Credit notes and refunds for sellers NZ

What are credit notes?

A credit note (sometimes called a credit memo) is a document you send a customer to reduce or cancel part of a previously issued invoice. It references the original invoice, states the amount credited, and explains why. The original invoice stays on your books untouched; the credit note offsets it and leaves a clear audit trail.

Think of it as the mirror image of an invoice. An invoice records money owed to you. A credit note records value owed back to the customer. That value can be paid out as a refund or held as credit against a future purchase. Broader expense and income topics sit in the Business and Expenses GST category, and invoicing basics are in the GST invoice generator.

When are credit notes issued?

Issue a credit note when a sale needs correcting in the customer’s favour. Common triggers:

• Returned goods: the customer sends items back after invoicing.
• Damaged or faulty items: you agree not to charge for goods that failed.
• Cancelled orders: the whole order or part of it is called off after invoicing.
• Overbilling or invoice errors: wrong quantity, missed discount, or a duplicate charge.
• Partial delivery: you billed for more than you delivered.
• Agreed post invoice discount: a goodwill reduction or dispute settlement.

If any of these change a sale that carried 15% GST, you are also into GST territory, which is where supply correction information comes in.

Credit notes and GST: supply correction information

From 1 April 2023 New Zealand dropped rigid credit note and debit note formats. IRD now uses supply correction information: the records that fix an earlier invoice style document or a wrong GST amount already returned. You can still label your document “Credit Note”; you just have to hold the required correction details.

IRD says a seller must provide supply correction information to correct an error in the original taxable supply information or a filed return. It does not matter if the buyer has already paid. Your correction document should include the seller’s name or trade name and GST number, the date the correction was provided, details identifying the original taxable supply information (for example the invoice number), and the correction itself including any change to the GST charged.

There is one useful exception: you do not need separate supply correction information if the correction is a discount or rebate whose terms were already agreed in writing or set out in the original taxable supply information. General return and refund GST for online sellers is covered in GST on e-commerce returns and refunds.

How credit notes hit your GST return

When you credit a GST inclusive sale, you reduce both the sale value and the GST. IRD’s rule is timing based: include the supply correction information in the GST return for the period you provided it. The buyer usually adjusts their input tax in the period they receive it.

So if you charged and returned $150 output tax on a sale, then fully credit that sale in a later period, your output tax for the later period drops by $150. You are not editing the old return; you are recording the correction in the current one. To find the GST inside an inclusive amount, the free GST calculator uses IRD’s 3÷23. Fixing genuine return errors (versus issuing a credit note) is different: see how to correct GST return errors.

Credit note vs refund

These are not the same thing. A credit note is the document that proves value is owed back. A refund is the separate act of paying cash or reversing the card charge. You can:

• Issue a credit note and refund it immediately, or
• Issue a credit note and hold it as store credit against future orders.

Either way the GST correction follows the credit note, not the cash movement. On your books the credit note reduces recognised revenue and accounts receivable. On the customer’s books it reduces their expense or accounts payable.

Credit notes in Xero

Most NZ sellers raise credit notes in accounting software. In Xero the usual flow is:

1. Open the original sales invoice, choose the option to create a credit note (or Business, then Invoices, then the customer).
2. Code each line to the same account and the same GST rate as the original sale.
3. Approve the credit note so it becomes supply correction information.
4. Allocate it to another outstanding invoice, or process a refund to the customer.
5. Let the GST flow into your next return through your GST reports.

To find them later, look under the customer’s contact record or your sales list filtered for credit notes. Keep the coding and GST rate identical to the original line, or your return will not net correctly. Record keeping expectations are in GST record keeping and taxable supply information.

Do credit notes expire?

A GST credit note is a record, not a voucher. It does not expire in the GST sense. The limit that matters is the time bar on fixing a GST return: you cannot use supply correction information to fix a mistake in a return after a certain period, which is generally four years for most GST returns.

