6 October 2026

Retention trusts: which states hold your money apart, and which do not

Some Australian jurisdictions require retention money to be held in a trust account. Where they do, an insolvent head contractor’s collapse does not take your retention with it.

A head contractor goes into administration owing retention across forty subcontracts. Whether you are an unsecured creditor for your $37,000 or the beneficiary of a trust that holds it apart is not a question about your contract. It is a question about which state the project was in.

Why a trust changes everything

Retention held as an ordinary contractual entitlement is a debt. On insolvency it ranks with every other unsecured claim, which in practice means cents. Retention held on statutory trust is not the head contractor’s property at all, it is held for the beneficiary, and it does not form part of the estate.

The difference is invisible on every job that ends normally and total on the one that does not. It is also entirely outside your control at the point it matters, which is why it belongs in the decision to take the work.

The picture is not uniform

Retention trust obligations have been introduced by different Australian jurisdictions at different times, with different thresholds, project value, contract type, phased commencement dates, and different names. Queensland’s project trust framework and New South Wales’s retention money trust arrangements are not the same scheme, and neither reaches every project in its own state.

So the useful question is specific: on THIS project, in THIS state, above or below the applicable threshold, is retention required to be held in trust? That is answerable before signing and unanswerable in a general way.

What to do with the answer

• Where a trust applies: ask for confirmation of the trust account and keep it. The obligation usually includes notification and record-keeping duties that give you something to ask for.
• Where it does not: retention is credit you are extending, and it should be priced or replaced. A bank guarantee or bond in lieu of cash retention removes the insolvency exposure entirely.
• Either way: know the release conditions and the release date, and diarise them. The most common way retention is lost is not insolvency, it is that nobody claimed it.

It is separate from Security of Payment

A trust obligation governs where the money sits. The Security of Payment Act governs whether and when it becomes payable. A retention release that has fallen due and not been paid is a payment dispute like any other, and the trust does not make the claim for you.

What the product does with this

The retention deducted from each claim is recorded at the project's rate, so the sum held against you on a project is a figure rather than a reconciliation. The release date is not computed. It is the contract's, and the right place for it is your diary on the day the contract is signed, even when it is two years out. Deciding whether to swap cash retention for a bond is one treasury decision rather than six separate ones, and the figures to make it with are on each project.

General information, not legal or financial advice. Whether a trust obligation applies to your project depends on the jurisdiction, the project value and the commencement dates of the applicable scheme.