2021 Tax Tips – Bad Debts

Today I want give you another 2021 financial year Tax Planning tip and that is around Bad Debts.

Are you aware that you can only claim a tax deduction for bad debts once you formally write this off?

Say you have a customer who has not paid you and there is a real concern that they may not pay you in full.

You could raise a provision in your accounting records for this. But that is not tax deductible.

Instead, you need to make a formal assessment that your recoverability is low and formally write off the debt you don’t expect to recover, on or prior to 30 June 2021.

And by doing this you may be also able to recover the GST on this debt (if you were on accruals basis for GST).

Now it is important to note that by you formally writing these bad debts off in your accounting records, it does not mean that you have to stop chasing the customer. You can continue to do this and if you manage to get some money in the future, you recognise this as income when you collect this.

If you want some help to understand your business finances, contact me below.

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