REDUCE BURDEN WITH RCTIS.
Published on Dec 18, 2014
Recipient-created tax invoices (RCTIs) take the hassle out of business relationships by allowing the recipient of a taxable supply to issue a tax invoice, rather than waiting for one from the supplier.
They are convenient - so when can they be used?
There’s a widespread misconception that small financial and credit service businesses can’t use RCTIs because they can only be used by:
- Businesses with a turnover of at least $20 million annually or who are members of a GST group with such an annual turnover;
- Recipients of agricultural products; and
- Government-related entities.
However, you can benefit from RCTIs in some situations. Here are 3 examples:
- Paid referrals – when you owe fees to your referrers, you can issue RCTIs to yourself, rather than waiting for the referrer’s invoice.
- Authorised representatives – AFSL holders can issue RCTIs to their authorised reps (and distributors for general insurance businesses) in relation to their remuneration entitlement, rather than wait for them to send you an invoice.
- Delegated binders –brokers and underwriting agencies who have delegated their binding authority can issue an RCTI, rather than wait for a sub-agent’s invoice.
Remember, RCTIs can only be used where the supplier of the services, i.e the referrer, AR or broker in the above examples, is not aware of the value of the supply; and it is commercially impractical for them find it out - e.g. a referrer who is paid when the referral is converted to a client, won’t know how much remuneration they are entitled to.
Unfortunately, for credit providers, unless you have $20 million annual turnover, you can’t use RCTIs unless you apply to the ATO for a determination.
4 must do’s when using RCTIs:
- Be registered for GST;
- Include your ABN in the RCTI;
- Issue the RCTI within 28 days of provision of the ‘taxable supply’; and
- Have a written agreement with the supplier which meets the ATO’s requirement, or include the statement required by the ATO on your RCTI.
Although it sounds simple, both the eligibility to use RCTIs and the required documentation are complex. Don’t use them without getting legal help to confirm your eligibility and prepare the documents required by the ATO.
Call The Fold if you'd like assistance, we'd be happy to help!
Author: Jeremy Brown