RCTIs for transport subcontractors: how recipient-created tax invoices work

By AJ Sakai, Director, TLH · Published

Most transport operators use subcontractors: owner-drivers and small carriers who run jobs on their own trucks when the fleet is full. Paying them usually means waiting for their invoice, then checking it against your own records of the jobs, hours and tolls.

A recipient-created tax invoice (RCTI) flips that around. You already know what work they did, so you create the tax invoice for them and pay it. This guide explains how RCTIs work in Australia, when you can use them, and what to watch.

What an RCTI is

Normally the supplier (your subcontractor) issues a tax invoice and you, the recipient, pay it. With an RCTI, you as the recipient issue the tax invoice for the work they did for you, and they agree not to issue their own.

It suits transport because the operator usually holds the facts that set the price: the jobs, the GPS times, the hours on site and the tolls.

When you can use one

The ATO only lets you issue an RCTI when certain conditions are met. In broad terms:

  • You're both registered for GST when the RCTI is issued.
  • You have a written agreement with the subcontractor that you'll issue RCTIs for these supplies and they won't issue tax invoices for them.
  • The RCTI has everything a tax invoice needs, and is clearly labelled as a recipient-created tax invoice.
  • You give them a copy within 28 days of the work being done or its value being worked out.
  • You keep a copy for five years.

Check the ATO's current RCTI rules before you start, and get your accountant to look over your agreement.

What goes in the RCTI agreement

A short written agreement with each subcontractor is the foundation. It usually covers:

  • That you'll issue RCTIs for the work they do for you, and they won't issue their own tax invoices for it
  • That both of you are registered for GST, and that each will tell the other if that changes
  • How the price is worked out: hourly, per job, or a share of the job's revenue
  • What's passed through, such as tolls
  • How often you'll issue RCTIs and when you'll pay
  • How mistakes, credits and disputes are handled
  • When the agreement starts and when it's due for review

Keep the signed copy. If the agreement lapses, the documents you issue aren't valid RCTIs.

What if the subcontractor isn't registered for GST?

Then you can't issue an RCTI, because there's no GST to put on a tax invoice. You can still send them a payment statement (sometimes called a buyer-created invoice) that lists the jobs and the amount, so they can check it. It just isn't a tax invoice, and there's no GST on it.

A typical pay run

  1. At the end of the pay period, list every job the subcontractor's trucks did for you.
  2. Price each job using the rate in your agreement, and add any tolls you pass through.
  3. Issue a draft and check it. Look for jobs that couldn't be priced or are missing times.
  4. Approve it. It gets a number and its lines are locked.
  5. Send them the PDF and pay it by the due date.
  6. Record the payment.

Common mistakes

  • No signed agreement, or one that's expired. Put a review date on every agreement and diarise it.
  • Issuing an RCTI to a subcontractor who isn't registered for GST. Check their ABN and GST status first, and again if anything changes.
  • Both of you invoicing. If they send their own tax invoice for the same work as well, GST gets claimed twice. The agreement should rule it out.
  • Changing an approved RCTI. Issue an adjustment instead, so both sets of records match.
  • Pricing from memory. Use the job records, GPS times and tolls, not a phone call on Friday.

How TrakkHQ handles it

TrakkHQ builds subcontractor pay runs from the jobs their drivers actually did.

  • Set each subcontractor's pay basis: hourly, a percentage of job revenue, or flat per job, with tolls passed through if you choose.
  • Record their RCTI agreement with its signed date, review date and signed copy.
  • Build a draft pay run for each period, check the PDF, then approve it to number and lock it, and mark it paid.
  • When a subcontractor has a current agreement and is registered for GST, the pay run is an RCTI. Otherwise it's a payment statement.

See how to add a subcontractor and pay a subcontractor with an RCTI.

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FAQ

Is an RCTI the same as a buyer-created invoice?
People use the terms loosely. An RCTI is the GST tax invoice version, with the rules above. A document for a subcontractor who isn't registered for GST is a payment statement, not a tax invoice.

Do owner-drivers have to agree to RCTIs?
Yes. There must be a written agreement. Most owner-drivers like it, because they get paid on time without doing paperwork.

Can I issue RCTIs weekly?
Yes. Weekly, fortnightly and monthly are all common. Set the period and payment terms in the agreement.

Sources

This guide is general information, not tax or legal advice. Check the ATO's current rules and get advice from your accountant for your circumstances.