GST – When is a pro forma invoice a Tax Invoice?

Does a pro forma invoice constitute a tax invoice? And if so, does a pro forma invoice allow an entity to claim GST credits?

Introduction

It is not uncommon for businesses supplying goods or services to first issue a pro forma invoice to their clients before any goods or services are provided or agreed to being provided. This may arise in circumstances such as an offer for the renewal of a yearly membership or subscription. In other cases, a document labelled ‘pro forma invoice’ may in fact be intended to be a final invoice. In this article we will discuss the GST implications relating to the receipt of pro forma invoices.

A pro forma invoice is generally referred to as a preliminary bill of sale, and sometimes may be referred to as an estimate or quote. We have included below some definitions of a pro forma invoice:

A pro forma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. The invoice will typically describe the purchased items and other important information, such as the shipping weight and transport charges. Pro forma, Latin for “as a matter of form” or “for the sake of form,” invoices often come into play with international transactions, especially for customs purposes on imports. (source)

An abridged or estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of goods. It notes the kind and quantity of goods, their value, and other important information such as weight and transportation charges. Pro forma invoices are commonly used as preliminary invoices with a quotation, or for customs purposes in importation. They differ from a normal invoice in not being a demand or request for payment. (source)

Where a pro forma invoice has been issued questions arise as to whether that document is a tax invoice for GST purposes and whether it meets the requirements for an entity to claim a GST credit on the acquisition.

Tax invoice requirements

For a document, including a pro forma invoice, to be a tax invoice it must comply with the requirements contained in subsection 29-70(1) of the GST Act. These requirements are set out below:

1. It is issued by the supplier of the supply to which the document relates (unless it is a recipient created tax invoice, in which case it is issued by the recipient);
2. It is in the approved form*;
3. It contains enough information to enable the following to be clearly ascertained:
  1. The supplier’s identity and the supplier’s Australian Business Number (ABN);
  2. If the total price of the supply is $1,000 or more (or if the document is issued by the recipient), the recipient’s identity or the recipient’s ABN;
  3. What is supplied, including the quantity and the price;
  4. The extent to which each supply to which the document relates is a taxable supply;
  5. The date the document is issued;
  6. The amount of GST (if any) payable in relation to each supply to which the document relates;
  7. If the document was issued by the recipient and GST is payable in relation to any supply – that the GST is payable by the supplier;
  8. Such other matters as the regulations specify^#;
4. It can be clearly ascertained from the document that the document was intended to be a tax invoice (or if it was issued by the recipient, a recipient created tax invoice).

Notes:

* Approved form: Paragraph 7 of GSTR 2013/1 provides that a document is in the approved form if it includes the information required by s 29-70(1) (i.e. the information set out above), and otherwise meets the requirements of the subsection. Also, the ruling constitutes approval in writing for such documents to be in an approved form pursuant to the Taxation Administration Act 1953.

GST Regulations: The current GST Regulations do not currently specify any matters in relation to the requirements for a document to be a tax invoice.

Whilst a pro forma invoice may contain the majority of the above requirements it is unlikely that it would contain the words ‘Tax Invoice’. The document would generally include the words ‘Pro Forma Invoice’, but may not include the actual words ‘Tax Invoice’. Where this is the case the document is unlikely to meet the conditions of paragraph (d) – that is, the document is intended to be a tax invoice, and that this can be clearly ascertained from the document.

However, if it does include the words ‘Tax Invoice’, or by including words to the effect ‘If this transaction is completed/paid for within X days, this document becomes a tax invoice’, and it meets all the other requirements, then it appears a pro forma invoice is capable of being a tax invoice under the GST Act.

Further information on meeting the tax invoice requirements are contained on the ATO website and in GSTR 2013/1.

Claiming GST Credits

Whether an entity holding a pro forma invoice in relation to a supply is sufficient to claim a GST credit is dependent on various factors.

The ability for an entity to claim a GST credit requires that the entity:

has made a creditable acquisition; and
the acquisition is attributed to a tax period.

Where the accruals basis is used, and assuming that an entity has made a creditable acquisition, a GST credit for such an acquisition is attributed:

to the tax period in which the entity provides any of the consideration; or
where an ‘invoice’ is issued before any consideration is provided – to the tax period in which the ‘invoice’ was issued.

Where the cash basis is used (and again assuming that an entity has made a creditable acquisition), GST credits are attributable to the tax period/s in which consideration for the supply has been provided (and to the extent it has been provided).

However, under both the accruals and cash attribution methods, a GST credit is treated as not being attributable to a tax period that it would otherwise be attributable to if the entity does not hold a tax invoice at the time the GST return is lodged. Instead the GST credit will be attributable to the first tax period for which the entity lodges a GST return at a time when the entity holds the tax invoice.

Ordinarily, this would mean that if an entity using the accruals method has been provided with a tax invoice (which is also an ‘invoice’), and has not yet provided any consideration (i.e. has not yet paid any amount of the invoice), then it will be able to attribute and claim the GST credits in the tax period in which that invoice/tax invoice was received.

Importantly, the term ‘invoice’ as used in the GST attribution rules is a specifically defined term in the GST Act and means ‘a document notifying an obligation to make a payment’.

This may cause issues where a pro forma invoice is provided before any payment is made. This is because pro forma invoices are typically not treated as a document notifying an obligation to make a payment, as referenced in the pro forma invoice definitions included earlier in this article. (We also note that while this would generally be the case, this may depend on the specific terms that apply to any particular pro forma invoice that is issued.)

In the absence of any other conditions or documents triggering an obligation to make a payment, a pro forma invoice would not be an ‘invoice’ and therefore would not generally trigger attribution at the time it is issued. Instead the GST credit would only be attributed to the first tax period in which any consideration has been provided or, if earlier, an ‘invoice’ is received.

Conclusion

Whilst a pro forma invoice may be capable of meeting the requirements to be a tax invoice, they are unlikely to meet the GST Act definition of an invoice. Therefore, a pro forma invoice, by itself, would generally be insufficient to trigger attribution for GST credits claimable on the supply.

Where an entity receives pro forma invoices, they should make a habit of ensuring they also receive an invoice (with an obligation to pay) in relation to the supply, and that either of those documents also meets the requirements to be a tax invoice.