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

Summary

• A tax invoice is required for taxable supplies of $75 or more where the supplier is registered for GST, and is essential for both remitting GST to the ATO and claiming input tax credits to reduce the amount of GST payable.
• A recipient created tax invoice (RCTI) allows the purchaser rather than the supplier to issue the tax invoice, and following an ATO determination in May 2023, more businesses are now eligible to use RCTIs where both parties are GST-registered and the supply is a taxable supply.
• To validly issue an RCTI, the recipient must issue it within 28 days of the supply or value determination, retain it for five years, have a written agreement with the supplier meeting specific criteria, and otherwise comply with their tax law obligations.
• This article is a guide to recipient created tax invoices for businesses registered for GST in Australia, explaining when an RCTI can be issued and the requirements that must be satisfied for it to be a valid tax invoice.
• LegalVision is a commercial law firm that specialises in advising clients on taxation law and GST compliance matters.

Tips for Businesses

Confirm that both your business and the supplier are registered for GST before issuing an RCTI. Ensure any written agreement with the supplier meets ATO requirements and is either documented separately or embedded within the RCTI itself. Issue RCTIs within 28 days of the supply or value determination and retain copies for at least five years to meet record-keeping obligations.

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On this page

• 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
• Frequently Asked Questions

Issuing a tax invoice correctly is a fundamental part of managing your goods and services tax (GST) obligations, but in certain circumstances the recipient of a supply can issue the invoice instead of the supplier. Understanding when and how a recipient created tax invoice (RCTI) can be used is essential for businesses registered for GST. This article will consider the importance of tax invoices generally, recipient created tax invoices 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

Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.

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, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced taxation lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee.  To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.

Frequently Asked Questions