What is a Recipient Created Tax Invoice and When Can I Issue One?

In Short

• An RCTI lets the purchaser issue the tax invoice for a taxable supply and still claim GST credits if it’s properly issued.
  

• You may issue an RCTI only if both parties are GST-registered and there’s a written RCTI agreement (or embedded terms). Issue within 28 days and retain for 5 years.
  

• If the requirements aren’t met, the RCTI is invalid and GST credits may be denied.
  

Tips for Businesses
Before using RCTIs, confirm both parties’ GST registration and agree on written RCTI terms (you can embed the agreement in the invoice). Build a process to determine value, issue within 28 days, and retain records for 5 years. If embedding terms, notify suppliers and track any objections within 21 days.

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Table of Contents

• What is a Tax Invoice?
• Why Do Tax Invoices Matter?
• What is a Recipient Created Tax Invoice?
• Am I Eligible to Issue a Recipient Created Tax Invoice?
• Key Takeaways

A key part of a business’ sales process is issuing an invoice to the customer. While doing this is important for several reasons, such as substantiation for income tax purposes, good invoicing practices are essential if you have registered your business for goods and services tax (GST). Generally, the supplier in the arrangement is responsible for issuing an invoice. However, in certain circumstances, the recipient of the supply may issue the invoice. This article will consider the importance of tax invoices generally, recipient created tax invoices (RCTIs) and the requirements to issue one.

What is a Tax Invoice?

A tax invoice is a document that a supplier of goods or services generally issues to the recipient of those goods or services. Where a supply is for $75 or more, and the supplier is registered for and required to charge GST, the supplier must provide the customer with an invoice. 

There is different information required on a tax invoice, depending on:

• how much the sale was for; 
• whether the sale included taxable and/or non-taxable items; and 
• who issued the invoice. 

An example of a non-taxable supply is a supply that is GST-free, such as the sale of certain medicines. 

Why Do Tax Invoices Matter?

If you have registered your business for GST, you must charge GST on any taxable supplies you make. Likewise, you must remit this GST to the Australian Taxation Office (ATO). You report the amount of GST you have collected when you lodge your business activity statement (BAS). 

Additionally, you can reduce the amount of GST you must remit to the ATO by any amount of GST you have paid on business expenses during your reporting period. These reductions are known as “input tax credits” or “GST credits”.

What is a Recipient Created Tax Invoice?

In most cases, a supplier will issue tax invoices. However, there are certain circumstances where the purchaser or recipient of the goods or services can issue a tax invoice for their purchase. This is known as a RCTI. There can be practical reasons why a recipient may wish to issue the invoice. For example, they may be responsible for determining the value of the supply, or the supplier may have failed to comply with their invoicing obligations.

If a RCTI has been issued properly, it will be treated as a valid tax invoice. Likewise, the recipient will be able to rely on it to claim the GST credit. However, if the RCTI has not been properly issued, it will not meet the requirements of being a valid invoice.

Am I Eligible to Issue a Recipient Created Tax Invoice?

Previously, issuing RCTIs was far more difficult. However, in May 2023, the ATO released a determination allowing more businesses to issue RCTIs. 

There are slightly different requirements depending on the size of the business. Generally, a business will be eligible to issue an RCTI where:

• the business is a recipient of a “taxable supply” – GST-free and input-taxed supplies do not qualify; 
• both the recipient and the supplier are registered for GST when the RCTI is issued;
• where the recipient is not a “government-related entity” or “large business entity”, the recipient determines the value of the supply;
• the recipient issues an RCTI, which is a complying tax invoice;
• the RCTI is issued within 28 days from when the supply was made or from when the recipient determines the value of the supply; 
• the recipient retains the RCTI for 5 years; 
• there is a written agreement between the supplier and recipient, which can either be a separate agreement or embedded in the RCTI itself. In both cases, the agreement must meet certain criteria;
• where the agreement is embedded in the RCTI, the supplier has not provided the recipient with a written notice that it does not accept the proposed written agreement; 
• the recipient does not issue a document which would be RCTI if the above has not been complied with; and 
• the recipient has otherwise reasonably complied with its obligations under tax laws.

How to Recover Unpaid Invoices

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This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.

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Key Takeaways

Invoices are important for a number of tax obligations, one key obligation being GST. Tax invoices are necessary for businesses to claim GST credits which reduce the amount of GST payable to the ATO. Generally, the supplier will be the party issuing the invoice for a sale. However, there are circumstances where the recipient may be able to issue an RCTI. There are a number of requirements to satisfy for a recipient to issue an RCTI. If these are satisfied, that recipient can rely on the RCTI as a valid tax invoice, and claim GST credits in relation to the supply in the relevant reporting period.

For more information about issuing a recipient created tax invoice, our experienced taxation lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.