Ontario construction trust funds: directors are personally liable

The balance in your operating account is not working capital. On an Ontario construction job, much of it is trust money belonging to people who have not been paid yet — and using it for anything else exposes you, personally, if you are a director or officer.

That is not a stern reading of a vague provision. It is what Part II of the Construction Act says, and section 13 says who pays. Part I.1 of the same Act does the equivalent for payment timing: Ontario prompt payment: 28 days, 7 days, and a new invoice rule.

What the trust covers

Section 8(1):

"All amounts, (a) owing to a contractor or subcontractor, whether or not due or payable; or (b) received by a contractor or subcontractor, on account of the contract or subcontract price of an improvement, including any holdback amount that is owed to or received by the contractor or subcontractor, constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement, who are owed amounts by the contractor or subcontractor."

Three things in that sentence do more work than people expect.

"whether or not due or payable." The trust reaches money you are owed, not merely money you have. A receivable on a construction job is trust property before it arrives.

"including any holdback amount." Holdback is inside the trust, on both sides — owed to you and owed by you, and since 2026 released on a fixed annual schedule: Ontario holdback is released every year since 1 January 2026.

"subcontractors and other persons who have supplied services or materials." The beneficiaries are the people who did the work. Not your landlord, not your equipment lender, not your other jobs.

And section 8(2) states the duty:

"The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor's or subcontractor's own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement"

"Or to any use inconsistent with the trust" is the phrase that catches ordinary business behaviour. Paying overhead out of a progress payment before the subs on that job are paid is a use inconsistent with the trust. So is funding job B with money received on job A.

Since 2018: an account and written records

Section 8.1 came into force on 1 July 2018 and turned a legal characterization into an operational requirement:

"8.1 (1) Every person who is a trustee under section 8 shall comply with the following requirements respecting the trust funds of which he or she is trustee: 1. The trust funds shall be deposited into a bank account in the trustee's name. If there is more than one trustee of the trust funds, the funds shall be deposited into a bank account in all of the trustees' names. 2. The trustee shall maintain written records respecting the trust funds, detailing the amounts that are received into and paid out of the funds, any transfers made for the purposes of the trust, and any other prescribed information. 3. If the person is a trustee of more than one trust under section 8, the trust funds may be deposited together into a single bank account, as long as the trustee maintains the records required under paragraph 2 separately in respect of each trust."

And the relief that makes paragraph 3 usable — section 8.1(2):

"Trust funds from separate trusts that are deposited together into a single bank account in accordance with subsection (1) are deemed to be traceable, and the depositing of trust funds in accordance with that subsection does not constitute a breach of trust."

Read those two subsections together and the practical rule is clear. You do not need a bank account per job. You need records per job. One account is expressly permitted, provided the written record for each trust is kept separately — amounts in, amounts out, transfers made for the purposes of the trust.

That is a bookkeeping requirement, and it is the one most small contractors fail. Not because they are dishonest, but because their books are organized by month and by category rather than by job and by trust.

What you may legitimately do with trust funds

The Act does not require the money to sit untouched. Three sections say what is permitted.

Section 10(1) — payment discharges the trust:

"Subject to Part IV (holdbacks), every payment by a trustee to a person the trustee is liable to pay for services or materials supplied to the improvement discharges the trust of the trustee making the payment and the trustee's obligations and liability as trustee to all beneficiaries of the trust to the extent of the payment made by the trustee."

Section 10(2), added by the 2024 amendments and in force 1 January 2026, confirms "for greater certainty" that this applies to payment of holdback under section 26 or 27 — the annual release regime.

Section 11 — reimbursing yourself and repaying a loan. Subsection (1): a trustee who paid for services or materials out of money not subject to a trust "may retain from trust funds an amount equal to that paid by the trustee without being in breach of the trust." Subsection (2): where the trustee paid out of borrowed money, "trust funds may be applied to discharge the loan to the extent that the lender's money was so used by the trustee, and the application of trust money does not constitute a breach of the trust."

Both are subject to Part IV — the holdback obligation is not displaced.

