What are credit notes?
Credit notes are issued by a supplier when the price for a supply is reduced after a tax invoice was issued, for example when faulty goods are returned.
Important - GST rate change
The credit note is accounted for in the period the credit note was received . The rate is the one that applied to the original supply.
Ravi supplies Matt with an invoice for some goods on 20 August 2010. On 3 December 2010 Ravi realises that he has put incorrect figures on the invoice for the transaction with Matt. Ravi sends Matt a credit note for the difference using the GST rate of 12.5%.
Matt makes an adjustment to reflect the credit note on the return which covers the December 2010 period.
What information must a credit note show?
A credit note must show:
- the words "credit note" in a prominent place
- the name (or trade name) and GST number of the supplier
- the name and address of the recipient
- the date it was issued, and
- a brief explanation of why it was issued.
It must also have either:
- the amount including GST shown on the tax invoice, the correct amount payable including GST and the difference between the two amounts of GST charged, or
- the difference between the incorrect and correct amount, and a statement that the difference includes GST (but only if it is at 12.5%).
Important
- As with tax invoices, only one credit note can be issued. If a copy is needed, it must be clearly marked "copy only".
- When the amount payable is reduced, you will need to make an adjustment in your GST return.
Example: Issuing a credit note
Shelley sells cleaning goods to Lesley for $1,000. Lesley pays Shelley $900 as some goods are damaged. Shelley issues a credit note for $100. Both Lesley and Shelley use the invoice basis.
Shelley's return
$1,000 is included in Box 5 (sales). $100 is claimed in Box 11 (purchases) in the return covering the time when the reduction was made.
If the invoice and credit note were issued in the same period, Shelley could have shown the net amount of $900 in Box 5 instead.
Lesley's return
$1,000 is claimed in Box 11 (purchases). $100 is included in the total sales in Box 5, in the return covering the time when the reduction was made. If Lesley received the invoice and credit note in the same period, she could claim the net $900 in Box 11.
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Date published: 29 Sep 2010
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