A credit note is a document that reduces the amount owing on an invoice you have already issued — for a return, a discount, a cancellation or an error. You never edit or delete the original invoice; you issue a credit note against it, so the trail shows what happened. In Australia, when the sale carried GST, the credit note also has to work as an adjustment note, which the GST law defines and which has required contents.
When you need one
- The customer returned goods, or rejected part of the delivery.
- You agreed a discount after invoicing — a goodwill reduction, a volume rebate, a settlement.
- You made a mistake — wrong quantity, wrong rate, wrong customer, GST charged when it should not have been.
- The job was cancelled after the invoice went out.
- A debt is written off as bad, which has its own GST consequences.
What all five have in common is that the price of a sale has changed after the invoice was issued. The GST law calls that an adjustment event, and it triggers the obligation below.
Credit note or adjustment note?
In everyday use the terms are interchangeable, and a document headed "Credit note" is accepted. The distinction that matters is legal rather than linguistic:
- A credit note is the general commercial document for reducing a debt. If neither party is registered for GST, that is all you need.
- An adjustment note is the GST document. If you are registered for GST and the sale was taxable, the credit note has to carry the contents the GST law requires, or your customer cannot properly adjust the GST credit they already claimed.
Practically: if you are registered for GST, issue one document that satisfies both. Getting it right is not difficult and getting it wrong pushes the problem onto your customer's BAS.
What must be on it
| Element | Detail |
|---|---|
| The words "adjustment note" or "credit note" | Clearly, at the top. It must not be capable of being mistaken for an invoice. |
| Your identity and ABN | The supplier’s, since the supplier issues it — the same details as on the original invoice. |
| The customer’s identity or ABN | Required where the sale it relates to was $1,000 or more, mirroring the tax invoice rule. |
| The issue date | Which also starts the clock on the period in which the adjustment is reported. |
| The difference in price | Between the amount before the adjustment and the amount after it. |
| A brief explanation | Why the adjustment happened — return, discount, cancellation, error. |
| The GST adjustment amount | The GST component of the change, stated separately, so both parties can adjust their BAS. |
| The original invoice number | Not strictly required by the GST rules, but nothing else lets either side match the two documents. |
Two timing and threshold rules go with it. You must issue an adjustment note within 28 days of the customer asking for one, or of you becoming aware of the adjustment — and you do not need to issue one where the sale was $82.50 or less including GST, the same threshold that applies to tax invoices.
Never edit the original invoice
This is the rule people break, usually with good intentions, and it is worth spelling out why it matters:
- Your customer already has the original. Their copy and yours now disagree, and theirs is the one their auditor will see.
- They may already have claimed the GST credit. Silently changing the invoice leaves them with a claim they cannot support.
- It breaks your numbering. A deleted invoice leaves a gap in the sequence, and a gap is the first thing anyone reviewing your records asks about.
- You lose the reason. A credit note records why the amount changed. An edited invoice records nothing.
If an invoice was wrong end to end — wrong customer, wrong job — credit it in full and issue a fresh invoice with a new number. See what is an invoice? for the numbering rules that make this work.
Credit note, refund or write-off?
| Action | What it means |
|---|---|
| Credit note | Reduces what the customer owes. If they have not paid, the balance drops. If they have, it sits as a credit against future invoices. |
| Refund | Money goes back. Often issued together with a credit note — the note is the paperwork, the refund is the payment. |
| Bad debt write-off | The customer will not pay and you give up on it. Different from a credit note: you are not agreeing the debt was wrong, you are recognising it is uncollectable. It has its own GST rules — if you account for GST on an accruals basis you can make a decreasing adjustment once the debt is written off as bad, or once it has been overdue for twelve months or more. On a cash basis there is nothing to claim back, because you never reported the GST. |
| Editing the invoice | Not an option. It desynchronises your records from the customer’s and leaves no explanation of the change. |
What it does to your BAS
A credit note that reduces a taxable sale gives you a decreasing adjustment — you have reported and paid more GST than you now owe. You make the adjustment in the BAS for the period in which you became aware of it, not by amending the earlier BAS. Your customer makes the mirror-image increasing adjustment on their side.
That is also why the note must state the GST amount of the adjustment separately: without it, neither of you can work out the figure to put on the form. More on the form itself in what is a BAS?
Practical habits
- Use a separate number sequence — CN-0001, not the next invoice number. Mixing them creates apparent gaps in your invoices.
- Reference the original invoice number on the credit note, and the credit note number on the original in your own records.
- Show negative amounts as negatives. A credit note with positive figures and the word "credit" somewhere gets keyed in as an invoice by someone in a hurry.
- Say why, in one line. "Credit for 2 units returned 4 Sep 2026" is a required element and it is also the thing you will want to read in three years.
- Send it, do not just file it. A credit note the customer never received has not corrected anything.
Related reading
- What is an invoice? — numbering, and why gaps matter
- How to invoice with GST — the tax invoice this reverses
- What is a BAS? — where the adjustment is reported
- What is a remittance advice? — where a customer will apply the credit
Frequently asked questions
A credit note is the general commercial document that reduces an amount owing. An adjustment note is the specific GST document the law requires when the price of a taxable sale changes. A GST-registered business normally issues one document that does both jobs — headed "Credit note" or "Adjustment note", and carrying the contents the GST rules require.
No. The customer already has the original, may have claimed the GST credit on it, and their copy will not match yours. Deleting also leaves a gap in your invoice numbering, which is the first thing anyone reviewing your records will query. Issue a credit note and, if needed, a corrected invoice with a new number.
If you are registered for GST, you must issue an adjustment note within 28 days of the customer requesting one, or of becoming aware of the adjustment. You do not need to issue one at all where the value of the sale was $82.50 or less including GST.
It gives you a decreasing adjustment — you reported GST on a sale that has since been reduced, so you claim the difference back. Make the adjustment on the BAS for the period in which you became aware of it, rather than amending the earlier BAS. Your customer makes the opposite adjustment on theirs.
No — give them their own sequence, such as CN-0001. Taking the next invoice number for a credit note creates what looks like a missing invoice, and the whole point of sequential numbering is that a gap means something.
Sources
Adjustment note requirements, the 28-day rule, the $82.50 threshold and the treatment of adjustment events come from the Australian Taxation Office's GST guidance. Confirm the current position at ato.gov.au or with a registered tax agent. Balaana is bookkeeping software, not a tax agent — this article is general information, not personal tax advice.