RCTI: Recipient-Created Tax Invoice Rules

An RCTI is a recipient-created tax invoice: the buyer issues the tax invoice for a supplier’s taxable sale. Your client needs authority under the ATO determination, a compliant agreement and both parties’ GST registration before issuing one.

What an RCTI Means

RCTI stands for recipient-created tax invoice. In an ordinary arrangement, the supplier issues the tax invoice. With an authorised RCTI arrangement, the recipient of the goods or services issues it and sends a copy to the supplier.

For example, a fictional buyer weighs and grades a supplier’s produce after delivery. The buyer’s measurements determine a taxable supply worth $2,000 plus $200 GST. Under a valid RCTI arrangement, the buyer issues the $2,200 document and the supplier records the sale.

Compare that with a supplier who sets a fixed $2,000 fee and sends its own tax invoice. Receiving that invoice and paying $2,200 does not create an RCTI arrangement. The recipient’s invoicing authority must exist separately from its ability to calculate or pay a bill.

The supplier remains responsible for the GST on the taxable sale. An RCTI payment is the settlement of that sale. The document alone does not prove that money has changed hands.

Check the Client’s Authority to Issue

Test the arrangement against the Recipient Created Tax Invoice Determination 2023, especially sections 6 to 9. It covers taxable supplies received by eligible entities, rather than providing a permission slip for every buyer.

1. Identify the recipient category. Government related entities and large business entities have a route under section 6(1). A business entity relying on section 6(2) must determine the value of the taxable supply it acquires.
2. Confirm both parties are registered for GST when the RCTI is issued. Match the supplier’s legal identity and ABN with the agreement and registration record. An ABN alone does not establish GST registration.
3. Confirm the agreement is in place and the recipient reasonably complies with its taxation obligations. Keep evidence of how the client determines the supply’s value.
4. Set the issue and retention rules. Send the original or a copy to the supplier within 28 days of the supply. If the recipient determines value after the supply, the 28 days runs from that determination. Retain the original or a copy for five years.

For the large-business route, apply the determination’s turnover definition and its GST-group or joint-venture provisions where relevant. Avoid assuming that a business is eligible because staff describe it as large.

Stop issuing RCTIs when either party fails a requirement. If GST registration ends, record the effective change and identify which supplies and documents it affects. If the client stops determining value, reassess its section 6 basis before another document goes out.

Prepare the RCTI Agreement

Use a separate written agreement to specify the supplies and allocate invoicing responsibility. Section 8 requires it to be current when an RCTI is issued. The outline below follows that separate-agreement route.

Separate Agreement Outline

Copy the following clauses into the client’s agreement and complete the identifying details before either party accepts it.

The covered supplies, registration acknowledgements and invoicing conditions follow section 8. The contact details, agreement period and acceptance record help you show which agreement applies. The outline does not establish eligibility under section 6.

Keep the accepted agreement with the contract and registration evidence. A draft attachment in an email folder does not show that both parties accepted its terms.

An agreement embedded in the RCTI follows a different route under section 9. It must cover the supplies on that document and contain the required registration and invoicing declarations. It must also explain that acceptance of the RCTI accepts the agreement and that both parties agree they are parties to it.

The embedded terms must tell the supplier to notify the recipient within 21 days of receiving the RCTI if it rejects the agreement. Section 7 also restricts reliance where the recipient receives the supplier’s rejection within 21 days of issuing the RCTI. Retain delivery and response records. Do not paste the separate-agreement outline into an invoice and assume it meets those embedded terms.

Build a Compliant Invoice Example

An RCTI must identify the parties and supply, state the GST information and make its purpose clear. The ATO’s tax-invoice ruling explains the document requirements, including the supplier’s GST responsibility.

The fictional produce purchase below assumes both parties are GST registered, the buyer determines value and a current separate agreement covers the supply. Entity labels are fictional roles. Complete the legal identity, ABN and issue-date fields from the actual transaction before issuing a document.

Worked RCTI Document

The issue date, required identities and ABNs, supply details, price and GST information let the reader ascertain the tax-invoice particulars. The reference and agreement link help you trace the document through the records.

The $2,200 total is the invoice amount. A bank transaction or remittance record establishes the payment amount and timing. If the buyer pays only part, retain the outstanding balance against the same transaction.

Use the example as an RCTI template for checking fields, with the agreement outline as a separate document. Neither is a universally valid RCTI form for every supply. An ordinary invoice generator helps prepare a document once the issuer and tax treatment are established. It does not authorise recipient-created invoicing.

Record the RCTI in Xero

Xero’s documented RCTI procedure uses a purchase order with an advanced invoice theme, then a bill. The document design and bookkeeping entry do not establish the client’s legal authority to issue it.

1. Create an advanced invoice theme for purchase orders using Xero’s RCTI template. Check the resulting document against the required fields and the client’s agreement route.
2. Create the purchase order for the supplier and apply the RCTI theme. Check the supplier identity, description and amounts before approval.
3. After approval, email or print and send the document to the supplier. Retain the issued version and evidence of sending within the required period.
4. Create a bill from that purchase order and mark the purchase order as billed. Attach the issued PDF to the bill for reference.
5. Check the purchase account and GST coding before approving the bill. For the fictional fully creditable purchase, the bill carries $2,000 of purchases and $200 GST, totalling $2,200.
6. Match the payment to that bill. Confirm the supplier, reference and amount, leaving any unpaid balance visible.

Xero explains that a purchase order does not put GST into its GST return. The bill records the purchase. Check GST-credit entitlement and the client’s accounting basis before relying on the tax report.

Search existing records before adding another bill. Xero’s bill guidance says its duplicate warning does not prevent entry. A supplier invoice arriving later must not create a second purchase or GST credit for the same supply.

On the supplier’s side, Xero says the received RCTI can be entered as a normal sales invoice. Use the recipient’s reference and retain its document, while preventing a second tax invoice being issued for the covered supply.

Review the Client’s RCTI Records

Finish by matching the eligibility basis and accepted agreement to the issued RCTI, recorded purchase and payment. For the worked purchase, you can trace $2,000 plus $200 GST to one $2,200 bill and its settlement.

Keep the agreement, registration evidence, issued document and transaction records retrievable together. Before the next RCTI is issued, resolve any failed requirement and record the client’s continuing authority.