Hi,
Can a GST-registered company issue a credit note without referring to the original tax invoice? A client has requested a compensation and is asking us to issue a credit note. My understanding that the compensation is out of scope supply but our original tax invoice has GST on it.
Thank you.
Hi @ET01,
A credit note (or adjustment note) has to refer to the original tax invoice if it's being issued to adjust GST that was previously charged. This reference is required because the credit note is adjusting the GST liability from that specific transaction.
In your situation, it sounds like you have two separate matters. The original tax invoice charged GST on a taxable supply. Now, the client is requesting compensation, which you've correctly identified as out of scope for GST purposes. These are different transactions with different GST treatments.
You can't issue a credit note for the compensation payment because a credit note adjusts or cancels the GST on the original supply. If the compensation is genuinely a separate matter and is out of scope for GST, it shouldn't be documented as a credit note at all. Instead, you would issue a separate document (such as a payment advice or compensation notice) that shows no GST.
If you need to adjust the original tax invoice for a different reason (for example, if the original supply was cancelled, varied, or incorrectly stated), then you would issue a credit note or adjustment note that clearly identifies the original tax invoice by including details such as the invoice number and date.
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