Tax Treatment on Irrecoverable Debt
Article by Cheng & Co
Tax Treatment on Irrecoverable Debts
During this time, as we all know many companies have been significantly affected by Covid 19 and may cause inability to continue operations and cash flow problem which resulting in difficulties of recovering trade debts. However, is writing off bad debt is deductible?
Based on PR No. 4/2019 of the Income Tax Act 1967, in order for a trade debt to be written off as bad and allowed as deduction, the following conditions has to be fulfilled:
• The debt shall be an amount that has been previously included in the gross income of the taxpayer; and
• The debt is a debt which is irrecoverable.
In order to determine that the debt is irrecoverable, there should be sufficient evidence that reasonable efforts were made to recover the debts which including one or more of the following:
• Issuing reminder notices
• Debt restructuring scheme
• Rescheduling of debt settlement
• Negotiation or arbitration of a disputed debt
• Legal action
However, during tax audit following must be made available in order to qualify for a deduction for tax purposes:
• Each debt has been evaluated separately
• When and by whom this was done
• What specific information used in arriving at that evaluation
In short, in order to claim tax deduction on bad debts written off, the debts must be valid, reasonable steps have been taken to recover the debts and all supporting evidences are available.
The contact details of Cheng & Co-Regional office personnel are as follows: or
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Northern Region (Perlis, Kedah, Penang, Perak) Mr. Albert Tan (kmtan@chengco.com.my)
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Central Region (Kuala Lumpur, Selangor) Mr. Sam Kong (tskong@chengco.com.my)
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Southern Region (Negeri Sembilan, Melaka, Johor) Mr. Aaron Heng (koheng@chengco.com.my) and Ms Moon Gan (jygan@chengco.com.my)
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Article reposted with permission from Cheng & Co.
Click here to read the orginal article from Cheng & Co.