Bad Debt

There are two main ways for a creditor-taxpayer to claim a deduction in respect of bad debts. The first is under section 25-35 of the ITAA 1997 which is a specific provision related to the deductibility of bad debts. The alternative opportunity is under section 8-1 of the ITAA which is the general deductions provision for losses and outgoings. Section 25-35 takes priority over section 8-1 in being the provision responsible for a deduction for bad debts if, for example, a deduction would be available under both sections.

There are some key differences in the eligibility requirements of the two provisions which are addressed below.

Before we get to that, please note that this article is not designed to address bad debt rules as they relate to concepts and arrangements such as:

• money lending businesses
• luxury car leases
• taxation of financial arrangements
• consolidation

Section 25-35

Section 25-35(1) provides as follows:

(1) You can deduct a debt (or part of a debt) that you write off as bad in the income year if:

(a) it was included in your assessable income for the income year or for an earlier income year…

There are a number of elements here. There must be a debt, that debt must be bad, the debt must be written off, and the debt must be included in your [the taxpayers] assessable income for the income year or an earlier income year.

The first and second elements have already been addressed above. The remaining elements are dissected below.

written off

For tax law purposes, there is no prescribed process to be completed in order for a debt to be written off.

That said, the taxpayer must be able to demonstrate that they made a definitive decision to write off the debt. That decision needs to be supported by an appropriate record that clearly identifies the debt, the debtor and the amount of debt being written off.

To be entitled to a deduction, the decision to write off the debt must be made by the end of income year in which the deduction is sought. Consequently, a taxpayer will not be entitled to a deduction for a particular bad debt which is only written off, for instance, when financial statements and/or income tax returns are prepared following the end of an income year. In this way, the proactive assessment of debts (and taking necessary recovery steps) prior to income year-end can be an important step to bringing forward the timing of deductions for bad debts.

It is also very important to understand that a debt must be in existence at the time it is written off as bad. The taxpayer may not be entitled to bad debt deduction if the debt in question has been settled, compromised, assigned, waived, forgiven or extinguished in another way prior to the time it is written off. The message: care should be taken around the timing of debt extinguishment decisions and bad debt write-off decisions.

Note that the writing off of the debt does not necessarily (in itself) relieve the debtor from ever having to pay the liability nor prevent the creditor from re-instituting its debt recovery efforts at a future point in time should circumstances change to make such recovery action worthwhile.

Included in assessable income for the income year or an earlier income year

Essentially, the amount which is sought to be deducted for a bad debt must have been included in the taxpayers assessable income in the same income year (as the deduction is sought) or an earlier income year. That is, the debt is only deductible to the extent it was / is included in assessable income.

The elements a taxpayer must satisfy to be entitled to a deduction under section 25-35 also (broadly) apply in respect of bad debts where a deduction is sought under section 8-1. However, there are some key differences:

• Under section 8-1, there is no requirement for the debt to have been previously assessed to the taxpayer.
• Under section 8-1, the two positive limbs must be satisfied and none of the four negative limbs triggered. That means, in particular, that a deduction will not be available if the debt is capital or private in nature.

Negative limb – a loss which is capital in nature

If the bad debt is capital in nature, the taxpayer will not be entitled to a general deduction under section 8-1.

The most obvious example of a capital debt is the principal amount of an unpaid loan.

If a bad debt is capital in nature (for example, the principal amount on an unpaid loan), the creditor-taxpayer may instead be able to recognise a capital loss under the CGT regime, for example, under CGT event C2. Per section 104-25 of the ITAA 1997, CGT event C2 applies where a taxpayers ownership of an intangible CGT asset (here, the right of repayment) ends by way of expiry, redemption, cancellation, release, discharge, satisfaction, abandonment, surrender or forfeiture. CGT event C2 happens at the time the taxpayer enters into the contract which ends the intangible asset. If no contract, when the intangible asset ends.

Remember that a capital loss is different from an allowable deduction. One key difference is that a capital loss can only be applied against other capital gains that flow from CGT events in the same year or a future year. An allowable deduction, however, can generally be applied against net capital gains which are included in the taxpayers assessable income.

It is also important assess whether a debt is a personal use asset. If so, any capital loss is likely to be disregarded.

