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ATO issues bad debt ruling

The Australian Taxation Office (ATO) has issued a ruling that clarifies the circumstances in which a deduction for bad debts is allowable.

To obtain a bad debt deduction under section 63 of the Act, a debt must exist before it can be written off as bad. A debt exists for the purposes of section 63 where a taxpayer is entitled to receive a sum of money from another either at law or in equity.

The question of whether a debt is bad is a matter of judgment having regard to all the relevant facts. Generally, provided a bona fide commercial decision is taken by a taxpayer as to the likelihood of non-recovery of a debt, it will be accepted that the debt is bad for section 63 purposes. The debt, however, must not be merely doubtful.

Where a trustee in bankruptcy, receiver or liquidator advises a creditor of the amount expected to be paid in respect of a debt, the remainder of the debt (i.e. the extent to which the amount likely to be received is less than the debt) is accepted as bad when the advice is given.

The bad debt has to be written off in the year of income before a bad debt deduction is allowable under section 63. The writing-off of a bad debt does not necessarily require highly technical accounting entries. It is sufficient that some form of written record is kept to evidence the decision of the taxpayer to write off the debt from the accounts.

The debt must have been brought to account as assessable income in any year or, in the case of a money lender, the debt must be in respect of money lent in the ordinary course of the business of lending of money by a taxpayer who carries on that business.

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How to select a default fund for your business

August 7, 2020

Business owners might be required to select a default fund for employees when they do not want to nominate their own superannuation funds. Funds should meet specific requirements that are stated as per super law, so it is important to select a complying fund. However, there are other factors that you may have to think about before selecting a default fund to make sure that you and your employees get the most out of it.

Pricing
Naturally, one of the main considerations while selecting a super fund should be pricing. Funds that have a lower fee may not cover extras, and this requires careful analysis to see what extras have been left out. Coverage for extras like being able to track down missing super is a key feature that employees will prefer your default fund has.

Employee preferences
Employees are likely to prefer funds that allow flexibility with their investment options and have essential features like insurance policies covering death, total and permanent disability (TPD), and income protection. You may want to consider options that give your employees a comprehensive cover while keeping an eye out for any exclusions that might affect you.

Industry fund
Checking industry funds may help reveal awards that are particularly applicable to employees from your industry. It is a requirement that your default fund is a MySuper product. All listings under Industry SuperFunds are MySuper products, so this can simplify the process of finding an affordable super fund for your employees.

Fund management
Finally, consider taking a closer look at the fund’s insurance offerings. Past performance of the fund doesn’t guarantee high returns in the future. But it is important to be aware of the returns on the fund’s investments to compare how their options have performed against their return objectives. This can increase the chances that the selected super fund will be beneficial to you and your employees.