Private ruling: GST and recipient created tax invoices
Published: December 2012

Ruling: Q1: Are you required to be registered for goods and services tax (GST) as a result of the Recipient Created Tax Invoice (RCTI) agreement entered into with a financial institution? | A1: Yes. | Q2: Are you required to report GST for the supplies you make to the financial institution under the RCTI agreement? | A2: Yes.

Relevant facts and circumstances: You are registered for GST. Your GST turnover is currently less than $75,000 and is expected to be less than $75,000 for the financial year ending 30 June 2013. You are in the business of referring potential loan customers to a financial institution. You have signed an agreement with the financial institution for this purpose and, as part of this agreement; you have entered into a RCTI agreement with the financial institution in respect of the supplies of customer referrals that you make to the financial institution. In summary, under the agreement the financial institution will pay you commission calculated in accordance with the terms of the agreement and additional consideration in relation to any goods and services tax on the terms and conditions set out in the RCTI agreement. You have advised that when the financial institution approves a loan to a customer referred by you, it will pay you a fee and issue you with a RCTI. A sample RCTI issued by the financial institution was provided by you, and the RCTI shows neither an amount of GST, nor indication that the payments made are inclusive of GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 23-10 | A New Tax System (Goods and Services Tax) Act 1999 s ubsection 40-5(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(2) | A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 40-5.12

Reasons for decision: Summary: Yes, you are required to be registered for GST as a result of the RCTI agreement because one of the conditions of the RCTI agreement is that both parties are registered for GST. | Detailed Reasoning - Detailed reasoning: Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is required to be registered for GST if they are carrying on an enterprise and their GST turnover meets the registration turnover threshold, which is currently $75,000.00. In this case, you are carrying on an enterprise of referring potential customers to a financial institution. Your GST turnover is less than $75,000. Therefore, under section 23-5 of the GST Act, you are not required to be registered for GST. However, section 23-10 of the GST Act provides that you may choose to register for GST if you are carrying on an enterprise, even if your annual turnover is below the registration turnover threshold. Once you choose to register for GST, you are liable for GST on all taxable supplies made. In addition, you have entered into a RCTI agreement with the financial institution, under which it has been agreed that the financial institution will issue RCTIs to you in respect of the consideration payable for the supplies that you make. One of the conditions of the RCTI agreement is that both of the parties to the RCTI agreement must be registered for GST. This is a requirement, regardless of whether entities that are a party to a RCTI agreement are otherwise required to be registered for GST. | Summary: Yes, you are required to report GST for the supplies you make to the financial institution under the RCTI agreement regardless of whether the RCTIs issued to you contain all of the required information. This is because you must pay GST on all taxable supplies made. | Detailed Reasoning - Detailed reasoning: Under section 9-40 of the GST Act, you must pay GST on any taxable supplies that you make. Section 9-5 of the GST Act provides that you make a taxable supply if you make a supply for consideration, the supply is made in the course or furtherance of an enterprise that you carry on, the supply is connected with Australia, and you are registered or required to be registered for GST We consider that the services you provide to the financial institution are broking services. You receive commission for these broking services and the broking services are made in the course of your enterprise of referring potential customers to the financial institution. In addition, the broking services are provided in Australia and you are registered for GST. Accordingly, you are making taxable supplies as all of the requirements of section 9-5 of the GST Act are satisfied. However, section 9-5 of the GST Act further provides that a supply is not a taxable supply to the extent that it is GST free or input taxed. Therefore, it must be determined whether the broking services provided by you to the financial institution are either GST free or input taxed. Based on the facts provided, there are no provisions in the GST Act that make the broking services GST-free. We must then consider whether the broking services constitute input taxed supplies. Subsection 40-5(1) of the GST Act provides that financial supplies are input taxed and under subsection 40-5(2) of the GST Act a financial supply has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). Item 11 of Regulation 40-5.12 of the GST Regulations states that broking services are not financial supplies. Therefore, the broking services you provide are not input taxed under subsection 40-5(1) of the GST Act. As well, they are not input taxed under any other provision of the GST Act. Accordingly, your provision of broking services are taxable supplies and thus, subject to GST. As such, you are liable to report and pay GST on all commission payments received from the financial institution. Notwithstanding that RCTIs issued to you by the financial institution do not contain all the information that should be included in a RCTI, this does not change the nature of the services provided by you and accordingly, you are required to remit GST of 1/11 of the amount shown on the RCTI issued to you.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.