Edited version of your private ruling

Authorisation Number: 1012607169484

Ruling

Subject: GST and recipient created tax invoices.

Question

Can you issue recipient created tax invoices (RCTI) for the supply of referral services made by various agents to you in return for commission payments?

Answer

Yes, you may issue RCTIs to various agents for the referral services made to you, provided you satisfy all the requirements set out in A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoices Determination (No. 23) 2000 (RCTI Determination 2000/23).

Relevant facts:

You are an Australian entity which is registered for GST.

You supply education services to international students in Australia.

Your annual GST turnover is approximately $X million.

You acquire referral services from various agents who help you to source new students. The agents' operate independently to source potential students and refer them to you.

Once a student has been referred you complete the enrolment directly with the student and provide the student with the education course they have enrolled in for a separate fee.

You pay commission to the agents for their referral services. This commission is generally based on an agreed rate previously determined between you and the agent and is calculated with reference to the number of student referrals that attain successful completion of the course(s).

The successful completion of the course is monitored by you and communicated to the agent on completion of the course(s). As the recipient of the referral services, you calculate the commission payment that is to be paid to the agent. The commission of the referral services is calculated with reference to the number of students introduced by the agent that have successfully completed the course in which they first enrolled.

The agent does not know how many of their referrals have successfully completed the course in which they enrolled, only you have the data required to calculate the commission for the referral services. You are the only entity that can determine the amount of commission provided to the agents as they do not know the amount until you notify the agents of the successful completion of the course(s) by the student(s).

The agents engaged by you are located both in Australian and outside Australia. This also includes agents operating through businesses and in their own capacity as individuals. As a result of the various natures of agents and the locations of the agents, some agents are registered for GST and other are not registered for GST.

You will only issue RCTIs for the referral services to the agents who are registered for GST. You will not issue RCTIs to the agents who are not registered for GST.

You have provided a sample copy of an agreement between you and the agents for the referral of students.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999 Section 29-70

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

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-70(2)

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

Reasons for decisions

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

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 the supply.

In this case, the agents are supplying a service of referring clients to you and in return you pay them consideration in the form of a commission payment. You are, therefore the recipient of this supply which will be a taxable supply where all the requirements under section 9-5 of the GST Act are satisfied.

Goods and Services Tax Ruling GSTR 2000/10 outlines the circumstances in which a recipient can issue an RCTI. The three broad classes of tax invoices that may be issued by a recipient of a taxable supply are:

• tax invoices for taxable supplies of agricultural products made to registered recipients

• tax invoices for taxable supplies made to registered government related entities, and

• tax invoices for taxable supplies made to registered recipients that have a 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 turnover.

Based on the information provided, 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.

Of relevance to you is RCTI 2000/23. This determination allows the recipient of a taxable supply of referral services to issue a tax invoice for that taxable supply.

Goods and Services Tax Ruling GSTR 2000/10 outlines the circumstances in which a recipient can issue RCTI's. An entity can issue RCTI's if the Commissioner has determined in writing that the nature of the industry in which the entity operates warrants the use of RCTI's.

Further, the Commissioner has issued RCTI Determination 2000/23 which permits the recipient of a taxable supply of referral services to issue a tax invoice for that supply. RCTI Determination 2000/23 states in clause 4 that:

4. A tax invoice that belongs to a class of tax invoices for a taxable supply of referral 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;

Clause 5 of the RCTI Determination 2000/23 sets out the requirements that must be satisfied by the recipient of a taxable supply, and 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 have either:

n a written agreement with the supplier specifying the supplies to which it relates, that is current and effective when the RCTI is issued, agreeing that:

(i) the recipient can issue tax invoices in respect of the supplies;

(ii) the supplier will not issue tax invoices in respect of the supplies;

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

(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 for GST; or

n an agreement with the supplier embedded in an RCTI it issues that contains the following statement:

The recipient and the supplier declare that this agreement applies to supplies to which this tax invoice relates. The recipient can issue tax invoices in respect of these supplies. The supplier will not issue tax invoices in respect of these supplies. The supplier acknowledges that it is registered for GST and that it will notify the recipient if it ceases to be registered. The recipient acknowledges that it is registered for GST and that it will notify the supplier if it ceases to be registered for GST. Acceptance of this RCTI constitutes acceptance of the terms of this written agreement.

Both parties to this supply agree that they are parties to an RCTI agreement. The supplier agrees to notify the recipient if the supplier does not wish to accept the proposed agreement within 21 days of receiving this document.

(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 GST 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 or before 14 days have elapsed since this Determination was signed, whichever is later.

Further, clause 6 of RCTI Determination 2000/23 provides definitions of the following:

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

referrals means 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 or website;

service provider means the entity providing the referrals to the recipient.

Based on the facts given, we consider that the activities of the agents in relation to the commission meet the definition of 'referrals' and that the agents satisfy the meaning of 'service provider' for the purposes of RCTI Determination 2000/23. This is because they are the entity that promotes, sell and direct their clients to you. You are the recipient of the referral services and calculate commission to be paid to the agents based on set criteria (that is, calculation process).

Therefore, RCTI Determination 2000/23 will entitle you to issue RCTIs to the agents for the supply of the referral services made to you in return for commission payments, provided you satisfy all the requirements as set out in clause 5 of RCTI Determination 2000/23 (stated above).

All references to GST rulings and determinations can be downloaded from the ATO website at www.ato.gov.au