retention amounts withheld from subcontractor payments by a head contractor; and
from 1 January 2023 retention amounts withheld from sub-subcontractor payments by the subcontractor that engaged them.
The party withholding retention amounts must open a retention trust account.
They only need to have one retention trust account for all retentions.
They must ensure that the retention trust account is operated in accordance with the Act, including that all retention amounts are paid & released from the trust account.
They must also maintain proper trust records.
QBCC’s powers include: require information by written notice, freeze a trust account, appoint a special investigator, apply to The Supreme Court for directions.
How will it impact
The introduction of the statutory trust accounts regime will result in a reduction of capital that will be circulating within the construction industry As monies that are used usually for working capital and cash flow will now be restricted ie. the pool of retention funds.
Depending on where your business or clients sits in the food chain will determine its impact. Such as head contractors will need to source other means of finance for their working capital and subcontractors who need to better secure their position or increase their collection activities.
This will place greater strain on the already struggling industry as the industry is in whole has already experienced rising costs with labour and material costs.
Agenda items:
Next steps include:
Review, consider and address:
Whether there is an obligation to establish trust accounts.
The impact of working capital restrictions.
Review the current ratio and net tangible asset ratio for the minimum financial reporting requirements.
How other builders, contractors, subcontractors would be affected by the new legislative requirements.
For further information please see:
If you have any queries or would like to discuss, please get in touch with Adam Thorpe (adam@littlecfo.com).
Comments