Recipient Created Tax Invoice (RCTI): ATO Rules, Agreement and Template

A recipient created tax invoice (RCTI) is a tax invoice that the buyer issues instead of the seller. The buyer works out what's owed, sends the RCTI to the supplier, and claims GST credits from it, while the supplier agrees not to issue its own tax invoice. In Australia you can only do this when both businesses are registered for GST, have a written RCTI agreement, and the buyer fits one of the three categories in the ATO's 2023 RCTI determination: a government related entity, a large business with GST turnover of $20 million or more, or a business that sets the price of what it buys.

What is a recipient created tax invoice?

An RCTI is a tax invoice created by the recipient of a taxable supply, meaning the customer, rather than by the supplier. It flips the normal process. Instead of the subcontractor or grower sending a tax invoice, the business paying them prepares the document, calculates the GST, and gives a copy to the supplier.

RCTIs make sense where the buyer knows the final amount before the supplier does. A grain receiver weighs and grades the delivery, a builder measures the completed work against a schedule of rates, a publisher calculates royalties, a platform tallies a month of commissions. Waiting for the supplier to invoice adds a step, and the supplier would be invoicing for a figure only the buyer can calculate.

For GST, an RCTI does the same job as a normal tax invoice. The buyer uses it to claim GST credits, and the supplier reports the GST on it as GST payable in their BAS. The ATO's tax invoice guidance covers RCTIs in its own section.

Who can issue an RCTI under the 2023 determination?

A buyer can issue an RCTI if both parties are registered for GST when it's issued and the buyer meets one of three tests. These come straight from section 6 of the determination.

The third test is the one most small businesses rely on. It's not enough that you're the bigger party or that issuing RCTIs would be convenient: you must be the one that works out the price. If the supplier quotes you a fixed amount, they should invoice you in the normal way.

What must an RCTI agreement include?

You can't issue RCTIs without a written agreement with the supplier. Section 8 of the determination says a standalone agreement must:

• Specify the taxable supplies it covers, such as "all subcontract labour supplied to Project 214".
• Be current when each RCTI is issued. Put an end date or review date on it.
• Contain acknowledgments from both parties that each is registered for GST when entering the agreement.
• Include four conditions: the recipient can issue RCTIs for the supplies; the supplier will not issue tax invoices for them; the supplier will tell the recipient if it stops being registered for GST; and the recipient will tell the supplier if it stops being registered.

Section 9 allows a second option: the agreement can be embedded in the RCTI itself. The RCTI then has to declare the same conditions, say that the supplier has 21 days from receiving it to reject the proposed agreement, and state that accepting the RCTI means accepting the agreement. If the supplier rejects it within 21 days, you can't keep issuing RCTIs to them on that basis.

Embedded agreements suit one-off or occasional suppliers. For a regular subcontractor or grower, a signed standalone agreement is cleaner and easier to prove.

What does an RCTI need to show?

An RCTI must contain everything a normal tax invoice needs, plus a few extras. Our guide to tax invoice requirements in Australia covers the standard list. On an RCTI, make sure it shows:

• The words "Recipient created tax invoice", so it's clearly not a standard tax invoice.
• The supplier's name and ABN.
• Your name (as the recipient) and ABN. The ATO requires both ABNs on an RCTI, whatever the amount.
• The date of issue.
• A description of what was supplied, with quantity and price.
• The GST amount and a statement that the GST is payable by the supplier.
• The extent to which each item is taxable.
• If you use an embedded agreement, the agreement wording from section 9.

The ATO publishes a recipient-created tax invoices form (NAT 73657) you can use as a template.

The 28-day rule and other obligations

Once you're issuing RCTIs, section 7 of the determination sets ongoing duties for the recipient:

1. Give the supplier the RCTI within 28 days of the supply, or within 28 days of when you determine its value if that's later.
2. Keep the original or a copy for five years.
3. Stop issuing RCTIs immediately if either party stops meeting the requirements, for example the supplier cancels its GST registration.
4. Reasonably comply with your tax obligations.

The ATO also expects you to check the supplier is GST-registered on ABN Lookup before your first RCTI, and to recheck periodically for ongoing suppliers. If the supplier has quietly deregistered, your documents aren't valid RCTIs, you've over-claimed GST credits, and the ATO's guidance is to make a voluntary disclosure.

RCTI example in AUD

Here's an RCTI from a builder that pays a tiling subcontractor based on measured square metres. The builder measures the completed work, so it determines the value of the supply and can use the third test even though its turnover is under $20 million.

Nguyen Tiling doesn't send an invoice for October. It records RCTI-0087 as a sale of $11,182.60 and reports $1,016.60 GST in its BAS, and Harbourline claims the $1,016.60 as a GST credit. If Nguyen Tiling disagrees with the measurement, the fix is an adjustment, issued by Harbourline as a recipient created adjustment note, not a new invoice from the tiler. The same logic as a credit note applies.

RCTI agreement template you can copy

This covers the section 8 requirements. Have your accountant or lawyer check it against your contract before you use it.

Is RCTI the same as invoicing in construction?

Not usually. Most Australian subcontractors still send their own tax invoice or progress claim, and the head contractor pays it. RCTIs are common with large head contractors, which pass the $20 million test and like controlling the paperwork. They're also common on schedule-of-rates jobs where the builder measures the work.

If you're the subcontractor and a builder asks you to sign an RCTI agreement, check three things: which jobs it covers, when it ends, and how you raise a dispute about a measured amount. Once it's signed, stop sending tax invoices for those jobs, or GST could be counted twice. Keep invoicing anything outside the agreement, like variations the builder hasn't measured, in the normal way. Our guide to invoicing for building work covers that side, and builders also report what they pay you in their taxable payments annual report.

Common RCTI mistakes

• Using the old industry lists to decide eligibility. The three tests in the 2023 determination are what count now.
• No written agreement, or one that expired months ago.
• Both parties issuing tax invoices for the same supply.
• Missing the supplier's or recipient's ABN. Both must appear on every RCTI.
• Not rechecking GST registration. A supplier who deregisters makes every later RCTI invalid.
• Sending the RCTI late. The 28-day limit runs from the supply or the valuation date.

This article is general information, not financial, legal or tax advice. For guidance specific to your business, see business.gov.au and the ATO, or speak to your accountant.

Frequently asked questions