Invoices and records
Recipient created tax invoice (RCTI)
A recipient created tax invoice is a tax invoice that the buyer issues on behalf of the supplier under a written agreement, so the supplier does not issue its own tax invoice for those sales.
A recipient created tax invoice, often shortened to RCTI, reverses the usual process. Normally the seller issues the tax invoice and the buyer relies on it. With an RCTI, the buyer prepares the document for the seller. It is a way of reducing paperwork where the buyer is better placed to work out the amounts, for example because the price depends on what the buyer later determines, such as the weight or grade of goods received.
The arrangement is common in industries such as agriculture, where a buyer such as a processor or agent pays a farmer based on a measured quantity or quality, and in some arrangements involving agents, commissions, and royalties. It can save the supplier from having to issue a separate invoice when the buyer already holds the information. The buyer prepares a document that shows what is being paid, and the GST included, and the supplier relies on it.
Several conditions must be met. The buyer must be registered for GST and the supplier must be registered for GST. The buyer and supplier must have a written agreement that the buyer will issue RCTIs for those supplies, and the supplier must agree that it will not issue its own tax invoices for them. The agreement must be in force when the document is issued, and the supplier must not have notified the buyer that it will not accept RCTIs. The document must meet the usual tax invoice content requirements and indicate that it is an RCTI.
The effect for each party is the same as it would be with an ordinary tax invoice. The supplier reports GST on the sale based on the RCTI, and the buyer claims credits, assuming they are otherwise entitled. The supplier should check the RCTI for errors, because the supplier remains responsible for the GST it reports. If an RCTI is wrong, the parties should correct it, and an adjustment note may be needed for later changes.
Records matter. Both parties should keep copies of the agreement and each RCTI for five years. If a supplier also issues its own tax invoice for a supply covered by the agreement, there is a risk of double counting, which should be avoided. If the agreement ends, the parties should return to the standard process, and the supplier should confirm when it begins to issue invoices again.
A common mistake is issuing an RCTI without a written agreement, or issuing one where one party is not registered for GST. Another is failing to label the document properly. Such errors can invalidate the credit claim. Some types of supply are excluded from the arrangement, so it is worth checking the ATO guidance.
This is general information only. Please check the specific requirements and your own arrangement with the ATO or a registered tax professional.
Worked example
A registered processor buys 20 tonnes of grain from a registered farmer at $330 per tonne including GST under a written RCTI agreement. The processor issues an RCTI for 20 times $330, which is $6,600, showing GST of $6,600 divided by 11, which is $600. The farmer reports $600 of GST collected and does not issue a separate invoice. The processor claims a $600 credit.
Practical tips
- Put the RCTI agreement in writing before issuing any RCTIs, and confirm both parties are registered for GST.
- Label each document clearly as a recipient created tax invoice and include all required tax invoice details.
- Suppliers should check each RCTI for accuracy, because they still report the GST.