A personal use asset is defined in section 108-20 of the ITAA 1997 to include:

• a debt arising from a CGT event in which the CGT asset the subject of the event was a CGT asset (except a collectable) that is used or kept mainly for the taxpayers (or an associates) personal use or enjoyment.
• A debt arising other than in the course of gaining or producing the taxpayers assessable income; or from the taxpayer carrying on a business.

Therefore, a debt arising from a CGT event involving a CGT asset kept mainly for the taxpayers personal use and enjoyment (or a non-assessable income producing purpose) will generally constitute a personal use asset. A typical example would be a debt arrangement between family members, where the lender does not charge any interest in addition to repayments on the principal. There typically needs to be a material benefit received by the creditor-taxpayer by way of return (i.e. interest) in order for a debt to not be classified a private loss and/or to establish a connection between the debt and the derivation of assessable income.

As mentioned, the loss on a personal use asset is disregarded for CGT purposes. That means there is no deduction or capital loss that can be recognised in respect of the bad debt which is written off.

Negative limb – a loss which is private in nature

A debt arrangement which is private in nature (for example, between parents and children) and which is not entered into for the primary purposes of deriving assessable income will not be deductible under section 8-1.

A company has exclusive conditions that must be satisfied before a bad debt deduction is allowed.

In essence, the company must satisfy either of the below tests contained in Division 165 of the ITAA 1997:

• The continuity of ownership test – section 165-123 and 165-120
• The business continuity test – section 165-126 and section 165-120

Broadly equivalent tests also apply with regards to deductions for company losses.

The continuity of ownership test

The continuity of ownership test is designed to ensure that a majority of the underlying owners remain unchanged from (broadly) the time a debt is sustained until the time a deduction is sought to be claimed.

Specifically, section 165-123 requires that at all times during the ownership test period, the same persons must retain rights to:

• 50% of the voting power in the company
• 50% of the companys dividends
• 50% of the companys capital distributions.

The ownership test period runs from the start of the first continuity period to the end of the second continuity period.

The timing and length of the first and second continuity periods depends on whether a debt is incurred in a current income year or a previous income year.

If the debt was incurred in an earlier income year: the first continuity period starts on the day when the debt was incurred and ends at the end of that income year. The second continuity period is the current income year.

If the debt was incurred in the current income year (but not on the last day of it): the first continuity period starts on the first day of the current income year and ends on the day when the debt was incurred. The second continuity period then starts on the day after the debt was incurred and ends on the last day of the current income year.

For example, take Scarlet Pty Ltd which incurs a bad debt on 30 March 2024. Scarlet Pty Ltd proceeds to write off the bad debt in May 2024. Here, the debt is incurred in the current income year (i.e. the same income year as the deduction is being sought). Therefore, the ownership test period runs from 1 July 2023 (the first day of the current income year which is when the first continuity period starts) until 30 June 2024 (the last day of the current income year which is when the second continuity period ends).

Note the rule in section 165-120(3) which provides that a company cannot deduct a debt (or part of a debt) that it writes off as bad on the last day of the current year if the debt was also incurred on that day.

The business continuity test

The business continuity test is designed to ensure that the core aspects of particular business operations remain unchanged from the time (broadly) that the bad debt is incurred until the time a deduction is sought to be claimed.

In essence (to be entitled to a deduction), the company needs to carry on the same or a sufficiently similar business throughout the second continuity period (defined under the continuity of ownership test heading above) as compared to the business carried on immediately before the relevant test time as set out in the below table.

Note, section 165-210 contains the key requirements of the primary sub-test (the same business test) and section 165-211 contains the key requirements of the secondary sub-test (the similar business test).

You will note the word incurred is referred to frequently in the above table. A loss occasioned by a bad debt is incurred when the debt is disposed of, settled, compromised or otherwise extinguished. Where a debt is not disposed of, settled, compromised or otherwise extinguished, the loss of the debt is incurred when it is written off as bad.

Also note the potential application of section 165-132 to prevent deductions where the company (relying of the business continuity test) waits until after the test time to write off a bad debt in order to achieve (or to increase) a tax loss. That integrity section only applies where the company carried on the business during that income year for the purpose of securing a deduction for the debt (or part) under section 165-126.

