Background
An invoice is a record of purchase used to request payment from a customer for any goods and/or services that you’ve provided them with. It outlines important information including the goods and/or services you’ve provided, how many (quantity), and the amount your customer owes in return. Maintaining good records of invoices are crucial for monitoring the cash flow of your business. The law requires your business to keep business records for a minimum of 5 years.
It’s necessary that you understand the different types of invoices and which one to use in order to successfully run your business. For example, if your business is registered for Goods and Services Tax (GST), invoices will also be crucial for tax purposes, so it’s all the more important that you keep copies stored.
In this article, we will explore the two primary types – regular invoices (non-tax) and tax invoices. We will also touch on a third type called recipient-created tax invoices (RCTIs). We will explain what each type is, what each type should include, and which type is appropriate for your business to use with reference to the relevant ATO guidelines.
Regular invoices
If your business isn’t registered for GST, then it would be appropriate to issue regular invoices even if your customer requests a tax invoice. You won’t need to include information about tax, so you need to ensure that it doesn’t mention the term ‘tax invoice’.
Although there aren’t necessarily strict requirements in place for regular invoices, it’s common practice to include:
- indication that the document is intended to be an ‘invoice’ (you might also include a statement saying that GST has not been charged)
- your business name and/or trading name
- your Australian Business Number (ABN)
- an invoice number
- the invoice date
- your contact details such as postal address, email address, phone number
- a description of goods and/or services provided including the quantity and price
- the payment details
- any relevant customer details
Tax invoices
If your business is registered for GST, you’re required to issue tax invoices. You must provide a tax invoice if the transaction is taxable, exceeds $82.50 (including GST) or if a customer asks for one (in this case you will need to provide one within 28 days).
There are strict requirements in place for tax invoices.
For taxable sales below $1,000, the tax invoice must, at the very least, include:
- indication that the document is intended to be a ‘tax invoice’
- your identity such as business name and/or trading name
- your ABN
- the invoice date
- a description of goods and/or services provided including the quantity and price
- the GST amount expressed separately or you can include a statement saying that the ‘total price includes GST’
- the extent to which the sale is taxable (includes GST)
For taxable sales exceeding $1,000, you must also include the customer’s identity or ABN on the tax invoice.
It’s also common practice for tax invoices to include:
- an invoice number
- your contact details such as postal address, email address, phone number
- the payment details
Recipient-created tax invoices
In extraordinary circumstances where you are unable to provide a tax invoice to a customer at the time of delivery or pick-up of goods and/or services, it might be appropriate for a customer to issue an RCTI instead.
The customer can only issue a RCTI if they meet the following requirements:
- both you and the customer are registered for GST
- both you and the customer come to an agreement in writing, allowing the customer to issue an RCTI and declaring that you won’t be issuing a tax invoice
- the agreement is current and effective once the customer issues the RCTI
- the relevant goods and/or services under the agreement are allowed by the ATO to be invoiced using an RCTI
In order to be valid, the RCTI must:
- meet the requirements above for a tax invoice (except it must indicate that the document is intended to be an RCTI rather than a tax invoice)
- include details of the customer’s identity or ABN
- if appropriate, show that GST is payable by you (as the supplier)
The customer needs to then:
- issue you a copy of the RCTI within 28 days of making or determining the value of the transaction
- keep the original or copy of the RCTI
- comply with other tax obligations
Key takeaways
Understanding the different types of invoices is crucial to running your business. Generally, you should issue regular invoices if your business isn’t registered for GST. Otherwise, you’re required to issue tax invoices if your business is registered for GST. However, under exceptional circumstances it might be appropriate for a customer to issue an RCTI instead. Either way, you should carefully comply with the relevant requirements.
If you need any further information or assistance, contact a company lawyer today.
