Recipient-Created Tax Invoice (RCTI)

A Recipient-Created Tax Invoice (RCTI) is a tax invoice issued by the purchaser (the recipient of the supply) rather than the supplier. In normal AP processing, the supplier sends the invoice and the purchaser processes it. In an RCTI arrangement, the roles are reversed: the purchaser determines the value of the supply and issues the invoice themselves. RCTIs are used when the purchaser is better positioned than the supplier to determine the value of a supply -- most commonly in agricultural produce purchases, mining royalties, and some contractor arrangements.

The ATO permits RCTI arrangements under strict conditions set out in GSTR 2000/10. Both parties must be GST-registered. The parties must have a written agreement stating that the recipient will issue the tax invoice. The agreement must specify that the supplier will not issue a tax invoice for the same supply. Both parties must retain a copy of the RCTI. If a supplier does issue a tax invoice for a supply that is covered by an RCTI agreement, the RCTI is no longer a valid tax invoice and neither document can be used to claim an ITC without resolution.

Common uses of RCTIs

Agricultural businesses are the primary users of RCTIs. When a processor buys grain or livestock from a farmer, the processor determines the final quantity and value after weighing or grading -- the farmer cannot know the exact amount of the invoice until the processor has completed its assessment. An RCTI issued by the processor after assessment is the practical solution to this information asymmetry.

Mining royalty payments are often made under RCTI arrangements where the royalty amount depends on production volumes and commodity prices that are calculated by the resource company rather than the royalty recipient. Construction industry labour hire is another common RCTI context -- the labour hire company provides workers, and the principal contractor calculates the hours worked and issues the RCTI rather than waiting for the labour hire firm to compile and send an invoice.

AP processing for RCTIs

For businesses that issue RCTIs as the purchaser, the AP process is inverted: instead of receiving and processing a supplier invoice, the AP or procurement function generates the RCTI based on quantities received, production data, or hours recorded. The RCTI must meet all the normal tax invoice requirements (ABN, date, description, GST amount, both parties' names) plus the additional statement that it is issued under an RCTI agreement. A copy is sent to the supplier, and the purchaser retains a copy as the tax invoice supporting the ITC claim.

For businesses that receive RCTIs as the supplier, the document received from the purchaser serves as the tax invoice -- no further invoice should be issued. The amount on the RCTI is what will be paid, and the GST component is what the purchaser will claim as an ITC. If the supplier disagrees with the RCTI value, the dispute resolution process in the agreement governs how corrections are made.