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Bad Debts Before 30 June 2027: Written Off in Time?

Updated 17 October 2026 · General information · 3 min read

General information only, not tax, legal or financial advice. We are not the ATO. Check ato.gov.au or ask a registered tax agent. Last checked: 17 October 2026. Dates for 2027 marked expected. Examples use made-up numbers. This page contains no affiliate links.

Short answer: The ATO says a bad debt deduction may be claimed where you account for income on an accruals basis and the amount was included in your assessable income (in the year you claim or earlier). You must write the debt off as bad by making the decision and recording it in writing before the end of the income year in which you claim the deduction, for example by removing it from the customer's account.

What the ATO page and rulings say

• If you determine there is no or little likelihood of recovering an amount already in your assessable income, you may be able to deduct it.
• TR 92/18 (search excerpt) says some written record of the decision is enough; making a provision is not enough; a taxpayer who is not a money lender and reports on a cash receipts basis is not entitled, because the debt was never included in assessable income.
• ITAA 1997 s 25-35 (search excerpt): you can deduct a debt you write off as bad in the income year if it was in your assessable income or relates to money lent in the ordinary course of a lending business; a later recovery may be included in assessable income.
• The ATO's example: an unpaid rent invoice written off in the same income year it became bad (before 30 June 2020 in the example) allowed a $15,000 deduction.

For 30 June 2027

1. Decide whether your income is on an accruals or cash basis (ask your agent).
2. For genuinely irrecoverable invoices, record the write-off decision in writing before 30 June 2027, with evidence of your collection efforts.
3. Keep the invoice, reminders and the written decision.
4. If a debt is recovered later, tell your agent; recoveries may be assessable.

Other year-end items: trading stock · prepaid expenses · sole trader deductions.

FAQ

Can I claim a bad debt as a sole trader on cash basis?

Per the ATO ruling excerpt, generally no, because the amount was not included in income.

What about GST on bad debts?

Not covered; the ATO GST bad-debt page was not read.

What we could not verify