Part 4: Getting help · MODULE 21
An aged receivables report lists what each customer owes you, split into columns by how long it's been owing. Set it to age by due date, and the columns tell you exactly how overdue each balance is. Ten minutes with it every Monday shows you who to contact this week, which customers are drifting, and how much of your cash is at risk.
5 MIN READ · UPDATED 10 OCTOBER 2026
IN THIS MODULE
When a debt becomes a bad debt
Claiming back the GST
Claiming an income tax deduction
How to write off a debt
If the customer pays later
Common questions
When does an unpaid invoice become a bad debt?
For tax purposes, a debt is bad when you've decided it's unlikely to be recovered through any reasonable commercial effort. A debt that's merely doubtful, where there's still a fair chance of payment, doesn't count. You don't always need to have taken legal action, but evidence of your attempts to collect helps, such as reminders, letters and notes of calls.
Common reasons a debt becomes bad include the customer going into liquidation or bankruptcy, the cost of chasing it exceeding what you'd recover, or a customer who can't be found.
Can you claim back the GST on an unpaid invoice?
It depends on how you account for GST:
A cash basis: You only report GST when you're paid. An unpaid invoice was never included, so there's nothing to adjust.
A non-cash (accruals) basis: You reported the GST when you issued the invoice. You can make a decreasing adjustment on your BAS once you've written the debt off, or it's been overdue for at least 12 months.
EXAMPLE
A business on a non-cash basis issued an $11,000 invoice including $1,000 GST, and reported the $1,000 on its BAS for that quarter. The customer never paid. Once the business writes the debt off, or it's 12 months overdue, it can make a $1,000 decreasing adjustment on its next BAS and get that GST back.
Can you claim a tax deduction for a bad debt?
The ATO allows a deduction for a bad debt when all of these apply:
You included the amount in your assessable income, this year or an earlier year. That generally means you account for income on an accruals basis.
You've decided the debt is bad, not just doubtful.
You've made the decision to write it off and recorded it in writing before the end of the income year you're claiming in.
The debt still exists when you write it off.
If you account for income on a cash basis, you never counted the unpaid amount as income, so writing it off has no income tax effect. Companies also need to pass a continuity of ownership or business test before deducting a bad debt.
BEFORE 30 JUNE
The write-off has to be decided and documented before the end of the financial year you want the deduction in. Review old debts in May or June with your accountant, rather than finding them after 30 June.
How to write off a debt
Check you've made reasonable efforts to collect, and keep the evidence.
Record the decision in writing, with the date, the customer, the invoices and the reason the debt is bad.
Ask your bookkeeper or accountant to record the write-off in Xero. A common method is a credit note coded to a bad debts expense account and applied to the invoice, which also adjusts the GST where that applies.
Remove the customer from your reminder sequence, and put them on cash-up-front terms if they ever come back.
Writing a debt off in your books doesn't cancel it. The customer still owes you the money, and you can keep trying to recover it.
What if the customer pays after you've written it off?
If you recover some or all of a debt you've written off, you need to reverse the tax benefit. For GST on a non-cash basis, you make an increasing adjustment for the GST in the amount recovered. For income tax, the amount recovered is generally assessable income. Tell your accountant so it's handled correctly.
Common questions
Can I claim GST back on an unpaid invoice?
Yes, if you account for GST on a non-cash basis and the debt has been written off or is at least 12 months overdue. You make a decreasing adjustment on your BAS. If you account on a cash basis, you never reported GST on the unpaid invoice, so there's nothing to claim back.
When can I write off a bad debt for tax?
You can claim a deduction when you've included the amount in assessable income, decided the debt is bad rather than just doubtful, and recorded the write-off in writing before the end of the income year you're claiming in. Companies must also meet a continuity test.
Does writing off a debt mean I can't recover it?
No. Writing off a debt is an accounting and tax decision. The customer still legally owes you the money, and you can keep trying to recover it. If you do recover it, you'll need to reverse the GST adjustment and generally include the amount as income.
