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Ruling

Subject: GST and request to use recipient created tax invoices

Question

Can you issue recipient created tax invoices (RCTI) for the amounts paid to subcontractors in relation to their services to you?

Answer

No

Relevant facts and circumstances

You operate a business.

Your GST turnover is under $20 million and you are registered for GST.

You do not receive taxable supplies of agricultural products, are not a government related entity and do not have an annual turnover of at least $20 million.

You outsource some processes to subcontractors throughout Australia.

The rate you pay is fixed and is determined by you. The rate is listed in your attachment.

When payment is due your current practice is to send a nil invoice that instructs the subcontractors to invoice the amount payable. The subcontractor then invoices you based on the amount from the nil invoice.

You have provided a sample of the agreement that you would issue to all your existing subcontractors to use the RCTI process for work done.

You contend that the current practice is an administrative inconvenience and you wish to streamline your processes.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-70(3).

Reasons for decision

Subsection 29-70(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a recipient created tax invoice is a tax invoice belonging to a class of tax invoices that the Commissioner of Taxation (the Commissioner) has determined in writing may be issued by the recipient of a taxable supply.

Goods and Services Tax Ruling GSTR 2000/10 (GSTR 2000/10) specifies three classes of tax invoices that may be issued by a recipient of a taxable supply. These classes include:

· tax invoices for taxable supplies of agricultural products;

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

· tax invoices for taxable supplies made to registered recipients that have a turnover of at least $20 million; or are members of a group that has such an entity as a member.

From the facts, your entity does not fall within any of these classes.

Generally, the supplier of a taxable supply provides a tax invoice to the recipient. However, with RCTI, it is the recipient of taxable supplies that issues tax invoices when they determine the value of the supply.

Paragraph 8 of GSTR 2000/10 states that commercially, invoices are created by recipients of supplies, where:

(a) the value of the supply is established by the recipient rather than by the supplier; and

(b) (i) the goods involved are of a type that require qualitative analysis to be undertaken before their value can be ascertained (for example, cut sugar cane is analysed by the sugar mill);

(ii) quantitative analysis is undertaken before the recipient can ascertain the value of the supply (for example, work-in-progress in the building and construction industry is analysed by quantity surveyors);

(iii) the supplies are arranged and recorded using electronic purchasing systems operated by the recipients (to require a tax invoice to be issued by the supplier would detract from the effectiveness of these systems); or

(iv) there are mutual efficiencies for the supplier and the recipient in conducting their business on the basis that the recipient notifies the supplier of the value of the supply.

In your case, the value of the supply is established by you, and work is undertaken by the subcontractors on the basis of attachment which forms part of the agreement that you established prior to the subcontractors undertaking work on your behalf. Therefore, you do not satisfy the requirement of establishing the value of the supply.

Pursuant to subsection 29-70(3) of the GST Act you do not meet the requirement that the Commissioner has prescribed in GSTR 2000/10 that would enable the Commissioner to issue a determination for a class of tax invoice that can be issued by you as the recipient of a taxable supply.

Further to this the Commissioner has issued a number of legislative determinations approving certain situations, and industry types, where sales can be invoiced using RCTIs.

In your case the legislative determination - A New Tax System (Goods and Services Tax) Act 1999 Classes RCTI determination (No. 22) (RCTI Determination 2000/22) is of relevance to you.

RCTI 2000/22 allows recipients of labour services to issue RCTI, subject to certain conditions.

Clause 4 of RCTI Determination 2000/22 states:

A tax invoice that belongs to a class of tax invoices for a taxable supply of labour services may be issued by an entity that is the recipient of that taxable supply where the recipient:

(i) establishes the value of those services after the supply is made using a calculation process ..

The determination provides that the calculation process is defined as the following:

base data * appropriate rate

Base data means information provided by the supplier that evidences the quantity of the supply, such as completion of time sheets and completion of job dockets.

Appropriate rate means the rate as determined by the recipient (whether or not in consultation with the supplier) that takes into account information not readily available to the supplier when the supply is made.

In your case it is considered that you do not establish the value of the supply after the supply is made. Instead you apply the fee that has been predetermined based on the agreement entered into with your subcontractors. Therefore, your subcontractors can provide you a tax invoice for the service provided. In your case you are not setting the value of the supply after it is made. The supplier can refer to the 'cost coverage declaration' which forms part of the 'declaration of consent' agreement made with you. The amount payable would be known by the subcontractor after they have completed the job. The supplier therefore would be in a position to issue the necessary tax invoice.

Therefore, RCTI Determination 2000/22 cannot apply to the work provided by the subcontractors performing your warranty services.

Copies of GSTR 2000/10 and RCTI Determination 2000/22 are available for your perusal on the ATO website.

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