--- title: "Writing Off Bad Debts in Canada: Tax and GST/HST | EverStone" url: https://www.everstonecpa.com/blog/writing-off-bad-debts-canada description: "Writing off a bad debt: when an unpaid receivable becomes deductible, how to document it, and how to recover the GST/HST remitted on the sale. See how." type: guide updated: 2026-10-04 summary: "An unpaid receivable becomes deductible in the year it actually becomes bad, provided it was owing at year end and the revenue was already included in income. Separately, a registrant can recover the GST/HST already remitted on that sale through a bad debt adjustment." faq_count: 6 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Writing Off Bad Debts in Canada Tax # Writing off bad debts: *income tax and GST/HST* By EverStone CPA · Updated September 2026 · 9 min read **Quick answer:** An unpaid receivable becomes deductible in the year it actually becomes bad, provided it was owing at year end and the revenue was already included in income. Separately, a registrant can recover the GST/HST already remitted on that sale through a bad debt adjustment. Doubtful is not bad — and the year matters. ## Key takeaways - A bad debt is deductible only in the year it **became bad** — it cannot be carried to a later year. - The amount must have been **included in income** already, and still owing at year end. - “Doubtful” is not the same as “bad”; doubtful accounts use a reserve instead. - Registrants can recover the **GST/HST remitted on the sale** through a bad debt adjustment. - The GST/HST adjustment requires an **arm’s length** customer and a write-off in your records. A customer stops answering. The invoice ages past ninety days, then a year. Eventually the receivable is a bookkeeping fiction, and two separate reliefs apply, on two returns, with separate conditions. Owners often claim one and forget the other. ## Part one: the income tax deduction Subparagraph 20(1)(p)(i) of the Income Tax Act authorizes a deduction for a bad debt where three requirements are met: - the debt was **owing to you at the end of the tax year**; - the debt **became bad during that tax year**; and - the amount was **included, or deemed to have been included, in your income** for that year or a previous year. The third condition is the one that surprises people. If the revenue was never recorded in income, there is nothing to deduct. You have simply not been paid for work you never booked as a sale. Writing it off changes nothing. ### When does a debt become “bad”? The Act sets no specific conditions. The CRA’s position is that the decision should follow determined but unsuccessful collection efforts, or clear evidence the amount is uncollectible. Customer bankruptcy, a business that no longer exists, a statute-barred claim, or an exhausted collection file all point that way. Crucially, a debt that is **merely doubtful** should not be claimed as a bad debt. Doubtful accounts use a reserve under paragraph 20(1)(l), deducted one year, added back the next and reassessed. The two are reported differently, so the distinction matters. **Timing is unforgiving:** a bad debt may be claimed only in the year it became bad, regardless of how long it was outstanding, and the deduction cannot be deferred to a later year. Reviewing the aged receivable list before the year end closes is not optional housekeeping. It is the only chance to claim it. ### Partial write-offs and later recoveries If part of a debt is collectible, only the uncollectible portion is a bad debt. If the customer later pays, the recovery goes back into income — the deduction is reversed. Keep the write-off memo, which supports both halves. Not sure how this applies to you? Every business’s situation is different. Send an enquiry to a CPA and get a straight answer, plus a fixed quote before any work starts. [Send an Enquiry →](https://www.everstonecpa.com/book-online) [See tax services](https://www.everstonecpa.com/tax-services) **Want these claims documented properly?** Our monthly bookkeeping, from $325 a month, keeps every deduction backed by a receipt and a reconciled account before the CRA asks. See [our bookkeeping](https://www.everstonecpa.com/accounting-services), or [get a bookkeeping quote](https://www.everstonecpa.com/book-online). [Get My Fixed Quote](https://www.everstonecpa.com/book-online) ## Part two: getting the GST/HST back If you invoiced GST or HST on that sale, you almost certainly remitted it long before the customer defaulted. The tax you sent to the CRA came out of your own pocket. The bad debt adjustment gets it back. The conditions in CRA Guide RC4022 are specific: - You already **reported and remitted the GST/HST** on the credit sale. - All or part of the amount owed became a **bad debt**. - You **deal at arm’s length** with the customer. - You **write the amount off as a bad debt in your records**. You then claim the tax adjustment on **line 107** of the GST/HST return if you are filing electronically through NETFILE or on paper, or within your line 108 calculation if you file using TELEFILE. ### The formula The adjustment is not simply the tax on the invoice. It is prorated to the unpaid portion, using the tax rate that applied at the time of the sale: **Adjustment = A × B CA** = the GST/HST payable on the sale **B** = the total amount that remains unpaid and was written off, including GST/HST and any applicable PST **C** = the total amount of the sale, including GST/HST and any applicable PST Because B and C both include provincial sales tax where it applied, a BC business writing off an invoice that carried [BC PST](https://www.everstonecpa.com/blog/bc-pst-small-business-guide) has to run the formula on the tax-included figures, not the net sale. ### Deadlines and recoveries The adjustment has to be made on a return filed **within four years of the due date of the return for the reporting period in which you wrote off the bad debt**. That is generous, but it starts running from the write-off, so a receivable written off and then forgotten can time out. If you later recover money, the GST/HST portion goes back to the CRA. Report it on line 104 if you file electronically or on paper, or as an adjustment in your line 105 calculation using TELEFILE, for the period of recovery, with the same proportional formula. Both parts are easier when the write-off ends a documented process rather than a