Retention trust mechanism
Retention trust mechanism explained: head contractor must hold subbie retention money in a dedicated trust account. NSW $20m, WA $20k, Qld project trusts.
Ask Chalkline about this →The retention trust mechanism is a statutory requirement, in three Australian states, that a head contractor hold subcontractor retention money in a dedicated trust account at an authorised deposit-taking institution rather than mixing it with the head contractor’s general working capital. The purpose is to protect retention amounts from being lost if the head contractor becomes insolvent: trust money sits outside the head contractor’s pool of assets available to general creditors, so subbies can recover their retention at the end of the defects period even if the principal contractor collapses.
The thresholds differ by state (verified 2026-05-15):
| State | Triggering threshold | Statute | Source |
|---|---|---|---|
| NSW | Head contractor must hold retention money in trust for projects valued over $20m | Building and Construction Industry Security of Payment Regulation 2020 | NSW Government retention money page |
| WA | Retention trust applies to construction contracts over $20,000 (incl. GST) from 1 February 2024 | Building and Construction Industry (Security of Payment) Act 2021 (WA), Part 4 | Commerce WA Retention Trust Scheme |
| Qld | Project trust accounts apply per project value bands under the BIF Act, broadening over staged commencements | Building Industry Fairness (Security of Payment) Act 2017 (Qld), Chapter 2 | QBCC project trust accounts guidance |
Example. A NSW commercial fit-out worth $25m runs under the SOP Regulation 2020. The head contractor withholds 5% retention from each subcontractor’s progress claim. Because the head contract is over the $20m threshold, those retention amounts must be deposited into a dedicated SOP retention trust account within 5 business days of the head contractor receiving the money. If the head contractor goes into administration before defects rectification is complete, each subcontractor can apply to the trustee for release of their retention; those funds are not available to the head contractor’s general creditors.
Why this matters for subbies. On any project at or near the threshold, ask the head contractor in writing for the trust account name and the financial institution before you let retention build up. If they cannot point to a trust account that names them as trustee, your retention is at risk in an insolvency event. On NSW jobs below $20m, the trust mechanism does not apply by force of law: you are an unsecured creditor for the retention amount, ranked behind secured lenders and statutory priorities.
Also known as: retention money trust account; SOP retention trust; project trust (Qld variant).
Category: Contracts & commercial.
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Last updated: 2026-05-15. Verified: 2026-05-15. Quarterly review for currency.