Credit Note Australia: Free Template and ATO Adjustment Note Rules

A credit note is a document a supplier issues to reduce or cancel an amount already invoiced, for example after a return, an overcharge or a cancelled job. In Australia, if you're registered for GST and the credit changes the GST on a sale, the ATO calls it an adjustment note, and you generally need one before you can claim the decreasing adjustment on your BAS. You must issue it within 28 days of the customer asking for it or of you becoming aware of the adjustment, unless the GST involved is $75 or less.

What is a credit note in Australia?

A credit note is a negative invoice. It records that the customer owes you less than your original invoice said, and it references that invoice so both sets of books line up. It doesn't move money by itself: the credit is either deducted from what the customer owes, applied to a future invoice, or paid back as a refund.

Common reasons to issue one:

• The customer returned some or all of the goods.
• You overcharged: a wrong rate, wrong quantity or a pricing error.
• Part of a job was cancelled after you invoiced it.
• You sent the same invoice twice.
• You agreed a discount or goodwill credit after the sale.

Don't edit or delete an invoice that has already been sent. Your records, and the customer's, need to show the original invoice and the credit note as two separate documents. That audit trail is what the ATO expects to see.

Credit note vs adjustment note: what does the ATO require?

For a GST-registered business, a credit note that reduces the price of a taxable sale also needs to work as an adjustment note. The ATO's rules in GSTR 2013/2 set out what it must contain. A commercial credit note that includes all of these details is a valid adjustment note; you don't need two documents.

An adjustment note must show:

• That it is an adjustment note. A heading such as "Adjustment Note", "Tax Invoice Adjustment" or "Amended Tax Invoice" does this.
• Your identity and ABN as the supplier issuing it.
• The customer's identity or ABN if the original tax invoice was for $1,000 or more.
• The date it was issued.
• A brief explanation of the reason for the adjustment, such as "2 units returned".
• The difference between the price before and after the adjustment event.
• The amount of the GST adjustment.

The ruling doesn't make it mandatory to quote the original invoice number, but you should. It's the easiest way for the customer's bookkeeper to match the credit, and it settles which sale is being adjusted if the ATO ever asks. Plenty of businesses head the document "Credit Note / Adjustment Note" so it reads naturally to customers and still meets the ATO wording.

When must a GST-registered supplier issue an adjustment note?

You must issue an adjustment note within 28 days of the earlier of the customer asking for one, or you becoming aware that an adjustment has happened. That rule applies where you issued, or were asked to issue, a tax invoice for the original sale.

There is one useful exception. According to the ATO's adjustment notes page, you don't need one before claiming a decreasing adjustment if the GST involved is $75 or less. The ATO's own example: a $660 discount reduces GST by $60, which is below $75, so no adjustment note is required.

Two more rules to know:

• If you don't have the adjustment note when you lodge your BAS, you report the adjustment in the first BAS you lodge after you hold it.
• You can't make a decreasing adjustment on a sale that didn't include GST, even if someone hands you a document labelled "adjustment note".

If you aren't registered for GST, none of the adjustment rules apply to you. You can still issue a plain "Credit Note" to correct your records and the customer's; it just won't show a GST amount. Not sure whether you should be registered? See our guide to the GST registration threshold.

Credit note example with the GST worked out

Here is a full example in AUD so you can see where each number comes from. The GST maths always starts from the GST-inclusive price change and divides by 11.

The original sale. Harbour Joinery invoices Coastline Fitouts Pty Ltd for 10 custom shelving units at $300 each plus GST. Tax invoice INV-0418 shows $3,000.00 plus $300.00 GST, total $3,300.00.

The adjustment. Coastline returns 4 units because they were the wrong depth. The price falls by 4 × $330 = $1,320 including GST.

The GST adjustment. $1,320 ÷ 11 = $120. That's above $75, so Harbour Joinery needs an adjustment note before it claims the decreasing adjustment. The original invoice was over $1,000, so the note must also identify Coastline or show its ABN.

Who reports what. Harbour Joinery reports a $120 decreasing adjustment, reducing the GST it owes. Coastline, if it already claimed $300 in GST credits on the original invoice, now has a $120 increasing adjustment, because it can only keep $180 of credits. Use our GST calculator to check the split on your own numbers.

Credit note template you can copy

Copy this into your own document or invoicing software. It covers every element the ATO lists, plus the original invoice reference.

Not registered for GST? Use the heading "Credit Note", remove the GST lines and show only the total credit.

How should you number credit notes?

Give credit notes their own sequence, such as CN-0001, CN-0002, separate from your invoice numbers. A separate prefix means a credit never gets mistaken for a sale, and you can see at a glance how many credits you issued in a quarter.

Whatever format you choose, keep it sequential with no gaps, and always print the original invoice number on the credit note. If you're still settling on an invoice format, our guide to numbering invoices covers the options. Keep credit notes with your other GST records for five years, the same as your tax invoices.

Credit memo vs credit note: is there a difference?

No. "Credit memo" (short for credit memorandum) is the term more common in the United States and in some accounting software; "credit note" is the usual term in Australia, the UK and New Zealand. Both describe the same document. What matters in Australia is whether it meets the adjustment note requirements, not what it's called.

The opposite document is a debit note, which increases the amount owed, for example when you undercharged. For a GST-registered supplier, an undercharge creates an increasing adjustment, and the same adjustment note rules apply.

Credit note vs refund: which should you give?

A credit note is the paperwork; a refund is the money. You issue a credit note whenever an invoice amount is reduced, then settle it one of three ways: reduce what the customer still owes, carry the credit to a future invoice, or pay it back as a refund.

Be careful with consumers. Under the Australian Consumer Law, when a product has a major problem the customer can choose a refund or replacement. As Consumer Protection WA puts it, you can't offer a credit note instead of a refund unless the customer agrees. The ACCC's repair, replace, refund guide has the full rules.

Common credit note mistakes to avoid

• Editing the original invoice instead of issuing a credit note. It breaks your audit trail.
• Forgetting the GST line on a credit note for a taxable sale, so it can't be used as an adjustment note.
• Missing the 28-day window after the customer asks for one.
• Crediting the wrong amount of GST by taking 10% of the GST-inclusive figure. Divide the inclusive amount by 11 instead.
• Leaving credits sitting on account for months. If you won't be invoicing that customer again, refund them.

For the rules on the original document, see our guide to tax invoice requirements in Australia.

This article is general information, not tax advice. GST adjustment rules have exceptions not covered here. Check the ATO or speak to a registered tax agent about your situation.

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