year-end decision. The guide to [receivables and collections](https://www.everstonecpa.com/blog/accounts-receivable-collection-small-business) covers the terms, follow-up and aging review that produce that evidence. ## What to keep on file A bad debt write-off is a deduction you claimed against yourself, so the evidence has to be yours. Keep the original invoice, the aged receivable listing showing the balance, the record of collection attempts — statements, emails, a collection agency file, a bankruptcy notice, and a dated memo recording the decision to write the amount off and the reasoning. All of that falls under the ordinary [record retention rules](https://www.everstonecpa.com/blog/cra-record-retention-how-long-to-keep-records). Then make sure the two claims line up. The income tax deduction goes on the corporate return for the year the debt went bad; the GST/HST adjustment goes on the return for the period you wrote it off. They are different filings and they are checked separately, a reviewer looking at your [input tax credits and adjustments](https://www.everstonecpa.com/blog/input-tax-credits-itc-canada-guide) will not see your T2, and vice versa. If you would rather not track two clocks, we handle the GST/HST filing and the corporate return together. Sources - [CRA Interpretation Bulletin IT-442R — Bad Debts and Reserves for Doubtful Debts (archived)](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it442r/archived-debts-reserves-doubtful-debts.html) - [CRA Guide RC4022 — General Information for GST/HST Registrants](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4022/general-information-gst-hst-registrants.html) - [Canada Revenue Agency — GST/HST for businesses](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses.html) Where the unpaid invoice was denominated in a foreign currency, a second adjustment arises alongside the write-off — see [how foreign exchange gains and losses are taxed](https://www.everstonecpa.com/blog/foreign-exchange-gains-losses-business-canada). About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online) This article is general information, not tax advice for your specific situation. Tax rules and CRA administrative positions change — confirm anything that affects a decision with the CRA or with us first. ### Keep reading [Claiming input tax credits →](https://www.everstonecpa.com/blog/input-tax-credits-itc-canada-guide) [Common bookkeeping mistakes →](https://www.everstonecpa.com/blog/bookkeeping-mistakes-small-business) [How long to keep records →](https://www.everstonecpa.com/blog/cra-record-retention-how-long-to-keep-records)[Incorporate vs Sole Proprietor: The Real Trade-Off →](https://www.everstonecpa.com/blog/incorporate-vs-sole-proprietor-canada) FAQ ## Frequently asked questions about writing Off Bad Debts in Canada **When can I deduct a bad debt for income tax purposes?** Subparagraph 20(1)(p)(i) allows a deduction where the debt was owing to you at the end of the tax year, the debt became bad during that year, and the amount was included or is deemed to have been included in your income for that year or a previous year. All three conditions have to be met. **What makes a debt bad rather than just late?** There are no specific statutory conditions. The CRA expects determined but unsuccessful collection efforts, or clear evidence the amount is uncollectible. A merely doubtful debt should not be claimed as a bad debt. **Can I claim a bad debt in a later year if I missed it?** No. A bad debt can be claimed only in the tax year it became bad, however long it was outstanding; it cannot be deferred to a later year. That is why the review belongs in the year-end file. **Can I write off only part of a receivable?** Yes. Where part of a debt is considered collectible and part is not, only the uncollectible portion may be viewed as a bad debt. The rest stays on the books as a receivable. **How do I recover the GST/HST I already remitted on the sale?** If you reported and remitted GST/HST on a credit sale and all or part of the amount became a bad debt, you can claim a tax adjustment on line 107 of the [GST/HST return](https://www.everstonecpa.com/gst-hst-filing-services) if you file electronically or on paper, or in your line 108 calculation if you file by TELEFILE. You have to deal with the customer at arm’s length and write the amount off as a bad debt in your records first. **Is there a deadline for the GST/HST bad debt adjustment?** Yes. The adjustment has to be made on a return filed within four years of the due date of the return for the reporting period in which you wrote off the bad debt. If you later recover any of the amount, the tax portion has to be reported back in the period the recovery happens. ## Sitting on receivables that are never going to be paid? We can review which ones qualify as bad debts, document the write-off, and claim the GST/HST adjustment on your next return. Send an enquiry. [Get My Fixed Quote](https://www.everstonecpa.com/book-online)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies within one business day. Need more? A 45-minute **Advice Call** is $225 plus GST, credited to your first invoice if you become a client within 60 days. Want us to take it on? [Send an enquiry](https://www.everstonecpa.com/book-online). [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “…He is very knowledgeable and has saved me tons in taxes by restructuring my group of companies — the best accountant I've worked with in the last 10 years, after switching from three different firms.” Matt Hildebrandt · Google review **Run your own numbers with the free calculators:** [work out your instalments](https://www.everstonecpa.com/tax-instalment-calculator) · [run the salary-or-dividends numbers](https://www.everstonecpa.com/salary-vs-dividends-calculator) · [when the T2 has to be filed](https://www.everstonecpa.com/t2-deadline-calculator) [← WorkSafeBC registration: who has to register, and what it costs to skip it](https://www.everstonecpa.com/blog/workers-compensation-registration-bc) [The year-end inventory count: what CRA expects to see →](https://www.everstonecpa.com/blog/year-end-inventory-count-canada) More on this subject: [every GST/HST guide](https://www.everstonecpa.com/gst-hst-hub). --- Source: https://www.everstonecpa.com/blog/writing-off-bad-debts-canada Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online