The Department Sheet 2: Recipient Created Tax Invoices (RCTIs)
- Aim of this Department Sheet
- What is a tax invoice?
- What is a RCTI?
- When would you expect to receive a RCTI?
- When would you expect to create a tax invoice?
- What are the benefits of having a RCTI sent to you?
- What regulatory requirements do you need to comply with, in order to receive a RCTI?
- What if you prefer to issue tax invoices rather than receive a RCTI from the Department for regular funding Agreements?
- What information must a RCTI contain?
- How long should a RCTI be retained for?
- What if you issue a tax invoice for goods and services when a RCTI should have been issued?
- Further Information
Aim of this Department Sheet
The aim of this Department sheet is to enable service providers of the Department to understand the meaning and operation of Recipient Created Tax Invoices (RCTI) within the context of the New Tax System.
Typically a supplier will issue a 'tax invoice' to an acquirer of a supply, to enable the acquirer to claim input tax credits (being the GST) paid on the acquisition of the supply.
In certain circumstances the acquirer of a supply and the supplier can agree that the acquirer of the supply is able to generate the invoice for the supply. In this scenario the invoice is called a 'recipient created tax invoice'.
What is a tax invoice?
Under GST legislation, the general rule is that when a business purchase is made, and GST is charged, the supplier of the goods or services must provide a tax invoice if the purchase is more than $75 (GST exclusive). If the tax invoice complies with regulatory requirements it enables the purchaser to claim input tax credits on the GST paid.
In terms of this general rule, the Department in the case of grants or payments is considered to be 'the purchaser' or 'the recipient of the supplies' and you, the service provider, are 'the supplier'. Therefore under this rule, you would, as the supplier, be responsible for providing a tax invoice.
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What is a RCTI?
The general tax invoice rule may be varied when taxable supplies are made to a registered government entity. In these circumstances the purchaser (the recipient of the supplies) may provide a RCTI. The recipient would want to do this where the value of the goods and services is determined by the recipient rather than the supplier, such as in the case of regular grants or payments made by a government department or agency.
A RCTI operates as a substitute for tax invoice, not as an alternative.
When would you expect to receive a RCTI?
If you receive regular funding from the Department such as an annual or recurring grant, and you are registered for GST, the Department expects you to agree to receiving a Recipient Created Tax Invoice.
When would you expect to create a tax invoice?
Where the Department pays for goods and services on the receipt of an invoice, (e.g. fee for service arrangements), and if you are registered for the GST, you are required to issue a tax invoice before payment is made.
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What are the benefits of having a RCTI sent to you?
Having a RCTI sent to you means you do not have to issue tax invoices to the Department. This means that you do not have to set up new systems or amend current systems to generate tax invoices for the regular funding you receive from the Department. You can expect to receive a RCTI for each individual payment from the Department.
You are still liable to remit 1/11th of the grant or payment to the ATO.
Like tax invoices, RCTIs are subject to regulatory and administrative requirements.
What regulatory requirements do you need to comply with, in order to receive a RCTI?
The Department (as the recipient), and you the supplier, must have a written agreement that is current and effective when the RCTI is issued.
The agreement must cover the following:
- that the contracting party authorises the recipient (the Department) to issue tax invoices in respect of the supplies made to the Department by the contracting party
- that you, the supplier will not issue tax invoices in respect of the supplies made to the Department
- the supplier acknowledges that it is, registered for GST when it enters into the Agreement and will notify the recipient (the Department) if it ceases to be registered (and if not registered then a RCTI does not apply)
- the recipient (the Department) acknowledges that it is registered for GST when it enters into the Agreement and will notify the supplier (you) if it ceases to be registered for GST, or if it ceases to satisfy any of the requirements of the determination.
Funding agreements with the Department contain an appropriate RCTI agreement which you are required to agree to as part of signing your funding agreement. However, if you are not registered for GST, you cannot enter into such an agreement. You should notify the Department of your GST registration status when dealing with the Department.
What if you prefer to issue tax invoices rather than receive a RCTI from the Department for regular funding Agreements?
The Department's policy is that you must agree to receive a RCTI if you receive regular funding from the Department. Exceptions to this may be granted by the Department and will be considered on a case by case basis.
What information must a RCTI contain?
A RCTI must contain all the requirements of a tax invoice plus the following information:
- the words 'recipient created tax invoice' must be prominently shown on the document instead of just 'tax invoice'
- the RCTI will contain both the recipient's and the supplier's ABN.
How long should a RCTI be retained for?
What if you issue a tax invoice for goods and services when a RCTI should have been issued?
If you have any questions about this Department Sheet, please telephone the the Department's Tax Manager on (02) 6244 8647.