An invoice that will genuinely never be paid is called bad debt, and writing it off correctly involves more than just deleting the invoice — done right, it can also recover GST/HST already remitted on a sale that was never actually collected.

When Does an Unpaid Invoice Become a Bad Debt?

There's no fixed waiting period before an unpaid invoice can be treated as a bad debt — what matters is that collection is genuinely no longer expected, not just overdue or in dispute. A customer going out of business, declaring bankruptcy, or remaining unresponsive despite reasonable collection efforts may indicate that a debt has become uncollectible. A disputed invoice is a different situation — a disagreement over pricing, scope, or the work itself isn't automatically a bad debt, and treating it as one before the dispute is actually resolved can create its own problems. An invoice that's simply late but still being pursued isn't yet a bad debt either.

How to Record a Bad Debt Write-Off in Your Books

The unpaid amount is generally removed from accounts receivable and recorded as a bad debt expense, or adjusted against an existing allowance for doubtful accounts if the business uses one. This removes it from the pool of money the business expects to collect, while keeping a record that the sale and the loss both happened — deleting the original invoice instead removes that history entirely. See RSB's guide to void vs. delete in QuickBooks Online for why preserving the record matters here too.

How to Recover GST/HST Already Remitted on a Bad Debt

The CRA allows a GST/HST registrant to recover tax already remitted on a bad debt, but only once specific conditions are met: the sale has to have been a genuinely taxable supply (not zero-rated or exempt), the GST/HST on it has to have already been reported and remitted for that period, the debt has to have actually become uncollectible — with the circumstances and any reasonable collection efforts supporting that determination — and the debt has to be formally written off in the business's books, not just left sitting overdue. Meeting all of these is what allows the GST/HST portion to be deducted from net tax on a future return.

Writing off the receivable and claiming the GST/HST adjustment are related but separate steps — writing off the invoice in the books doesn't automatically mean the GST/HST adjustment has been claimed on a return. There's also a time limit: the adjustment generally must be claimed within four years after the filing due date of the return for the reporting period in which the debt was written off — not simply four years from the write-off date itself, so it's worth confirming the exact window rather than assuming.

What Happens If a Written-Off Debt Gets Paid Later

If a customer unexpectedly pays an invoice that was already written off as bad debt, the payment needs to be recorded appropriately in the books, and any GST/HST adjustment previously claimed on that bad debt generally needs to be reversed and added back on a future GST/HST return.

Why Documentation Matters for a Bad Debt Claim

A bad debt write-off, including the GST/HST recovery, is the kind of claim that benefits from a clear record of why collection was deemed unlikely — written correspondence requesting payment, other collection attempts, communication with the customer, and the date the debt was formally written off all support the claim if it's ever reviewed.

FAQ

Can a partially paid invoice be partially written off as bad debt? Yes — the unpaid portion can be written off while the paid portion remains recorded as collected income, treated separately.

Can a bad debt be written off by just deleting the invoice? No. Deleting the invoice removes the record of the sale entirely, which is the opposite of what a proper write-off needs. A bad debt write-off should preserve the history of both the original sale and the fact that it later became uncollectible — deleting it erases the evidence a GST/HST adjustment claim would actually rely on.

Does writing off a bad debt affect the customer's own records or credit? Writing off a debt internally doesn't automatically report anything to a credit bureau — that's a separate process a business would need to pursue deliberately if it chooses to.

What if the business hasn't included the invoice in income yet? If the sale was never reported as income or as a taxable supply, there generally isn't a previously recognized receivable or GST/HST remittance to recover. The treatment can depend on the business's accounting and tax method, so this is a situation where professional advice may be appropriate rather than assuming one blanket answer applies.

Is there a minimum dollar amount required before a bad debt is worth writing off? There's no general minimum dollar amount for the write-off itself, though for very small amounts, the practical benefit of claiming the GST/HST adjustment may be limited relative to the effort involved.

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