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Ruling

Subject: GST and a recipient created tax invoices (RCTI) determination

Question

Can you issue RCTIs to participating entities (entities), when you distribute government grants to the entities for fee relief?

Decision

No, you cannot issue RCTIs to the entities when you distribute government grants to the entities for fee relief.

Relevant facts and circumstances

· You are an organisation representing entities that participate in a particular scheme to supply specific services. You are registered for GST.

· In order to relieve certain fees incurred by the participating entities, the government has given you a grant package for fee relief.

· You administer this relief program for the benefit of the participating entities (entities). Eligibility for this program is limited only to entities satisfying certain criteria.

· This project is governed by the terms and conditions of the agreement entered into between you and the government.

· The eligible entities have to first lodge with you an application for fee relief. If an entity is approved by you for this program, the entity has to lodge a claim form with you for each quarter. You will verify the claims and make payments to the entities by the due dates.

· On the quarterly claim form, a participating entity has to undertake certain calculations to estimate the amount claimed. The entity has to submit supporting documentation to substantiate their claim.

· You check the quarterly claim and supporting documentation lodged by each entity. If a claim is fully substantiated, you refund it in full. If a claim is not fully substantiated, you make adjustments to the amount payable to the entity. You inform each entity how much they will get paid for the quarter and the entity has to issue a tax invoice accordingly.

· You expect that not all the grant funds will be distributed to the entities by the end of the program. As per the agreement signed with the government, the remaining funds have to be distributed to the entities on a pro-rata basis.

· The participating entities will not know exactly how much they will get out of the remaining funds. You have to calculate and inform each entity how much they will get out of the remaining funds. Each entity has to issue a tax invoice for this amount, before you can pay their share of the remaining funds. In general, the entities are quite slow in issuing these tax invoices.

· Your turnover is well below $20 million per annum. You do not satisfy the eligibility criteria to issue RCTIs under the three broad classes of RCTIs, as listed at paragraph 10 of the Goods and Services Tax Ruling GSTR 2000/10 (GSTR 2000/10).

· A Commissioner's determination is requested as there appears to be no RCTI industry determination that covers the activities described above. RCTIs would simplify the invoicing process and speed up the distribution of funds to participating entities. They will reduce the administration costs for both you and the participating entities.

· If the Commissioner approves your request, you acknowledge that you will enter into written agreements with the participating entities in accordance with paragraph 13 of GSTR 2000/10.

· If the Commissioner is unable to permit you to issue RCTIs under an RCTI determination so far issued, you request the Commissioner to treat your submission as a formal request to issue an RCTI determination to cover the situation described in your submission.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - subsection 29-70(3)

Reasons for the Decision

Subsection 29-70(3) of the GST Act refers to RCTIs and provides that:

A recipient created tax invoice is 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.

*The asterisked terms are defined in the Dictionary starting at section 195-1 of the GST Act.

Goods and Services Tax Ruling GSTR 2000/10 (GSTR 2000/10) refers to recipient created tax invoices. Paragraphs 10-11 of GSTR 2000/10 refer to three broad classes of RCTIs as follows:

Three broad classes of RCTIs

10. The Commissioner has determined under subsection 29-70(3), that three classes of tax invoices may be issued by a recipient of a taxable supply. These classes 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 (see paragraphs 22 to 24);

(b) tax invoices for taxable supplies made to registered government related entities that satisfy the requirements for issuing RCTIs (see paragraphs 25 to 27); 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) 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.

(The criteria for inclusion in this class of invoices are explained at paragraphs 28 to 36.)

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

We consider that the RCTIs intended to be issued by you to the participating entities do not fall into any of the three broad classes of RCTIs as mentioned above. Therefore, you cannot issue RCTIs to the entities based on the provisions of paragraphs 10-11 of GSTR 2000/10.

Value of the supply

Paragraphs 8-9 of GSTR 2000/10 provide:

8. Usually, the supplier of a taxable supply gives the recipient a tax invoice for the supply. However, commercially, invoices are also currently created by recipients of supplies, particularly 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.

9. The determination will enable many recipients to claim input tax credits without significantly altering their current invoicing practices.

Because of the compliance risks associated with the issue of RCTIs, the Commissioner has placed limitations on who can issue them and the circumstances in which they can be issued. One of these limitations is that the recipient must in fact set the value of the supply after it is made and that value must be set by way of some process or calculation that the recipient undertakes.

In your case, the value of the supply is calculated by a participating entity using a specific process and calculation. The actual payment to the entity is only conditional on your verification of the supporting documentation submitted by the entity. Therefore, the basic requirements for permitting the issue of RCTIs as stated in paragraph 8 of GSTR 2000/10 are not satisfied.

The undertaking by you is merely to approve the payment after scrutinising the supporting documentation submitted by an entity. Although this process is a form of assessment, it is not to the same extent that is required by the Commissioner in accordance with paragraph 8 of GSTR 2000/10. There is no additional qualitative or quantitative analysis of the work done by the entity on your part at any stage. The value of the supply was estimated by the entity beforehand.

Even though you, as the recipient, decide the exact amount of the grant payable to an entity, there is no real problem in communicating this information to the entity. Administrative convenience does not preclude a supplier from fulfilling their obligation to issue tax invoices and is not a justification for the issue of RCTIs. Your submission that you wish to simplify accounting and administrative procedures for the suppliers and yourself is not an acceptable reason to issue RCTIs.

It is in this context that we have to consider your request to issue RCTIs for the distribution of the remaining funds to the entities. The entities do not supply additional services to receive these additional grant funds. It is simply an accounting and administrative function on your part to calculate and notify the entities about the additional grant funds to be received by them.

Taking into account the background of your situation as described above, we conclude that it is not appropriate for the Commissioner to allow you to issue RCTIs to the entities. Accordingly, your request to issue RCTIs cannot be approved.