Separately, if you hand a customer store credit or an exchange card, that instrument can carry an expiry you set. Consumer Protection notes that exchange cards usually have an expiry date and a shop is not obliged to honour one after that date. Keep your store policy clear so customers know the terms.

Refunds, change of mind, and consumer law

Credit notes often appear when customers want their money back. New Zealand consumer law matters here. If a product breaches the Consumer Guarantees Act (faulty, not fit for purpose), the customer has repair, replacement, or refund rights. For simple change of mind, a business usually does not have to refund at all.

Consumer Protection is blunt: the retailer does not have to give you a refund or exchange if you change your mind, your circumstances change, or you find it cheaper elsewhere. Many stores still offer a refund, exchange, or credit note as a matter of policy. Whatever you offer, the GST treatment of any credited amount follows the supply correction information rules above.

What to include on a credit note

Blend the GST requirements with normal invoicing practice:

• A clear label such as “Credit Note”.
• Your business name or trade name and GST number.
• The customer’s name and details.
• A unique credit note number, separate from your invoice sequence.
• The date the correction was provided.
• The original invoice number it relates to.
• The reason (for example, “Returned goods, damaged on arrival”).
• The amount credited and the GST change on that amount.

Provide supply correction information for a supply only once. If the buyer loses it you can send a copy, and IRD does not require the copy to be marked “copy only”.

Worked examples

Example 1: Full return. You sold goods for $230 including $30 GST. The customer returns everything. You issue a credit note for $230 showing the $30 GST reversed. Your output tax for the period you issue it drops by $30. Refund the $230 or hold it as credit.

Example 2: Restocking fee. A $115 sale ($15 GST) is returned but you keep a $23 restocking charge. You credit $92 and show the GST reduction on the $92 credited, keeping GST on the $23 you retained. See restocking detail in e-commerce returns and refunds.

Example 3: Overcharge. You invoiced $1,150 but should have billed $1,035. Issue a credit note for $115 (including $15 GST) rather than deleting the finalised invoice. Your records stay consistent and the GST corrects in the current period.

Common mistakes

• Deleting or editing a finalised invoice instead of issuing a credit note.
• Refunding cash with no supply correction information to support the GST change.
• Coding the credit note to a different GST rate than the original sale.
• Trying to fix a very old return with a credit note past the time bar.
• Treating a debt that went bad as a credit note: that is a bad debt adjustment instead. See GST on bad debts.
• Assuming change of mind always means a refund is legally required.

Publisher path: About Us and Contact Us. Broader input tax topics sit in claiming GST NZ.

FAQs

What is a credit note?

A credit note is a document a seller issues to reduce or cancel part of an earlier invoice, for example after a return, cancellation, overcharge, or agreed discount. In New Zealand GST, the tax side of a credit note is called supply correction information.

Is there GST on credit notes in New Zealand?

Yes. If the original sale carried 15% GST, the credit note reduces both the sale value and the GST. You show supply correction information and adjust GST in the return period you issue it. The buyer adjusts their input tax in the period they receive it.

How do credit notes work in Xero?

In Xero you raise a credit note against the customer, usually from the original invoice, code it to the same account and GST rate, then either refund it or allocate it to another invoice. The GST flows into your next return automatically.

Do credit notes expire in New Zealand?

A GST credit note is a record, not a voucher, so it does not expire in the GST sense, though the time bar to fix a return still applies. Store credit or exchange cards you offer customers can have an expiry set by your own policy and consumer law.

Is a credit note the same as a refund?

No. A credit note documents that value is owed back to the customer. A refund is the separate act of paying cash or reversing the charge. You can issue a credit note and then refund it, or leave it as credit against future purchases.

Last verified 29 August 2026 against Inland Revenue supply correction information and fixing mistakes in my return guidance, Consumer Protection change of mind guidance, GST guide IR375, and the Goods and Services Tax Act 1985. Ads may fund this free site. Not Inland Revenue. Not tax advice.