RCTI

Normally the supplier issues the tax invoice. Under an RCTI arrangement the roles flip: the business receiving the goods or services (the recipient) prepares the tax invoice and sends a copy to the supplier.

On a construction project this usually looks like this. A subcontractor submits a progress claim for the month. The head contractor's site and commercial team assess it, adjust quantities or reject items, and certify an amount. The head contractor then issues an RCTI for the certified amount plus GST, and pays against that RCTI.

The benefit is that the invoice always matches what was approved. There is no back and forth asking the subcontractor to reissue an invoice for a lower figure, and the head contractor can claim the GST credit from a document it controls.

An RCTI is only valid if the arrangement meets the Australian Taxation Office (ATO) requirements. The current rules sit in the Recipient Created Tax Invoice Determination 2023, which replaced the older industry-specific determinations. In practice the key conditions are:

• Written agreement. The recipient and supplier must have a written agreement that the recipient will issue RCTIs and the supplier will not issue its own tax invoices for those supplies. This is often built into the subcontract.

• GST registration. Both parties must be registered for GST when the RCTI is issued, and the supplier must tell the recipient if it stops being registered.

• Clear labelling. The document must be clearly marked as a recipient-created tax invoice and show both parties' ABNs, plus the usual tax invoice details.

• Timing. The recipient must give the supplier the original or a copy within 28 days of the supply or of the value being determined, and keep a copy.

If any of these conditions is not met, the document may not be a valid tax invoice and the GST credit can be at risk. Check the ATO's current guidance before setting up a new RCTI process.

A standard tax invoice is issued by the supplier. An RCTI is issued by the buyer. Both are tax documents for GST purposes.

A payment schedule is different. It is the written response to a payment claim under the state security of payment Act, setting out the amount the respondent proposes to pay and the reasons for paying less. Some head contractors combine the two, but an RCTI on its own may not meet the requirements for a valid payment schedule. If the subcontractor has served a payment claim under the Act, make sure a compliant payment schedule goes out on time as well, and check your state's Act for what it must contain.

• No signed agreement. Issuing RCTIs because "that's how we've always done it" without a written agreement in the subcontract.

• Not checking GST status. A subcontractor's GST registration can be cancelled. Check the ABN before each RCTI run, not just at onboarding.

• Treating the RCTI as the payment schedule. Missing the statutory payment schedule deadline can leave the head contractor liable for the full claimed amount.

• Letting the subcontractor invoice as well. Two tax invoices for the same supply creates GST confusion. The agreement should stop the supplier issuing its own.