When can a GST-registered tradie adjust GST for a bad debt?

When the adjustment applies

Under ATO ruling GSTR 2000/2, the supply must be taxable, the GST must have been attributed on your BAS, and you must not have received all or part of the payment. Wholly GST-free or input taxed supplies do not qualify. The bad debt rules do not apply if you account for GST on a cash basis, and separate rules apply when you start or stop using the cash basis, which this guide does not cover.

Sources[1]

Bad, written off or overdue

There are two routes. The ruling treats the checks below as the main ones.

Sources[1]

Amount, timing and recovery

For a wholly taxable supply, the decreasing adjustment is 1/11 of the amount written off or overdue, excluding interest. If the supply was partly taxable, the amount is reduced to the taxable proportion. If you later recover some of the debt after a decreasing adjustment, an increasing adjustment arises in the recovery period. For a wholly taxable supply this is 1/11 of the recovered amount; partly taxable supplies require the corresponding taxable proportion. No adjustment note is needed, and you need not notify the customer.

Fictional example: a fully taxable job leaves $1,100 unpaid, including GST. You write it off. The decreasing adjustment is $1,100 divided by 11, which is $100.

Sources[1][2]

What this does not decide

A GST adjustment is separate from deciding to stop chasing, from the income tax treatment of a bad debt, and from whether you can still legally enforce the debt. For income tax the ruling points to a separate ATO ruling, so ask your tax agent. The ruling treats 12 months overdue as a trigger for a GST adjustment, not as the debt expiring, and recovery after an adjustment is expressly contemplated.

Check separately with your tax agent if a debt has been settled, compromised, extinguished or assigned; those events can change the GST treatment. A BAS entry alone does not count as writing off a bad debt.

Sources[1]

Bad debt review sheet you can copy

This is our own record, not an ATO form.

BAD DEBT GST REVIEW
Customer: [name]   Invoice: [INV-0000] dated [DD/MM/YYYY]   Due: [DD/MM/YYYY]
Taxable supply, fully or partly: [fully / partly, taxable proportion %]
GST accounted on cash basis: [yes / no]
Unpaid amount, GST inclusive, excluding interest: $[amount]
Dispute still running: [yes / no]
Recovery steps taken: [reminders, demand, other, with dates]
Route: [written off on DD/MM/YYYY / overdue 12 months on DD/MM/YYYY]
Date I became aware, and tax period: [details]
Decreasing adjustment: unpaid amount / 11 x taxable proportion = $[amount]
Checked by accountant or tax agent: [name, date]
Recoveries later: [date, amount, increasing adjustment]

Sources[1]

Common questions

How does GST treat bad debts?

If you account for GST on a non-cash basis and have written off a taxable-supply debt as bad, or it has been overdue for 12 months or more, you make a decreasing adjustment of 1/11 of the unpaid amount for a wholly taxable supply. You do not use an adjustment note.[1][2]

How long before a debt is written off in Australia?

There is no automatic write-off. For GST, a debt can trigger an adjustment once overdue for 12 months or more, or earlier if you genuinely write it off as bad. That does not say the debt has expired or cannot be enforced, so get legal advice on that question.[1]