Bad Debts and Tax Avoidance

There are specific rules in Subdivision 175-C of the ITAA 1997 which are designed to enable the ATO to deny a company deductions related to bad debt because of certain avoidance type arrangements. There are two avoidance-type cases which may apply.

The first case is where capital gains are injected into a company because of available bad debts which can offset against that capital gain. However, the ATO cannot disallow any of the deduction if the continuing shareholders (defined as including all persons with more than 50% of voting power, dividends and capital distributions during the relevant periods) will benefit from the making of the injected capital gain to an extent that the ATO thinks fair and reasonable having regard to the shareholders respective rights and interests in the company.

The second case is where someone else obtains a tax benefit because of a bad debt deduction available to a company. The ATO may disallow some or all of the deduction if: (a) a person has obtained or will obtain a tax benefit in connection with a scheme; and (b) the scheme would not have been entered into or carried out if the debt had not been incurred and the debt (or the relevant part of the debt) had not been written off (or able to be written off) as bad.

However, the ATO cannot disallow any of the deduction if: (a) the person had a shareholding interest in the company at some time during the income year; and (b) the ATO considers the tax benefit to be fair and reasonable having regard to that shareholding interest.

Apart from Subdivision 175-C, there are a number of other provisions which enable the ATO to disallow a bad debt deduction.

That includes section 175-100 of the ITAA 1997. That section enables the ATO to disallow deductions (including for bad debts) for a company which is insolvent.

In addition, the general anti-avoidance rule in Part IVA of the ITAA 1936 also enables the ATO to disallow a bad debt deduction if it is determined that there was a scheme which is entered into with the dominant purpose of obtaining a tax benefit.

Bad Debts and Forgiveness Between Companies under Common Ownership

There are rules in section 245-90 of the ITAA 1997 which enable taxpayers to agree to make a bad debt not deductible to the creditor in exchange for the commercial debt forgiveness rules (addressed later in this article) not applying to the debtor.

To be eligible to take advantage of section 245-90, the debt arrangement must be between two companies and under common ownership from the time the debt was incurred until the time when the debt was forgiven. The creditor also needs to have either been entitled to a capital loss or allowable deduction as a result of the forgiveness of the debt.

The company creditor and debtor must enter into an agreement that says that the creditor is to forgo so much of the otherwise deductible or capital loss amount as is stated in the agreement and which does not exceed the amount that would be the net forgiven amount of the debt (apart from this provision). The meaning of net forgiven amount is expanded on later in this article, but is an amount calculated under the commercial debt forgiveness rules which consumes the debtors stored up tax benefits (e.g. previous tax losses that could be applied against the taxpayers assessable income).

The agreement must be in writing and signed by the public officer of each company. It must be made before the first of those companies lodges its income tax return for the forgiveness income year, or at any later day that the Commissioner determines in writing.

A trust has exclusive conditions that must be satisfied before a tax loss or a bad debt deduction is allowed. These conditions are contained in Division 266 and 267 of Schedule 2F of the ITAA 1936. These provisions are complex. However, the first step is to determine which set of trust loss measures apply by reference to the type of trust with the bad debt. The three most common types of trusts are: fixed trusts, non-fixed trusts, excepted trusts (which includes family trusts). There are other forms of trusts, including widely held trusts. For the purposes of this article we will focus on the three main types of trusts.

The tests which attach to the relevant trust need to be satisfied at all times during the test period. The test period for a bad debt for a fixed and non-fixed trusts alike is:

• For a debt incurred in an income year prior to the income year a deduction is claimed: from the day the debt is incurred to the end of income year that the deduction is sought.
• For a debt incurred in the income year a deduction arises: from the first day of the income year to the final day of the income year.

The tests that apply to fixed trusts, non-fixed trusts and a family trust are set out below.

The overarching objective of these tests is to ensure that the persons who achieve the tax benefits attributable to the bad debt (by way of the bad debt being deductible to the trust) are those who bear the economic impact of the bad debts.

The 50% stake test is broadly designed to test whether the same individuals have fixed entitlements to greater than 50% of income and capital of the trust.

The business continuity test is broadly designed to test whether a trust carries on the same business or a similar business from just before the start of the business continuity period until the end of that period. It is also designed to test whether the trust is deriving assessable income (during the business continuity period) from sources outside of core business activities and transactions and which are not attributable to the business or transaction previously carried on by the trust before the business continuity period.

