Trade debt is a debt that arises from the sales of goods or services and has been included in the gross income of the business. Subsection 34(2) of the ITA allows a trade debt which is reasonably estimated to be irrecoverable either wholly or partly, to be deducted from gross income in computing the adjusted income of the business.
Reasonable consideration should be taken before writing off a trade debt.
Steps taken to recover the debt:
The evidence showing the following must also be made available in the event of a tax audit to qualify for a deduction for tax purposes:
Circumstances when a debt can be considered as irrecoverable:
If you need further clarification, please do not hesitate to contact our tax team.
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