Edited version of your written advice

Authorisation Number: 1051318629076

Date of advice: 8 December 2017

Ruling

Subject: GST and recipient created tax invoices

Question

Can an Australian entity (you) issue recipient created tax invoices (RCTI) for the commissions paid to the agents in relation to the supply of referrals and sales agents services made by the agents to you?

Answer

Yes, the Commissioner will permit you to issue RCTIs in respect of the referral services and/or sales agent services made to you by agents, provided you follow all the other requirements set out in A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoices Determination (No. 11) 2016 (RCTI Determination 2016/11) or A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoices Determination (No. 14) 2016 (RCTI Determination 2016/14).

Relevant facts:

You are an Australian company which is registered for GST.

Your annual GST turnover is less than $20 million.

You have an Agreement with a number of agents to promote and market your product and services to customers.

When a customer takes up your services the customer is invoiced directly by you and the customer pays you for those products and services.

You pay commission to the agents for their supply of the referral services and/or sales agent services. The commission you pay to the agents is based on a percentage, or fixed amount of the services purchased from you by your customers.

Every month, you generate a commission report for the agents which lists their end clients and the items you have billed for that month and the commission amount payable on each line items. You send the commission report to the agents and then they issue an invoice to you for their services.

You are the only entity that can calculate and determine the amount of the commission provided to the agents as they do not know the amount of monthly sales for their services. You are in receipt of the information necessary to determine the value of the payment to the agents. The agents do not have the information necessary to prepare a tax invoice for their supply of services to you.

Commissions are calculable at the end of each calendar month and paid on a monthly basis within 45 days of the invoice date, pending payment of the amount invoiced by the customers.

The agents are registered for GST.

You confirm that you will enter into written agreements in relation to the RCTIs with all relevant agents that commissions are paid to, in accordance with the requirement of Goods and Services Tax Ruling GSTR 2000/10.

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 an RCTI (in which case it must be issued by the recipient of the supply).

Subsection 29-70(3) of the GST Act defines an 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.

Goods and Services Tax Ruling GSTR 2000/10 outlines the circumstances in which a recipient can issue RCTIs. The Commissioner has determined that there are three broad classes of tax invoices that may be issued by the recipient of a taxable supply. These three classes are explained in Goods and Services Tax Ruling 2000/10.

Further, an entity can issue RCTIs if the Commissioner has determined in writing that the nature of the industry in which the entity operates warrants the use of RCTIs.

The Commissioner has issued RCTI Determination 2016/11 which permits the recipient of a taxable supply of referral services to issue a tax invoice for that supply. Clause 6 of RCTI 2016/11 states:

6. The recipient of a taxable supply of a referral, may issue a tax invoice called a recipient created tax invoice (RCTI) for the taxable supply if the recipient:

(a) establishes the value after the supply is made using a calculation process; and

(b) satisfies the requirements set out in Clause 7.

Clause 7 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) be registered for GST;

(b) set out the ABN of the supplier on the RCTI;

(c) issue the original or a copy of the RCTI to the supplier within 28 days of making, or determining, the value of a taxable supply and 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 any adjustment and must retain the original or the copy;

(e) reasonably comply with its obligations under the taxation laws; and

(f) have either a written agreement with the supplier that meets the requirements of Clause 8, or a written agreement embedded in the RCTI that meets the requirements of Clause 9.

The following expressions are defined in clause 10 of RCTI 2016/11:

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

referral 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 on a website.

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

Based on the facts given, we consider that the activities of the agents in return for the commission paid to them meet the definition of referrals, and that the agents satisfy the meaning of service provider for the purposes of RCTI Determination 2016/11. This is because the agent(s) assist with the sale by directing the customers to you. You are the recipient of that referral service and calculate the commission to be paid to the agents based on set criteria (that is, a calculation process).

Accordingly, RCTI Determination 2016/11 will entitle you to issue RCTIs to the agents for the supply of the referral services made to you by the agents in return for the commission payable to them, provided you follow all the other requirements as set out in clause 7 of RCTI Determination 2016/11 (stated above).

Additional Information

The Commissioner has also issued RCTI Determination 2016/14 which permits the recipient of a taxable supply of selling agent services to issue a tax invoice for that supply. Paragraphs 6 and 7 of RCTI Determination 2016/14 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.

RCTI Determination 2016/14 states in clause 6 that:

6. A seller who is a recipient of a taxable supply of selling agent services, may issue a tax invoice called a recipient created tax invoice (RCTI) for the taxable supply if the seller:

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

(b) satisfies the requirements set out in Clause 7.

Clause 7 of RCTI Determination 2016/14 is similar to Clause 7 discussed in RCTI Determination 2016/11 above.

Further, clause 10 of RCTI Determination 2016/14 provides (amongst other things) the definitions of the following:

calculation process means any process used by the seller to calculate the commission or payment to the selling agent;

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 or services;

selling 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;

In the circumstance where the activities of the agents meet the definition of selling agent services in relation to the commission paid to them, and satisfy all the other requirements of RCTI Determination 2016/14, you will also be entitled to issue RCTIs to the agents for the supply of the selling agent services made to you in return for the commission in accordance with RCTI Determination 2016/14.

In summary, as you are the recipient of the referral and/or selling agent services made by the agents and you establish the value of those services after the supply is made using a calculation process, you may issue RCTIs for the supply of those services to you, provided you follow all the other requirements in clause 7 in RCTI Determination 2016/11 or RCTI Determination 2016/14.

Effect of supplier ceasing to be registered for GST

Please note that sub-paragraph 8(c)(iii) of RCTI Determinations 2016/11 and 2016/14 require the supplier to acknowledge that it is registered for GST when it enters into the agreement with you. If the supplier ceases to be registered for GST the requirements of these determinations will not be met and you will not be able to issue RCTIs for the supplies made by the entity that is not registered for GST.