Free tool
Create a credit note with the invoice reference, reason, amount and GST adjustment.
Why it matters
A credit note fixes an invoice without deleting it. Your records show the original sale and the change.
For GST, the credit note is the adjustment note. You and your customer each need it to correct your BAS.
The steps
- Find the original invoice. Note the number, date and amounts. Check what is being credited and why.
- Agree the change. Agree with the customer what is returned, repriced or discounted.
- Work out the credit. Work out the credit ex GST. Add GST at the same rate as the invoice.
- Raise the credit note. Show that it is an adjustment note, your name and ABN, the date, a short reason, the amount and the GST adjustment. Refer to the invoice number. Add the customer's name or ABN if the invoice was A$1,000 or more.
- Number it in sequence. Use a credit note series. Never reuse a number.
- Send it within 28 days. Send within 28 days of the customer asking or of you knowing about the change, whichever is first.
- Apply or refund. Apply the credit to an open invoice or refund the customer. Record which.
- Report the GST. If the credit note falls in a later tax period than the invoice, report the GST decrease on the BAS for the period you issue it. If both fall in the same period, they net off. Keep a copy.
Worked example
Example Plumbing Supplies Pty Ltd sold 10 fittings at A$220.00 including GST (A$2,200 total) and 2 are returned.
| Line | Working | Amount |
|---|---|---|
| Credit ex GST | 2 x A$200.00 | A$400.00 |
| GST at 10% | 400 x 10% | A$40.00 |
| Credit note total | 400 + 40 | A$440.00 |
The credit note is for A$440. The customer owes A$2,200 - A$440 = A$1,760 on the original invoice, and Example Plumbing Supplies reduces its GST payable by A$40.
Common mistakes
- Deleting the invoice instead of crediting it.
- Leaving out the ABN.
- Crediting the wrong GST amount.
- Forgetting to report the GST decrease on the BAS.
Next step
Use the Credit note generator first. Then see how to apply a supplier credit note in Xero.
Sources
Common questions
Is a credit note a tax document?
Yes. For GST it is an adjustment note.
When do I not need an adjustment note?
Writing off a bad debt is not an adjustment event, so you do not issue one for that.
Can I issue a credit note after the customer has paid?
Yes. Refund the customer or apply it to a later invoice.
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