Edited version of private ruling

Authorisation Number: 1011800137881

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Ruling

Subject: GST and recipient created tax invoice

Question

Can you issue recipient created tax invoice (RCTIs) for commission paid to the affiliates who sell your product?

Answer: Yes.

You can issue RCTIs for commission paid to the affiliates who sell your product provided you satisfy all the requirements as set out in clause 5 of the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No. 13) 2000 (RCTI 2000/13).

Relevant facts

You are registered for goods and services tax (GST). Your GST turnover is less than $20 million.

You are a new company and have launched a product in Australia recently. This product is available for purchase online only.

You have set up an affiliate program that allows entities to refer/on sell the product to their clients and contacts and receive a commission.

The affiliates promote the product via their website and receive a percentage of the sales as commission for each product sold through their affiliate account. All transactions take place at your website.

When a customer purchases the product from an affiliate, the sale is then logged to the affiliate. The affiliate will receive a notification email for every purchase made. The affiliate will not know in advance how much the commission will be until you have advised them by email.

Your system automatically generates emails to your affiliates each month which totals the number of the product sold for each affiliate and then an RCTI can be issued for commission payable.

An approved affiliate is required to enter into agreement with you. Terms include that the affiliate must register for GST at all times to qualify to receive commission payments.

Reasons for decision

A tax invoice for a taxable supply must be issued by the supplier unless it is an RCTI, (in which case it must be issued by the recipient of the supply).

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

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

(1) Tax invoices for taxable supplies of agricultural products made to registered recipients who:

(i) satisfy the requirements for issuing RCTIs

(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

(2) Tax invoices for taxable supplies made to registered government related entities that satisfy the requirements for issuing RCTIs

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

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

(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 turnover.

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

None of the above classes apply in your circumstances.

The Commissioner has also made a number of Commissioner's Legislative Determinations (as authorised under subsection 29-70(3) of the GST Act) for certain classes of tax invoices that may be issued by the recipient of a taxable supply where the recipient does not fall into one of the classes above.

A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No. 13) 2000 (As Amended) (RCTI 2000/13) is one of those determinations specifically relevant to your circumstances. It permits the recipient of a taxable supply of selling agent services to issue a tax invoice for that supply. Paragraphs 4 and 5 of RCTI 2000/13 set out the classes of tax invoices that may be issued by the recipient of a taxable supply and the requirements that must be satisfied by a recipient of a supply.

Clause 4 in RCTI 2000/13 states:

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

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

(ii) satisfies the requirements set out in Clause 5;

The term 'calculation process' is defined in Clause 6 of RCTI 2000/13 to mean 'any process used by the seller to calculate the commission or payment to the selling agent. The value of the supply (commission) is established by you rather than the supplier (affiliates). The calculation process requires you to notify the suppliers of the value of the supply and this would create mutual efficiencies for both parties.

Based on the information provided, all sales and transactions are made directly to you via your website and your system will calculate the commission payable to the affiliates. Although the commission rate is provided to your affiliates, they would not know in advance how much the commission would be until you have advised them.

Clause 5 of RCTI 2000/13

This clause sets out the requirements that must be satisfied by the recipient of a taxable supply. It states:

(5) A recipient must satisfy the following requirements:

a. the recipient must be registered for GST when the invoice is issued;

b. the recipient must set out in the tax invoice the ABN of the supplier;

c. the recipient must issue the original or a copy of the tax invoice to the supplier within 28 days of making, or determining, the value of a taxable supply and must retain the original or the copy;

d. the recipient must issue the original or a copy of an adjustment note to the supplier within 28 days of the adjustment and must retain the original or the copy;

e. the recipient must reasonably comply with its obligations under the taxation laws;

f. the recipient must issue the tax invoice pursuant to a written agreement that the recipient has with the supplier which specifies the supplies to which it relates and contains the following terms:

i. the recipient may issue tax invoices in respect of the specified supplies;

ii. the supplier will not issue tax invoices in respect of those supplies;

iii. the supplier acknowledges that it is registered when it enters into the agreement and that it will notify the recipient if it ceases to be registered;

iv. the recipient acknowledges that it is registered when it enters into the agreement and that it will notify the supplier if it ceases to be registered;

g. the recipient must not issue a document that would otherwise be a recipient created tax invoice, on or after the date when the recipient or the supplier has failed to comply with any of the requirements of this determination;

h. if the recipient has a current annual turnover of less than $1,000,000, it must notify the Commissioner in writing of the recipient's intention to use recipient created tax invoices. This notification must be made before 14 days have elapsed after the first occasion that a recipient created tax invoice is issued by that recipient.

Further, clause 6 of RCTI 2000/13 provides definitions of the following:

calculation process means any process used by the recipient to calculate the commission or payment to the service provider;

purchase orders means any order or request for goods or services;

seller means the entity that will satisfy the purchase order through the supply of goods and services;

seller agent means any entity that is authorised by the seller to accept purchase orders on behalf of the seller;

selling agent services means the collection and delivery of purchase orders by a selling agent to a seller.

Based on the facts provided, we consider that the activities of the affiliates meet the definition of selling agent services in relation to the ongoing commission, and that the affiliates satisfy the meaning of selling agent.

Accordingly, RCTI 2000/13 will entitle you to issue RCTIs to your affiliates for the supply of the selling agent services made to you in return for the commission, provided you satisfy all the requirements as set out in clause 5 of RCTI 2000/13 (stated above).