Invoices and records
Invoice
An invoice is a commercial document a seller gives a buyer requesting payment and listing what was sold and the price, and it becomes a tax invoice only if it meets the GST requirements.
An invoice is the document a business sends to a customer to record a sale and request payment. It normally lists the seller and buyer, the date, a description of the goods or services, the quantity and price, and the amount owing, along with payment terms and bank details. It is a standard part of business, and it supports both the seller's income records and the buyer's expense records.
Not every invoice is a tax invoice. A tax invoice is a particular kind of invoice that a registered seller issues for a taxable sale and that carries the extra details the GST law requires, such as the seller's ABN and the GST amount or a statement that the price includes GST. A business that is not registered for GST can issue ordinary invoices but cannot issue tax invoices. So a document headed Invoice may or may not let a buyer claim an input tax credit.
A good invoice has several features. It has a unique invoice number so it can be tracked, the date of issue, the legal name and ABN of the seller, clear descriptions of what was supplied, the price for each item, the GST charged, the total, payment terms such as the due date, and ways to pay. For a registered seller, adding the words Tax Invoice at the top helps to make clear that it meets the GST requirements.
Invoicing practices affect cash flow and GST reporting. Under accrual accounting, GST on a sale is generally reported when the invoice is issued or payment is received, whichever is first, so issuing an invoice triggers the GST reporting for that period. Under cash accounting, GST is reported when payment is received. Late invoicing can delay payment, and a business that issues invoices promptly typically has a healthier cash position.
Errors on invoices can be corrected. If an amount is wrong, the seller can issue an adjustment note or a credit note and a new invoice. Deleting or changing an invoice without a record can create problems with the audit trail. Businesses should keep copies of invoices issued and received, generally for five years, in a form that can be easily produced to the ATO.
Another point is that invoices can be sent before the sale, such as a pro forma invoice or a quote converted to an invoice. A deposit invoice can also trigger GST on the deposit. A business should consider whether the invoice is being issued for a supply that has been made or will be made, and how the GST treatment follows.
This is general information only. If you are unsure whether your invoices meet the requirements, check with the ATO or a registered tax professional.
Worked example
A registered web designer issues invoice 1042 for $1,500 plus GST for a website. The invoice shows the designer's name and ABN, the date, a description, GST of $150 and a total of $1,650, with the words Tax Invoice at the top. Because the sale is over $1,000, the client's business name is included. The designer reports $150 of GST, and the client can claim a $150 credit.
Practical tips
- Number your invoices in sequence and include your ABN, description, GST and total.
- If you are registered for GST, label the document Tax Invoice and check it meets the content requirements.
- Issue invoices promptly, as this improves cash flow and keeps GST reporting in the right period.