Reserves for bad debts

Question 1

Reserves for bad debts (Taxation)

Answer 1

• A reserve may be deducted for bad debts to the extent that it is reasonable and based on specific uncollectible accounts
• A reserve claimed in one taxation year must be included in income in the following tax year and a new reserve based on the current specific uncollectible accounts will be calculated and deducted from income
  o Effectively this means that the increase in the reserve amount should be deducted each year

Reference: ITA 20(1)(l), 12(1)(d)