Edited version of your written advice

Authorisation Number: 1012953903954

Date of advice: 4 February 2016

Ruling

Subject: GST and recipient created tax invoice

Question

Can the entity issue recipient created tax invoices (RCTI) for the supply of licensing?

Answer

Yes. The entity can issue RCTI for the supply of licensing provided all the requirements in Clause 5 of the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No.20) 2000 (RCTI 2000/20) are met.

Relevant facts and circumstances

The entity, a registered training organisation (RTO), entered into an agreement with another entity the supplier under which the supplier will supply training program content under licence and the entity is appointed as a reseller of the program.

The program content consists of copyrighted materials.

The learning management system, and any modifications to that system, which runs the online training program belongs to the entity as well as any materials that are created in relation to the delivery of the program by the entity which do not incorporate any of the licensed content from the supplier.

Course participants enrol with the entity and the enrolment terms and conditions specify that the online training is delivered by the entity.

As the reseller of the program, the entity is obligated to make monthly commission/licence fee payments to the supplier for the use of the program and brand. The calculation is performed by the entity based on enrolments and the agreed shares of the course fees collected.

Relevant legislative provisions

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

Reasons for decision

A recipient created tax invoice (RCTI) is a tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing that may be issued by the recipient of a taxable supply.

Three broad classes of RCTIs

Paragraph 10 of Goods and Services Tax Ruling 2000/10 lists three broad classes of tax invoices in relation to which RCTI agreements may be entered into. These classes are established by the first Determination (RCTI 2000/1) made pursuant to subsection 29-70(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The three broad classes of tax invoices are:

• tax invoices for taxable supplies of agricultural products made to registered recipients who satisfy the requirements for issuing RCTIs and 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;

• tax invoices for taxable supplies made to registered government related entities that satisfy the requirements for issuing RCTIs; and

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

• have a GST turnover (including input taxed supplies) 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.

The taxable supply for which the entity pays a commission/licence fee and wishes to issue RCTIs does not belong to any of the three broad classes of RCTIs.

Other classes of RCTIs

The Commissioner has made other RCTI determinations that allow entities to issue RCTIs for particular types of supplies. One of these determinations is the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No.20) 2000 (RCTI 2000/20).

According to RCTI 2000/20, a tax invoice that belongs to a class of tax invoices for a taxable supply of licensing may be issued by a recipient of that supply where the recipient:

(a) establishes the value of that supply as a royalty based on the value of the sales of the relevant item; and

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

Clause 5 of RCTI 2000/20 specifies 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 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:

• 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 supplier;

(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; or

• 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 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 the 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 after signing of this Determination, whichever is later

The supplier is supplying the program content under licence to the entity and assigns the entity to be a reseller of the program. The entity calculates the license fee, also referred to as commission, payable to the supplier based on enrolments and the agreed share of the fees collected. Under these circumstances, the entity can issue RCTIs for the taxable supply of licensing provided all the requirements in Clause 5 of RCTI 2000/20 are satisfied.