A bad debt situation occurs when money that is owed cannot be recovered. You can apply for bad debt relief from the Comptroller of GST for return of the output tax previously accounted for and paid by you.
On the other hand, if you as a customer have not paid your supplier within 12 months from the due date of payment, you are required to repay to the Comptroller the input tax that you have previously claimed (if any). For more details, please refer to If I have claimed GST before paying my supplier.
Qualifying for bad debt relief
You have to meet the following conditions to qualify for bad debt relief:
- You have supplied goods or services for a consideration in money and have accounted for and paid GST on the supply;
- You have written off the whole or any part of the consideration for the supply as a bad debt in your accounts;
- A period of 12 months beginning with the date of supply has elapsed or the debtor has become insolvent before the period of 12 months has elapsed;
- You have taken reasonable steps to recover the debts;
- The value of the supply is equal to or less than its open market value; and
- In the case of goods, the ownership must have been transferred to your customer
Claiming bad debt relief
- Complete the Self-review of Eligibility to Claim Bad Debt Relief (DOC,128KB) checklist.
- Proceed to make a claim in Box 7 (input tax and refunds claimed) of your GST return if you satisfy all the conditions in the self-review checklist.
You need not submit the self-review checklist to IRAS but you should keep it as part of your records. You may be asked to provide this checklist in the course of an audit.
Time limit for claiming bad debt relief
The bad debt relief claim has to be made within 5 years from the date of your supply.
Example 1: Time limit for claiming bad debt relief
Date of tax invoice: 1 Jan 2018
Allowable period to claim bad debt relief: 1 Jan 2018 to 31 Dec 2022
Repaying IRAS after recovering bad debts
When you recover a bad debt i.e. receive payment from your customer after you have claimed Bad Debt Relief, you should repay to the Comptroller the amount calculated according to the following formula:
Stating amount repayable in GST return
The amount repayable should be included in Box 6(output tax due) of your GST return using the tax fraction for the prescribed accounting period in which the payment is received.
Example 2: Repaying IRAS after recovering bad debt
You sold a batch of goods worth $10,000 to Customer B and accounted for output tax of $700 on 31 Mar 2022 based on the prevailing GST rate.
Subsequently, Customer B defaults payment and you claim back the output tax from IRAS as Bad Debt Relief.
A few months later, Customer B pays you $8,000. You are required to repay IRAS part of your claim for Bad Debt Relief using the tax fraction as follows:
Amount to be repaid to IRAS = $8,000 * 7/107 = $523.36