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Ruling

Subject: Recipient created tax invoice

Question

Can you issue recipient created tax invoices (RCTIs) for the commission paid to a not for profit organisation (NFP) for referring their members to your website to make purchases of your products?

Answer

Yes.

Relevant facts and circumstances:

You are a not for profit organisation that provides employment opportunities for people with disabilities. Your annual turnover is less than $20 million.

You provide a website through which you sell various products. You entered into arrangements with other NFPs to enable referral of their members to your website to make purchases by placing a link on their website.

You will pay each NFP a percentage of the total sales made to their members at the end of each month.

You intend to compile the sales made by each NFP on a monthly basis and calculate the appropriate percentage owed to each NFP. Payment is made to each NFP at the end of each month and you intend to issue RCTIs when each payment is made.

You stated that you will enter into a written agreement with each NFP.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

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

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 29-70(1)(a).

Reasons for decision

Summary

You may issue RCTIs to the NFP suppliers who refer their members to you through a web link on their website, provided you satisfy all the requirements in A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created tax Invoice Determination (No.23) 2000 (RCTI 2000/23).

Detailed Reasoning

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

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. 

In this case, the NFPs are supplying a service of referring their members to you and in return receive some consideration (i.e. calculated as a percentage of total sales made to their members). This is a taxable supply on the understanding that the requirements for a taxable supply under section 9-5 of the GST Act are satisfied. You are, therefore the recipient of a taxable supply.

 GSTR 2000/10 which can be downloaded from the ATO website at www.ato.gov.au specifies three broad classes of tax invoices that may be issued by a recipient of a taxable supply. They are: 

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

(b) tax invoices for taxable supplies made to registered government related entities; and

(c) tax invoices for taxable supplies made to registered recipients that have a GST 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 GST turnover.

 Based on the information supplied, you do not fall within any of these three classes. 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 that are not listed in GSTR 2000/10.

 Of relevance to you is A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No. 23) 2000 (RCTI 2000/23). This determination permits the recipient of a taxable supply of referral services to issue a tax invoice for that taxable supply. Clause 4 of RCTI 2000/23 states: 

A tax invoice that belongs to a class of tax invoices for a taxable supply of referrals 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; and

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

Clause 5 of the determination contains the following requirements that must be satisfied by a recipient of a taxable supply before the recipient can issue RCTIs: 

(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 with 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 failed to comply with any of the requirements of the determination;

(h)    if the recipient has a current GST turnover of less than $1,000,000, it must notify the Commissioner in writing of the recipients 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 the recipient or before 14 days have elapsed since this determination was signed, whichever is later.

The following expressions are defined in clause 6 of RCTI 2000/23:

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

 Referrals mean the activity of publicising and promoting an entity and/or the goods and services of that entity with the aim of directing potential clients to that entity. This includes but is not restricted to services such as direct referrals, the display of promotional pamphlets and the inclusion of a hyperlink on a website;

 Service provider means the entity providing referrals to the recipient.

 In your case, you have entered into arrangements with NFPs which aims at directing their members to your website. You sell different products to members of the NFPs referred to you through the link on their website.

You advised that you will pay each NFP a percentage of the total sales made to their members through the web link referrals at the end of each month. The NFP does not have information in relation to the sales made to their members unless you provided them with such information.

As you are able to calculate the percentage payment to the NFP based on sales made through the referral arrangement, you meet the requirements of clause 4(i) of RCTI 2000/23. Therefore, as your situation fits within the scope of the abovementioned determination, you can issue RCTIs for the taxable supplies of services made to you by the NFPs provided you satisfy all the requirements of Clause 5 of RCTI 2000/23.