This public ruling considers whether a GST input tax deduction can be claimed for a bad debt write-off when a debt is factored. The ruling replaces BR Pub 06/01.
The difference between the face value of the debt and the price received from the
Factor is not a bad debt for the purposes of s 26. Accordingly, s 26 has no
application and the registered person cannot claim an input tax deduction under
s 20(3)(i); and
If a portion of a debt is written-off before it is sold to the Factor, then whether
this write-off meets the requirements of s 26(1) depends on whether the amount
written off was “bad” according to the conventional tests as outlined in Public
Ruling “BR Pub 18/07: Income tax and goods and services tax – writing off debts
as bad” Tax Information Bulletin Vol 30, No 9 (October 2018) (BR Pub 18/07).
Source: govt.nz
