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A credit note is issued to correct a genuine mistake or to give a credit to your customer under the following situations:
- correction of a genuine mistake (e.g. goods invoiced as standard-rated which should have been exempt or zero-rated)
- supply did not take place
- charges are partly or fully waived before/after delivery of the goods
- goods or services are accepted, but terms of the contract are not fully met (e.g. sub-standard goods are accepted by the customer at a reduced price)
- goods are returned or services are not accepted
- goods and services are supplied for an unconfirmed consideration
Information required on a credit note
To be valid for GST purposes, a credit note must show clearly:
- an identifying number e.g. a serial number;
- the date of issue;
- your name, address and GST registration number;
- your customer's name and address;
- the reason for the credit - for example, “returned goods”;
- a description sufficient to identify the goods and services for which credit is being allowed;
- the quantity and amount credited for each description;
- the total amount credited, excluding tax;
- the rate and amount of tax credited; and
- the total amount credited, including tax.
The number and date of the original tax invoice should also be shown on the credit note. If you are unable to do so (e.g. because returned goods cannot be identified with a particular tax invoice), you must be able to satisfy the Comptroller of GST by other means that you have accounted for GST on the original supply.
Can I not make adjustment to the GST amount?
In your credit note, you can choose to not adjust the GST amount charged on the original tax invoice if the following conditions are satisfied:
- Both the supplier and the customer have agreed in writing^ not to adjust the original GST amount;
- The customer is a fully taxable person (i.e. does not make any exempt supplies); and
- The credit note*, which is issued without any tax credit, should contain the statement "This is not a credit note for GST purposes."
^ The written agreement may be in the form of letters or e-mail correspondences between the supplier and the customer instead of a formal contract. Both the supplier and the customer should keep the written agreement as part of their GST records. It need not be submitted to the Comptroller of GST unless otherwise requested.
* If such credit notes are issued by the supplier, both the supplier and customer need not adjust the value of their taxable supplies/ taxable purchases and corresponding output tax/input tax.
Declaring credit note issued in GST return
Adjustments should be made to the value of standard-rated supplies (Box 1) and output tax (Box 6) in the GST return for the accounting period in which the credit note is issued.
If you issue a credit note on 30 Jun 2012 for sales made on 1 Jan 2012, you should reduce your value standard-rated supplies (Box 1) and output tax (Box 6) accordingly in the GST return for the accounting period covering Jun 2012.
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Generally, a GST-registered person is required to issue a tax invoice or simplified tax invoice (if the total amount payable including GST does not exceed $1,000) for the standard-rated supplies made to his GST-registered customer. This is to enable the GST-registered customer to substantiate his input tax claims.
However, a debit note may be issued as a document for requesting payment for transactions where no GST is charged (e.g. internal billings within the same company).
Issuing debit note to record credits received from suppliers
A record of all credits received from your suppliers must be kept. If debit notes are normally issued to suppliers from whom credit is due, the debit notes must show details similar to those required for credit notes.
If credit notes are subsequently received from the suppliers, they should be compared with the debit notes issued. Adjustment can only be made once and the debit and credit notes must not be used simultaneously as accounting documents.
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You can choose to use either the prevailing exchange rate or the historical exchange rate. However, you are required to apply the chosen type of exchange rate consistently.
No, you should not file a GST F7 for credit note adjustments. You may make your credit note adjustments in the accounting period in which the credit note is issued.