# How to write off a bad debt

Write off a debt when you have given up collecting it. Record the decision in writing before 30 June, clear the invoice in your books and claim the GST decreasing adjustment in the period you write it off.

Free tool: [Bad debt write-off generator](https://www.pulsify.tech/free-tools/bad-debt-write-off-generator/). Fill in the debt, the collection steps and the reason. The tool works out the GST component and builds the write-off record.

## Why it matters

Unpaid debts that stay on your books overstate your assets and your income. Writing off a bad debt corrects both.

You can recover the GST you reported on the sale and you may claim an income tax deduction. Both need a written record.

## The steps

1. **Try to collect first.** Send reminders, call, send a final notice and try a payment plan. Keep a record of each step.
2. **Decide the debt is bad.** Common triggers are insolvency, no contact or the cost of recovery is more than the debt. Record the decision and the reason.
3. **Write it off before year end.** For income tax you must decide to write the debt off and record that decision in writing before the end of the income year. For a deduction in the year to 30 June, record it by 30 June.
4. **Record it in your books.** Post the write-off to a bad debts expense account and clear the invoice from receivables.
5. **Work out the GST adjustment.** If you account for GST on an accruals basis, you can claim a decreasing adjustment for the GST you paid on the sale, when you have not been paid and you write the debt off or it is 12 months overdue. On a GST-inclusive total at 10% that is the total divided by 11.
6. **Report the adjustment on your BAS.** Report it for the tax period in which you write off the debt or become aware it is 12 months overdue.
7. **Keep the evidence.** Keep the invoice, the chase history and the written decision. The ATO says to keep most business records for 5 years.
8. **Handle a later recovery.** If the customer pays later, record the income again and report the GST increase in that period.

## Worked example

Example Plumbing Supplies Pty Ltd writes off an unpaid invoice of A$5,500 including GST on 20 June.

| Item | Working | Amount |
| --- | --- | --- |
| Invoice total | Includes GST | A$5,500.00 |
| GST adjustment | 5,500 / 11 (10% GST in a GST-inclusive total) | A$500.00 |
| Amount included in income | 5,500 - 500 | A$5,000.00 |
| Bad debt expense | Ex GST | A$5,000.00 |

The business claims A$500 back on its BAS for the quarter that includes 20 June. The A$5,000 bad debt expense reduces profit. Check the income tax treatment with your accountant.

## Common mistakes

- Writing off after 30 June for that year's deduction.
- Forgetting the GST adjustment.
- Writing off with no chase record.
- Not recording a later recovery.

## Common questions

### Do I issue a credit note for a bad debt?

No. A write-off is not an adjustment event, so no adjustment note is needed.

### How long must a debt be overdue?

For GST, a debt can be adjusted when it is written off, or when it is 12 months overdue.

### Does the buyer have to do anything?

A buyer who claimed a GST credit may have to make an increasing adjustment. That is their obligation.

## Next step

Use the [Bad debt write-off generator](https://www.pulsify.tech/free-tools/bad-debt-write-off-generator/) first. Then see [how to read an aged receivables report](https://www.pulsify.tech/how-to/read-an-aged-receivables-report/).

## Sources

- ATO: deductions for unrecoverable income (bad debts): https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-unrecoverable-income-bad-debts
- ATO: adjustment notes (GSTR 2013/2): https://www.ato.gov.au/law/view/document?DocID=GST/GSTR20132/NAT/ATO/00001&PiT=99991231235958
- ATO: overview of record-keeping rules: https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/record-keeping-for-business/overview-of-record-keeping-rules-for-business

Source: https://www.pulsify.tech/how-to/write-off-a-bad-debt/ (last checked 2026-10-20)