Edited version of private ruling

Authorisation Number: 1011642400558

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Ruling

Subject: GST and recipient created tax invoices

Question

Are you eligible to issue recipient created tax invoices (RCTIs) to your customers in respect of the services that they supply to you?

Answer

No, you are not eligible to issue RCTIs to your customers in respect of the services that they supply to you.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

Your GST turnover is under $20 million and you are not part of a GST group.

You conduct an enterprise of providing payment services to customers.

You provide information to your customer immediately after making a payment to them.

You have advised that your payment system involves many transactions that rely on speedy processing. The payment to the customers must be remitted regularly to enable them to meet their commitments.

Your request to issue RCTIs to your customers is based on the fact that the business processes and administrative tasks are complex, and you are only aware of the liability to your customers a few hours prior to making the payment.

Should your request for issuing RCTIs be granted, you will enter into written agreements with your customers in accordance with the requirements of Goods and Services tax ruling GSTR 2000/10.

Reasons for decision

Based on the presented facts, four scenarios are involved in these transactions, namely:

(1) You provide payment services to your customers.

(2) Your customers provide you with services of collecting a fee in return for a commission.

(3) A third party transmits the transactions to an entity.

(4) The entity then pays you a final amount to you.

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

One of the general requirements of issuing RCTIs is that the value of the taxable supply is established by the recipient of the supply rather than the supplier.

Subsection 29-70(3) of the GST Act defines a 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 is entitled to issue RCTIs. An entity can issue RCTIs if the Commissioner has determined in writing that the nature of the industry in which the entity operates warrants the use of RCTIs.

The Commissioner has determined under subsection 29-70(3) of the GST Act that three broad classes of tax invoices may be issued by a recipient of a taxable supply. These are:

(a) tax invoices for taxable supplies of agricultural products made to registered recipients who:

(i) satisfy the requirements for issuing RCTIs, and

(ii) determine the value of the agricultural products (and any by-products) subsequent to, and dependent upon, quantitative or qualitative analysis of the supply being undertaken

(b) tax invoices for taxable supplies made to registered government related entities that satisfy the requirements for issuing RCTIs, and

(c) tax invoices for taxable supplies made to registered recipients that satisfy the requirements for issuing RCTIs and that:

(i) have a GST turnover (including input taxed supplies) of at least $20 million annually, or

(ii) (ii) 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 GST turnover.

Tax invoices that fall within any of these three classes can be issued by recipients without notifying or applying to the Commissioner.

Based on the information provided, you are not able to issue RCTIs pursuant to any of the above-mentioned three broad classes.

Because of the compliance risk associated with the issue of RCTIs, there must be limitations placed on who can issue them and the circumstances in which they can be issued. For all of the RCTI determinations, one of these limitations is that the recipient must in fact set the value of the supply after it is made and that value is set by way of some process or calculation the recipient undertakes.

You have stated that the main reason for requesting permission to issue RCTIs to your customers is that under your current business practices, you are only aware of your liability to the customers a few hours prior to payment being made and that the latter cannot ascertain the dollar value of their transactions until you pay them.

You have advised that a third party transmits the transactions to an entity electronically. The presented facts state that the value of your customers' services to you is readily available to them. Moreover, the entities involved can check all their transactions. You have also stated that you are able to readily provide information to your customer after remitting a payment to them.

You have also advised that the amount payable to the customer is based on a fixed percentage which has been mutually agreed upon by the parties. The customer is thus able to access information that is readily available to them and to ascertain the value of their supplies at all times, after deducting the fee charged by the credit card company.

Based on the above, you are not the only entity that can determine the value and volume of the supplies made by your customers. You are not covered by a RCTI determination that the Commissioner has already issued. Therefore, you cannot issue RCTIs to your customers in respect of their services of collecting the fee.