Edited version of private ruling

Authorisation Number: 1011730286937

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Ruling

Subject: GST and recipient created tax invoice

Question

Will the Commissioner of Taxation (Commissioner) permit you to issue recipient created tax invoices (RCTIs) to the suppliers in respect of the services that they supply to you?

Answer: No.

The Commissioner will not permit you to issue to your suppliers in respect of the services that they supply to you.

Facts

You provide payment services to the transport industry.

You are registered for GST. Your turnover is less than $20 million and you are not part of a GST group.

You operate as an electronic payment system for payments made by transport customers using credit card providers. The customer pays a service charge plus GST on the service charge.

You receive payments from the credit card company, less a credit card merchant service fee. You pass to the transport operator (the supplier) the payment as well as a percentage of the service charge paid by the customer less the merchant services fee.

The suppliers are paid twice weekly electronically to their bank accounts.

All of your transactions are electronic and you do not process paper or taxi vouchers.

You are a small business and not part of a wider group.

The transaction process involves the following:

1. A customer provides a credit card to the supplier to pay their bill electronically and their card is debited with the amount of the bill (which includes GST) and a service charge plus GST on the service charge.

2. The transaction is processed electronically in real time on your EFPOS terminals and then by your acquirer and transmitted to the credit card company.

3. A few days after the transaction occurs the credit card company pays you the face value of the transaction (i.e. the amount as shown on the bill) plus the service charge less a merchant service fee charged by the credit card company to you. GST is included in all these payments.

4. You then pay the supplier the face value of the transaction (i.e. the amount shown on the customer's bill) received from the credit card company.

5. You also pay a commission to the supplier inclusive of GST. This commission is based on a percentage of the service charge you collected.

There are instances where transactions are rejected by credit card companies and hence, you do not pay the supplier. These 'charge backs' arise when a credit card company rejects a card which may be stolen, cancelled or suspended. Your practice is to withhold such payments until resolved with the credit card company.

You alone are the entity in the payment system with accurate and timely information as to the position of each supplier. You determine the value of the supply made by the supplier using a calculation process that only you control.

Your business system involves a large number of transactions that rely on a speedy processing of receipts and payments to the supplier. This is because the supplier requires their payments a few times per week to enable them to pay their employees and other operating expenses.

Your procedure is to pay the supplier as detailed above and then provide post hoc statements of payments to suppliers and rely on them to supply a tax invoice even though payment has been made. You consider such a process to be administratively cumbersome, open to disputes and creates a significant gap between the time of supply and invoice.

Detailed reasoning

Under paragraph 29-70(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), a tax invoice must be issued for a taxable supply by the supplier unless it is an RCTI (in which case it must be issued by the recipient).

Subsection 29-70(3) of the GST Act defines an RCTI as a tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the recipient of a taxable supply.

Goods and Services Tax Ruling GSTR 2000/10 outlines the circumstances in which a recipient can issue an RCTI. The three broad classes of tax invoices that may be issued by a recipient of a taxable supply are:

· tax invoices for taxable supplies of agricultural products made to registered recipients

· tax invoices for taxable supplies made to registered government related entities, and

· tax invoices for taxable supplies made to registered recipients that have a turnover of at least $20 million annually; or are members of a group of companies, partnerships or trusts, or a joint venture operator, in which one or more other members of that group or participants in that joint venture have such a turnover.

Based on the information provided, you do not fall within any of these three classes as outlined in GSTR 2000/10.

However, the Commissioner has also made a number of specific determinations under subsection 29-70(3) of the GST Act for certain classes of tax invoices that may be issued by a recipient of a taxable supply.

From 1 July 2010, changes to tax invoices and RCTIs were introduced as part of the Board of Taxation's review of the legal framework for the administration of GST. Requirements for the content of RCTIs have been relaxed in line with those for tax invoices. These amendments continue to allow the Commissioner to specify classes of tax invoices that are permitted to be issued by recipients. As a result, all existing legislative instruments specifying such classes remain valid.

Subsection 29-70(3) of the GST Act refers to a class of tax invoices, rather than the granting of permission to specific entities. Consistent with this, RCTI determinations that have already issued have been in respect of broad classes rather than particular entities.

Based on the information that you have provided, your situation does not fall under any of the Commissioner's Determinations issued so far for RCTIs. Therefore, at this stage, it is not appropriate for you to issue RCTIs to the suppliers.

As you have particular circumstances that do not fall properly under any of the issued RCTI determinations, your industry association may apply to the Commissioner to issue a new RCTI Determination that will fit your industry association.

The procedures for making these requests are explained in paragraphs 53 and 54 of GSTR 2000/10 which state:

53. Industry associations, whose members are registered recipients of taxable supplies not covered by these broad classes, can request that the Commissioner make a determination in respect of other classes of tax invoices. The request will be considered on the basis of the particular circumstances of the industry, including the nature of the taxable supplies, suppliers and recipients. Other registered recipients may also make requests.

54. Your request for a determination should be made in writing or electronically and include the following information and documents:

(a) name of the industry association or registered recipient;

(b) type of industry in which the recipient operates;

(c) details of the supply and related transaction(s), including a description of the thing(s) supplied and current invoicing and payment practices;

(d) a statement acknowledging that the recipient(s) will enter into written agreements with suppliers in accordance with paragraph 13, requirement (e); and

(e) an explanation as to why the determination is requested.

Paragraph 53 of GSTR 2000/10 makes mention of industry associations making requests. This reflects the concept of there being an identified need in a particular taxpayer community for a determination. Although the paragraph was added to in the Addendum of 27 September 2000 to include the sentence "Other registered recipients may also make requests," Determinations will only be made for broad classes rather than particular entities.

As you are not an industry association, the Commissioner will not make a legislative determination specifically for you.

You should note that under subsection 29-70(2) of the GST Act, the supplier of a taxable supply must within 28 days after the recipient of the supply requests it, give to the recipient a tax invoice for the supply.

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