Retention Money Trust Rules: How They Differ by State

By Rami Rajkumar, CPA, Founder and Partner, TechEdge Accounting. Published 14 October 2026.

Retention money looks simple on a progress claim. You hold back 5% from a subcontractor, or a principal holds 5% back from you, and it comes back after practical completion and the defects period.

What happens to that money in between depends on where the project is. In some states the party holding retention has to put it in a separate trust account. In others there is no trust, but new rules control when the security has to be released. If you work across state lines, you can be running three different sets of rules at once.

This guide sets out what each state requires, then what it means for your books and your cash flow. For the accounting basics of retentions, our construction accounting guide covers how to record them.

New South Wales

NSW has a retention trust scheme under section 12A of the Building and Construction Industry Security of Payment Act 1999 and Part 2 of the 2020 Regulation.

Who it applies to: a head contractor that holds retention money from subcontractors, where the main contract with the principal is worth $20 million or more, including variations. If a project crosses $20 million part way through, the rules apply to subcontracts entered into after that point.

What you have to do:

• Open a retention money trust account with an authorised deposit-taking institution (a bank, credit union or building society). The account name has to include the head contractor's name and the words "Trust Account".

• Pay retention money into it within 5 business days of retaining it.

• Notify the NSW Government soon after opening the account, and if it becomes overdrawn.

• Keep a separate ledger for each subcontractor and give each subcontractor a copy at least every 3 months, unless you agree in writing on a longer period of up to 6 months.

• Keep the records for 3 years after the account is closed.

Taking money out: only as the subcontract allows, by written agreement with the subcontractor, to pay an adjudicated amount, or under a court or tribunal order.

Penalties: the NSW Government says breaches can attract fines of up to $22,000, and directors can be personally liable.

Queensland

Queensland's rules sit in the Building Industry Fairness (Security of Payment) Act 2017. A retention trust is needed where a project trust is needed.

Who it applies to: a project trust is required where more than 50% of the contract price is for project trust work, at least one subcontractor is engaged, and the contract price (excluding GST) is $1 million or more where the State or a Hospital and Health Service is the contracting party, or $10 million or more for other contracting parties. Contracts for 1 or 2 living units, maintenance only contracts and contracts shorter than 90 days are excluded.

On those projects, head contractors and private principals that withhold cash retention from a contractor have to hold it in a retention trust.

The QBCC paused further rollout of trust accounts to private projects under $10 million in February 2025, so the thresholds above are the ones that apply today.

What you have to do:

• Open the retention trust account with a QBCC approved financial institution before the first retention amount is withheld. The account name has to include the trustee's name and the word "trust".

• Keep a ledger for each contractor and reconcile the account each month.

• The annual audited review has not been required since 1 July 2024, although the QBCC can still direct one.

Taking money out: to release retention back to the contractor, to pay yourself for defect rectification the contract allows, to pay another contractor to fix those defects, and to take the interest once a year.

Penalties: the Queensland Government says failing to release retention money without a reasonable excuse can attract up to 200 penalty units or 1 year in prison.

Western Australia

WA has the broadest scheme in the country, under Part 4 of the Building and Construction Industry (Security of Payment) Act 2021.

Who it applies to: any party that retains money under a construction contract holds it on trust. That covers principals, head contractors and subcontractors at every tier. For contracts entered into from 1 February 2024, the scheme applies to contracts worth more than $20,000. Contracts entered into between 1 February 2023 and 31 January 2024 are covered only if worth $1 million or more. Government parties, certain home building contracts and small residential contracts are excluded.

Retention money held on trust is not available to the holder's creditors.

What you have to do:

• Open a retention trust account with an authorised deposit-taking institution within 10 business days of entering the contract. The account name has to include the words "trust account".

• Give the other party written notice of the account details.

• Keep records the other party can inspect free of charge.

There is no audit or regular reporting to the regulator, but the records need to stand up if anyone asks.

Taking money out: as the contract allows, as the parties agree, to pay an adjudicator's or court's decision, and in the other cases the Act lists. Cash withdrawals are not allowed.

Penalties: the WA Government fact sheet lists penalties of up to $50,000 for an individual and $250,000 for a corporation.

Victoria

Victoria has no retention trust account scheme. What changed instead is the timing of release.

The Fairer Payments on Jobsites changes to the Building and Construction Industry Security of Payment Act 2002 started on 15 April 2026 and apply to all construction contracts, including ones already in place. They cover a performance security, which includes retention money, a bank guarantee or a bond.

• A contractor can serve a performance security claim.

• Any term that releases the security later than 20 business days after that claim is served has no effect.

• A party has to give written notice and wait at least 5 business days before calling on a security.

• A term that delays release until the other party has been paid ("pay when paid") has no effect.

• Business days exclude weekends, Victorian public holidays and 22 December to 10 January.

For a Melbourne builder, this means retention can't be held for as long as the contract used to say. The release date now depends on when the claim is served, so plan cash for it.

The other states and territories

South Australia, Tasmania and the ACT have no statutory retention trust scheme. In the Northern Territory there is no trust account scheme, but where a construction contract has no written term on retention, the implied terms under the Construction Contracts (Security of Payments) Act 2004 treat retention money as held on trust.

In these places your contract terms do most of the work, so read the retention and release clauses closely.

What this means for your books

Retention held in trust isn't your cash. If you hold retention in a NSW, Queensland or WA trust account, it sits in your bank records but you can't use it to pay suppliers or wages. Show it separately in your balance sheet and keep it out of your working capital figures, or your bank and your board will see more cash than you have.

The ledger has to match the bank. Each subcontractor's retention balance in your accounts should reconcile to the trust account every month. Queensland requires a monthly reconciliation. It is good practice everywhere.

Retention you are owed is still a receivable. On the other side, retention a principal holds from you is revenue you've earned but not collected. Track it by project with its expected release date, as part of your subcontractor compliance and contract admin.

Cash flow timing has changed. Under the trust schemes, you have to fund the trust account within days of withholding retention. Under Victoria's new rules, the money you hold has to go back within 20 business days of a valid claim. Either way, put the dates in a 13-week rolling cash flow so they don't land as a surprise.

A quick check for this week

• List every project you hold retention on, by state, with the contract value.

• For NSW, Queensland and WA jobs, confirm whether the scheme applies and whether the trust account is open and funded.

• Reconcile each subcontractor's retention ledger to the trust account balance.

• For Victorian jobs, check your contracts for release terms that the new rules override.

• Add expected retention releases, both ways, to your cash flow forecast.

Talk to a CPA

TechEdge is a CPA-led outsourced finance team for Australian construction, EPC, solar and renewables businesses. We set up retention ledgers, trust account reconciliations and cash flow forecasting as part of our Finance Manager (from $2,750 a month), Financial Controller (from $4,950 a month) and Head of Finance (from $8,500 a month) engagements.

Book a free 30-minute call with a CPA, email info@techedgeaccounting.com.au or call +61 468 634 973.

This article is general information only and is not financial, tax or legal advice. It is based on information from NSW, Queensland, WA and Victorian government websites and legislation as at 14 October 2026. Rules and thresholds change, so check the relevant government site or speak to your adviser about your own projects.