Part G: Bad debts

Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

Did you write off any bad debts in your business?

You need to know

Include income from the recovery of bad debts in Other business income at I or J in the INCOME section item P8 on your schedule.

You are not allowed a deduction for bad debts unless you have previously included the amount of the bad debt in your assessable income or it is for money you lent in the ordinary course of a money lending business carried on by you.

Do not include accounting provisions for doubtful debts at I. They can be shown under EXPENSES at All other expenses then added back under reconciliation items at H Expense reconciliation adjustments.

Before you can claim a bad debt, it must be bad and not merely doubtful. The question of whether a debt is a bad debt will depend on the facts in each case and, where applicable, the action taken for recovery. For more information, refer to Taxation Ruling TR 92/18 Income tax: bad debts.

You can claim a deduction for:

• partial debt write-offs – where only part of a debt is bad and is written off, you may claim a deduction for the amount written off
• losses incurred in debt-for-equity swaps for debt written off after 26 February 1992. You are allowed a deduction for the difference between the amount of the debt and the greater of the market value of the equity or the value at which the equity is recorded in your books at the time of issue. The market value of the equity will be the price quoted on the stock exchange, or where the equity is not listed, the net asset backing of the equity.

Where you are not in the business of lending money, the deduction is limited to the amount of the debt that has been included in assessable income.

Records you need to keep

Keep a statement for all debtors whose bad debts you wrote off during the year, showing:

• their name and address
• the amount of the debt
• the reason why the debt is regarded as bad
• the year that the amount was returned as income.