Adjustment Notes – What You Need to Know

The lowdown on the recent ATO legislative changes surrounding adjustment notes

Most business owners are understand the requirement for a Tax Invoice to be compliant for GST purposes. What is somewhat less known are the requirements surrounding adjustment notes.

What is an adjustment note?

Just as a Tax Invoice is a special type of invoice that meets specific requirements in the GST Act; an adjustment note is a special type of credit note that again meets specific requirements in the GST Act. It allows the parties to validly adjust the GST they have accrued or reported on a previous tax invoice.

Adjustment notes are needed where there is an adjustment event of more than $75. Essentially, an adjustment event is an event which:

cancels a previous supply or acquisition; or
alters the price paid or received by the parties; or
causes the supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.

Where an adjustment event results in the previously reported GST no longer being correct, an adjustment will arise. The adjustment will either be an increasing adjustment (which means it increases a party’s GST liability) or a decreasing adjustment (which means it decreases a party’s GST liability).

So what's new?

In September 2022, the ATO released Legislative Instrument 2022/31 which set out the additional information requirements for a document to be an adjustment note (or recipient created adjustment note) under subsection 29-75(1) of the GST Act.

Under the LI, an adjustment note must contain the following information:

(a) an indication that the document is intended to be an adjustment note and the effect, whether positive or negative, of the adjustment;
(b) the identity, including the ABN, of the supplier;
(c) the identity or ABN of the recipient if the adjustment note : (1) relates to a tax invoice showing the total price for the supply is at least $1,000; or (2) arises out of an adjustment event where a supply that was not taxable becomes taxable and the price of the supply is at least $1,000;
(d) the issue date of the adjustment note;
(e) a brief explanation of the reason for the adjustment;
(f) the amount of the adjustment to the GST payable; and
(g) the difference between the price of the supply before and after the adjustment event if applicable.

If the amount of the GST payable is 1/11th of the price, a statement can be included as an alternative to the requirement specified at (f) above. The statement must make it clear that the difference in the price of the supply includes GST.

What about recipient created adjustment notes?

Sometimes a tax invoice will be created not by the supplier but by the recipient. This typically occurs where, for commercial or practical reasons, it is appropriate for the recipient of a supply to calculate and issue an invoice. Similar to the above, a recipient created adjustment note must contain the following information:

(a) an indication that the document is intended to be a recipient created adjustment note and the effect, whether positive or negative, of the adjustment;
(b) the identity, including the ABN, of the supplier;
(c) the identity, including the ABN, of the recipient;
(d) the issue date of the adjustment note;
(e) a brief explanation of the reason for the adjustment;
(f) the amount of the adjustment to the GST payable; and
(g) if there is a difference between the price of the supply before the adjustment event and the price of the supply after the adjustment event – that difference.

Again, if the amount of the GST payable for a recipient created adjustment note is 1/11th of the price, a statement can be included as an alternative to (f) above and make it clear that the difference in the price of the supply includes GST.

Timing of adjustment notes

The supplier or recipient is required to give the other party a copy of the adjustment note within 28 days of the earlier of:

a request by the other party; or
becoming aware of the adjustment before an adjustment note is required.

Here at Balanced Beans our experienced team of Newcastle bookkeepers, accountants and tax agents can assist you to make sure your business’s invoicing is in compliance with the new law.

For more information or for any other bookkeeping, BAS or tax enquiries reach out to us online. Alternatively, contact us on (02) 4046 1000 to book an appointment.