Section 12 — set-off. A trustee may, without breaching the trust, retain from trust funds an amount equal to:

"the balance in the trustee's favour of all outstanding debts, claims or damages related to the improvement or, if the contractor or subcontractor, as the case may be, becomes insolvent, all outstanding debts, claims or damages whether or not related to the improvement."

Note the difference between the two halves. Ordinarily the set-off must be related to the improvement — you cannot deduct what a sub owes you from a different job. Only on the sub's insolvency does the set-off widen to unrelated debts.

Section 11(1) is the provision that legitimizes a common and sensible practice: paying material out of your own funds early in a job and reimbursing yourself when the draw arrives. Doing it without a record of which payment reimbursed which advance is what turns a legitimate act into an unprovable one.

Section 13: personal liability, and the reach of "effective control"

This is the section that changes how a construction business should be run.

"13 (1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part, (a) every director or officer of a corporation; and (b) any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities, who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust."

Four features to notice.

Incorporation is not a shield. Directors and officers are named.

Neither is job title. Paragraph (b) reaches "any person, including an employee or agent", who has effective control of the corporation or of its relevant activities. A general manager who decides which invoices get paid has effective control of the relevant activities.

"Acquiesces" is enough. You do not have to direct the breach. Knowing it is happening and letting it happen is within the section.

"Reasonably ought to know." Not knowing is a defence only if it was reasonable not to know. Signing cheques out of a general account with no per-job trust records is not obviously reasonable ignorance.

The combination of section 8.1 and section 13 is deliberate. Section 8.1 tells you what records to keep; section 13 tells you who pays if there are none and the money is short. It runs alongside a second personal-exposure regime in Ontario construction, WSIB premiums for your subs: WSIB in Ontario construction: sole proprietors are deemed workers.

And on the owner's side

Section 7(1) creates a mirror trust for the contractor's benefit:

"All amounts received by an owner, other than the Crown or a municipality, that are to be used in the financing of the improvement, including any amount that is to be used in the payment of the purchase price of the land and the payment of prior encumbrances and any amount that is required to be retained by the owner as a holdback, constitute, subject to the payment of the purchase price of the land and prior encumbrances, a trust fund for the benefit of the contractor."

Section 7(2) adds a trust over amounts certified as payable, and section 7(3) over the unpaid price of a substantially performed contract. Section 7(4) imposes the trustee's duty on the owner.

Section 9 does the same for a vendor's trust where the owner sells its interest in the premises.

So the trust runs the length of the chain, in both directions — which is why a contractor chasing an owner and a subcontractor chasing that contractor are, structurally, making the same kind of claim.

What to actually do

1. Keep records per job, per trust — amounts in, amounts out, transfers. Section 8.1(1) paragraph 2 is the requirement, and it is the whole defence.
2. One account is fine. Section 8.1(1) paragraph 3 and 8.1(2) permit it and deem the funds traceable. Do not over-engineer the banking; engineer the bookkeeping.
3. Record which advances you are reimbursing under section 11(1). Without it, a legitimate reimbursement looks like an appropriation.
4. Restrict set-off to the same improvement unless the sub is insolvent (s. 12).
5. Treat directors' and officers' exposure as real. Section 13 does not require intent, only acquiescence and constructive knowledge.

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Current as of August 29, 2026. This article describes Part II of Ontario's Construction Act and is not legal or accounting advice. It applies to Ontario only; British Columbia, Alberta and other provinces have their own trust provisions, which differ. This article does not cover the limitation period for a trust claim, the interaction of construction trusts with bankruptcy and insolvency proceedings, the definition of effective control as interpreted by the courts, remedies and tracing, or the prescribed information referred to in s. 8.1(1). Section 10(2) and related amendments came into force on 1 January 2026. The Act text consulted was the consolidation published on Ontario's e-Laws and was checked on the date shown. Consult an Ontario construction lawyer.

What Zirko does: it holds documents, payments terms and files per job, and produces documents with individual positions — so what was billed and what was owed on a given job is recorded per job rather than per month. Zirko is not an accounting system: it does not maintain trust ledgers, does not reconcile bank accounts, does not track amounts received into and paid out of a trust fund, and gives no legal or accounting advice. The written records section 8.1 requires have to come from your bookkeeping. Issued documents are immutable; a correction is a separate document, so the billing history of a job stays intact.