The pattern of distributions test is broadly designed to test whether a trust distributes more than 50% of total income distributions, and separately capital distributions, (distribution is defined widely) to the same individuals for every year up to six years before the beginning of the income year that bad deduction is sought. The pattern of distributions test must be passed in terms of both income and capital distributions.

The control test is broadly designed to test whether a group, being a person and their associates, do not start to control the trust during the test period. As set out in Schedule 2F section 269-95, control could include any of the following:

• Power to appoint trustees or to revoke the appointment of a trustee
• Power to obtain beneficial enjoyment of capital or income of the trust
• The ability to control the application of capital or income of the trust
• Where the trustee is reasonably expected to act in accordance with the directions of the group.

The income injection test is broadly designed to test whether there is an income injection scheme which involves assessable income being injected into a trusts with losses or other deductions (including bad debt deductions) and with an exchange of benefits (benefit is defined broadly) between person connected to the trust and third parties. These schemes are seen as avoidance arrangements because assessable income can be inserted into a trust and subject to low rates of tax. The assessable income in the trust is effectively handed back to the third-party injector for a benefit. It must be reasonable to conclude that the arrangement was undertaken wholly or partly because the deduction would be allowable. The income injection test is the only trust loss measure relevant to a family trust. The test does not apply where benefits are exclusively provided amongst family group members.

Bad Debts and Recoupment

A bad debt which is deducted and then partially or completely recouped will be included in the taxpayers assessable income, as set-out in section 20-20 of the ITAA 1997 and more broadly in Subdivision 20-A.

An amount the taxpayer receives as a recoupment of a loss or outgoing is an assessable recoupment if:

• The taxpayer can deduct an amount for the loss or outgoing for the current year; or
• The taxpayer has deducted or can deduct an amount for the loss or outgoing for an earlier income year under a provision listed in section 20-30.

Section 8-1 and section 25-35 are both provisions listed in section 20-30.

For example, take David (a sole trader) who determines that a $1,000 business debt has become bad. He therefore writes off the debt in the 2022/23 income year and claims a deduction for that amount under section 25-35. He subsequently (and unexpectedly) recovers the $1,000 in the 2023/24 income year. The recovered amount (ignoring GST) is included in Davids assessable income in the 2023/24 income year.

Tax Implications for the Debtor

A debt written off will generally have implications for the debtor taxpayer under the commercial debt forgiveness rules contained in Division 245 of the ITAA 1997.

A debt is forgiven where:

• the debtors obligation to pay the debt is released or waived, or is otherwise extinguished other than by repaying the debt in full; or
• the period within which the creditor is entitled to sue for the recovery of the debt ends, because of the operation of a statute of limitations, without the debt having been paid.

As set-out in section 245-36, a debt can also be forgiven where a debt is assigned by the creditor to another entity (in certain circumstances).

To calculate the net forgiven amount, the gross forgiven amount (to the extent it would have been deductible to the taxpayer) is reduced by any consideration provided for the forgiveness and any amounts the ITAA brings to account because of the forgiveness

The sum of all the debtor taxpayers net forgiven amounts for the income year are applied against the below amounts in the order listed:

• Tax losses
• Net capital losses
• Deductions the taxpayer would otherwise get in the income year, or in a later income year, because of expenditure from a previous year (for example, the capital allowance deductions the taxpayer would get for expenditure on acquiring a depreciating asset);
• The cost bases of the taxpayers CGT assets.

These things listed above are essentially stored-up tax benefits that the taxpayer could potentially otherwise use to reduce assessable income in the same or a later income year. In this way, the commercial debt forgiveness rules impact upon the debtor taxpayer by consuming their stored-up tax benefits, rather than directly assessing the taxpayer on net forgiven amounts.

Per section 245-40, the debt forgiveness rules do not apply if:

• The debt is waived and the waiver constitutes a fringe benefit; or
• The amount of the debt has been, or will be, included in the assessable income of the debtor in any income year; or
• The debt is forgiven under an Act relating to bankruptcy; or
• The debt is forgiven by will; or
• The debt is forgiven for reasons of natural love and affection; or
• The debt is a tax-related liability or a civil penalty under Division 290 in Schedule 1 to the Taxation Administration Act 1953 (about penalties for promoters and implementers of tax avoidance schemes).

