Credit Note (New Zealand)

A New Zealand GST-registered business must issue a credit note (also called an adjustment note or debit/credit adjustment under the Goods and Services Tax Act 1985) when the consideration for a taxable supply is reduced after the original tax invoice has been issued. Common situations requiring a credit note include: a return of goods by the customer (full or partial); a price reduction or discount agreed after invoicing; cancellation of a service contract where a portion of the fee has already been invoiced; correction of an error in the original invoice; and goodwill adjustments. Under s 25 of the Goods and Services Tax Act 1985, when the consideration for a taxable supply is reduced, the supplier must make an adjustment — reducing their output tax — and the recipient (if GST-registered) must make a corresponding adjustment — reducing their input tax credit. A properly issued credit note is the mechanism for making this adjustment. Failure to issue a credit note when required can result in inaccurate GST returns and potential penalties from Inland Revenue (IRD).

Under the Goods and Services Tax Act 1985 and Inland Revenue's requirements, a New Zealand credit note for a GST-registered supplier should contain: the words 'Credit Note' or 'Tax Credit Note' clearly displayed; the supplier's name and GST registration number (IRD number); the recipient's name and (if a B2B transaction) the recipient's GST registration number; the date the credit note is issued; a unique credit note number; the number and date of the original tax invoice being adjusted; a description of the goods or services to which the credit relates; the credit amount exclusive of GST; the amount of GST being credited (at 15%); and the total credit amount inclusive of GST. Inland Revenue may require credit notes to be issued within 28 days of the event giving rise to the credit. Where a credit note is issued in a subsequent GST period to the original invoice, both parties must adjust their GST returns for the period in which the credit note is issued. Keeping accurate records of all credit notes is essential for GST audit purposes.

When a GST-registered supplier issues a credit note in New Zealand, it reduces the supplier's output tax for the GST period in which the credit note is issued. The supplier should reflect this reduction in their GST return (IR3B or GST103) for that period, reducing the total sales and output tax figures. Correspondingly, if the recipient of the credit note is also GST-registered, they must reduce their input tax credit claim for the period in which they receive the credit note. If the credit note relates to a supply in a prior GST period, the adjustment is made in the current period — there is no need to amend past GST returns in most cases, unless Inland Revenue specifically requires it. Businesses that use accounting software (such as Xero, which is widely used in New Zealand) will typically record the credit note as a transaction that automatically adjusts the GST return. Manual bookkeepers should record the credit note in the appropriate GST period journal. Significant errors in GST returns may require voluntary disclosure to Inland Revenue to avoid penalties.

In New Zealand commercial practice, a credit note and a refund are legally distinct. A credit note is a document that reduces the amount owed by a customer to a supplier — it may or may not result in a cash payment. A credit note may be applied against a future invoice (effectively a store credit), or it may trigger a cash refund depending on the terms agreed. A cash refund is the actual return of money to the customer. Under the Consumer Guarantees Act 1993, consumers who are entitled to a remedy for defective goods or services may demand a cash refund rather than a store credit — a supplier cannot require a consumer to accept a credit note instead of a refund where the consumer is entitled to cancel the contract. In B2B transactions, the parties' contractual terms govern whether a credit note results in a cash refund or is applied as a credit against future purchases. From a GST perspective, both credit notes and cash refunds trigger the same GST adjustment requirement under the Goods and Services Tax Act 1985 — the supplier must reduce their output tax when the consideration for the original supply is reduced, regardless of whether the reduction takes the form of a credit note or a cash refund.

A Credit Note (New Zealand) does not legally require a lawyer in New Zealand, and individuals and businesses may draft and execute the document independently. The Companies Act 1993 does not mandate legal representation for the creation or signing of this type of document. However, seeking independent legal advice from a qualified New Zealand lawyer is recommended for transactions involving substantial financial value, complex regulatory requirements, or cross-border elements where multiple legal jurisdictions may apply. A lawyer can verify that the document complies with all applicable statutory requirements, identify potential risks specific to the transaction, and confirm that the terms adequately protect the interests of all parties involved. The High Court of New Zealand has jurisdiction over disputes arising from this type of document, and Companies Office may impose additional compliance obligations depending on the nature of the underlying transaction. Professional legal review is particularly advisable where the document will be submitted to government agencies or used as evidence in legal proceedings.