How to Handle Invoice Corrections and Credit Notes in Canada

When to Issue a Corrected Invoice

Issue a corrected invoice when there is an error on the original invoice and the invoice has not yet been paid. Common situations:

• The amount is incorrect (wrong rate, wrong quantity, math error)
• The client name or address is wrong
• The invoice date or due date needs to be corrected
• GST/HST was calculated incorrectly
• A line item description is inaccurate

How to issue a corrected invoice:

1. Void or cancel the original invoice in your records — mark it "CANCELLED" and do not delete it (keep it for your records)
2. Issue a new invoice with a new sequential number
3. Reference the original invoice in the description: "Replaces Invoice #INV-2026-012 — correction to hourly rate"
4. Notify the client that the original is cancelled and the new invoice replaces it

When to Issue a Credit Note

Issue a credit note when an invoice has already been paid (or is in dispute) and you need to reduce or cancel the amount owed. A credit note is a negative invoice — it reduces the amount the client owes you, or creates a credit balance that can be applied to a future invoice.

Common situations for credit notes:

• A service was partially delivered — you need to reduce the invoice amount
• A project was cancelled after invoicing — you need to cancel the outstanding invoice
• A discount was agreed after invoicing — you need to formally reduce the invoice
• A product was returned — you need to reverse the sale
• You overbilled the client and they have already paid — you owe them a refund or credit

What a Credit Note Must Include

A credit note that relates to a GST/HST-inclusive invoice must contain:

• The label "Credit Note"
• Your business name and GST/HST registration number
• The client's name
• Credit note number (sequential, separate from invoice numbers)
• Date issued
• Reference to the original invoice number being adjusted
• Description of why the credit is being issued
• Credit amount (before tax)
• GST/HST credit amount (matching the tax rate of the original invoice)
• Total credit amount

GST/HST Implications

Corrected Invoices

If you correct an invoice before the GST/HST reporting period ends and before you remit, simply include the corrected amounts in your regular GST/HST return. If the original invoice was included in a period already filed, you may need to file an adjustment using a GST/HST adjusting entry on your next return.

Credit Notes

When you issue a credit note that reduces GST/HST previously charged:

• You are entitled to reduce your GST/HST remittance by the amount of the credit
• The client must repay the ITC they claimed on the original invoice (or reduce their ITC claim)
• The GST/HST adjustment is reported on the next GST/HST return in the reporting period when the credit note is issued

Sample Credit Note

Common Mistakes to Avoid

1. Editing the original invoice

Never alter an already-sent invoice in place. Always cancel and re-issue, or issue a credit note. Edited invoices without a clear audit trail create compliance problems.

2. Forgetting the GST/HST adjustment

A credit note that reduces the invoice amount must also reduce the GST/HST proportionally. Issuing a credit note for the subtotal only while keeping the original GST/HST amount outstanding is an error.

3. Using the same number sequence for credit notes and invoices

Credit notes should have their own separate sequential numbering (CN-001, CN-002, etc.) so they are clearly distinct from invoices in your records and accounting software.

4. Not referencing the original invoice

Always reference the original invoice number on both a corrected invoice and a credit note. Without this cross-reference, reconciling your books becomes difficult and clients may not know which invoice the correction applies to.