2023 TurboTax® Canada Tips

Getting Back the GST/HST on Bad Debts

TurboTax Canada
August 30, 2016 | 2 Min Read

As a small business owner, you probably find yourself having to extend credit to some of your customers to get sales. Eventually, some of these customers default, and you end up never collecting the balance owed to you. Being able to recover at least part of the goods and services tax/harmonized sales tax takes a bit of the sting out of the loss.

GST/HST Payable Even If Not Collected

Conditions for the GST/HST Write-Off Deduction

GST/HST Only Sales Example

The CRA has a policy that the GST/HST must be at least in part uncollectible to claim the deduction.

An example is when a company makes a special offer for customers to pay only the tax at the time of the sale. If the customer defaults on the balance, the company cannot claim the GST/HST bad debt deduction – only the portion of the uncollected sales debt.

Example of Partial Bad Debt HST Recovery

In many cases, part of the debt is collected and part of it gets written off.

In the following example of HST recovery, an account receivable balance is collected in part and the remaining balance is written off.

Company A sells $2,260 of items on account to Company B, which includes $260 of HST. Company A manages to collect $900 before Company B goes bankrupt. The remaining $1,360 is written off to bad debt. Company A can get back the part of the $260 HST it paid at the time of the sale in proportion to the bad debt amount. It is calculated as follows:

Example of 100 Percent of Bad Debt HST Recovery

Using the same example, Company A sells $2,260 of items on account to Company B, which includes $260 of HST. However, Company B goes bankrupt before Company A can collect any of its money and has to write off the full $2,260 balance to bad debt. Company A can get back the $260 HST it paid at the time of the sale. It is calculated as follows:

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