Write off your bad debts with confidence. Source: Startup Photo Library/That Startup Show

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Adam Carswell

Cheat sheet: Bad debts, and how to write them off

Authors
Adam Carswell
Tax
cheatsheetCheat Sheet
3 minute Read

Income you can’t recover, or money you’re owed that’s unlikely to be paid back — otherwise known as a bad debt — can sometimes be claimed as a deduction, depending on the accounting method you use.

The nitty gritty is covered by section 25-35 of the Income Tax Assessment Act 1997 and Taxation Ruling TR 92/18, which formally sets out the circumstances and conditions in which a deduction for bad debts will be allowable.

Put simply, the debt must be for an amount that’s been recorded as assessable income on a non-cash (accruals) basis, where revenue is recorded when it is actually earned, rather than when cash is received. 

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