Invoices and records
Adjustment note
An adjustment note is a document issued when a sale or purchase changes after the original tax invoice, such as a refund, discount or cancellation, recording the change and the GST involved.
An adjustment note is the paperwork that goes with an adjustment event. If a price changes, goods are returned, a supply is cancelled or a discount is given after a tax invoice has been issued, the seller issues an adjustment note to show the change. It records the amount by which the sale has gone up or down, and how much GST is affected, so that both the seller and the buyer can correct their BAS reporting.
It matters because it supports the GST adjustment. A seller who gives a refund makes a decreasing adjustment, and a buyer who has claimed credits on the original invoice must make an increasing adjustment. Both can only do this properly if the change is recorded. A buyer who does not receive an adjustment note might not realise that they need to adjust their credits, which can lead to errors on the BAS.
The document must contain certain information. It should be identifiable as an adjustment note, or be a document such as a credit note that is treated as one, and it should show the seller's identity and ABN, the buyer's identity or ABN in some cases, the date of issue, a brief explanation of the reason for the adjustment, and the amount of the change and the GST. The detailed content requirements are set out in the legislation and ATO guidance, so a business should check them.
Not every change needs an adjustment note. If a change in price does not result in any change to the GST on a supply, a note might not be required. A seller who issues a replacement tax invoice and cancels the original may achieve the same result. And if a supply was never actually made, for example a quote that was withdrawn, there might be no adjustment event at all. The point is to document changes that affect the GST.
Timing follows the rules for adjustments. A decreasing adjustment for the seller is generally made in the tax period in which the seller becomes aware of the event, or in which the note is issued, and the buyer makes the matching adjustment when they receive the note. Both should keep the note with the original invoice, generally for five years. Small businesses using cash accounting have some simplifications, but the underlying evidence is still needed.
Common mistakes include altering the original invoice instead of issuing a note, and failing to send the note to the buyer promptly. Another is mixing up the adjustment note with a statement of account, which is not a note. Accounting software can usually generate credit notes that serve as adjustment notes when set up correctly.
This is general information. For unusual adjustments, confirm the paperwork required with the ATO or a registered tax professional.
Worked example
A registered supplier issues a $2,200 GST-inclusive tax invoice, with $200 GST. Later it gives the buyer a $330 GST-inclusive rebate and issues an adjustment note showing the $330 reduction and $30 GST, worked out as $330 divided by 11. The supplier makes a decreasing adjustment of $30, and the registered buyer makes an increasing adjustment of $30 to the credits it claimed.
Practical tips
- Issue an adjustment note whenever a sale changes after the tax invoice, rather than editing the original.
- Send the note to the buyer promptly so they can adjust their credits.
- Keep each note with the original tax invoice for five years.