Partial Write-Offs

A taxpayer can be entitled to a deduction for part of a debt which is written off. The deductibility of that part of the debt will be subject to same tests as set out throughout this article (as relevant to a whole debt written off).

Securities

A creditor may be transferred or obtain an equitable interest in the debtors property which was used as security against a debt.

If that security is sold and the net realised proceeds partially satisfy the debt, the remaining outstanding debt will be deductible provided that amount is not recoverable from the debtor (and obviously only where the other requirements of section 25-35 or 8-1 are met).

The same applies where the security is held, for instance, as mortgagee in possession, rather than sold. The bad debt amount which may be deducted (provided the other requirements of section 25-35 or 8-1 are met) is simply the amount by which the debt amount exceeds the market value of the security.

If the security is taken in full satisfaction of the debt and the market value of the property is less than the debt outstanding, the creditor is not entitled to bad debt a deduction unless the bad debt is written off before the debt is extinguished. If the bad debt is written off before the debt is extinguished, then the bad debt amount which may be deducted (provided the requirements of section 25-35 or 8-1 are met) is the amount by which the debt amount exceeds the market value of the security.

Debt/Equity Swaps

A debt/equity swap is an arrangement where a creditor discharges, releases or otherwise extinguishes a debt in return for the issue of an equity interest (e.g. shares or trust units) in the debtor. The debtor must be either a company, a trading trust, or a public unit trust and the debt must have been brought to account by the creditor taxpayer as assessable income.

For example, David Pty Ltd owes Scarlet Pty Ltd a sum of money which has been included in Scarlet Pty Ltds assessable income. The parties enter into an agreement that the debt will be extinguished in return for the transfer of shares in David Pty Ltd from David Pty Ltd to Scarlet Pty Ltd.

There may be a deduction allowable in respect of the swap loss (i.e. the amount by which the debt extinguished exceeds the equity value of the shares or units), subject to appropriate consideration of the rules contained in section 63E and section 63F of the ITAA 1936.

Bad Debts and Shareholders

If a private company forgives a debt owed by a current shareholder or associate of the shareholder (or a former shareholder where it is reasonable to conclude that the amount is forgiven because of the previous shareholder relationship), that forgiven amount may be classified as a dividend (a deemed dividend) for taxation purposes under section 109F of the ITAA 1936 unless an exception in section 109G applies. The deemed dividend is included in the shareholders (or the shareholders associates) assessable income and is not able to the franked by the private company.

Note that debt forgiveness can also extend to situations where the private company:

• enters into debt parking arrangement.
• fails to rely on an obligation to pay.
• forgives an amount of debt resulting from a constituent loan.

Bad Debts and Employees

In addition to the income tax considerations around bad debts, there is also the potential application of fringe benefits tax.

As per section 14 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where an employer (or associate) waives the obligation of an employee (or associate) to pay or repay the employer an amount, the waiver generally constitutes debt waiver benefit which brings into relevance the FBT regime.

Per section 15, the taxable value of the debt waiver benefit is the amount of the payment or repayment which is waived.

There must be a connection between the fringe benefit and the employment relationship in order for fringe benefits tax to apply. The implication is that there will be no fringe benefits tax where a debt is waived for reasons other than the employment relationship. The nexus between employment and the debt waiver is unlikely to be established where, for example, an employee is simply incapable of repaying an amount and therefore the debt is waived for commercial reasons, not simply because the debtor is an employee.

Also note that debts in the form of a loan provided to employees (particularly loans with non-commercial features) can constitute loan benefits that may attract fringe benefits tax.

Priority of Rules for Bad Debts Forgiven or Waived

A debt which is forgiven or waived may attract multiple provisions, including the commercial debt forgiveness provisions, fringe benefits tax provisions and the deemed dividend provisions – all of which are addressed above.

In this situation, the deemed dividend provisions take first priority, then the applicable fringe benefits tax provisions, then the commercial debt forgiveness provisions.

Debt Factoring Arrangements

A debt factoring arrangement is a finance arrangement that involves a business selling its accounts receivable to another entity who pays the face value of the debts less an agreed discount or factoring charge.

The factoring discount or factoring charge will generally only be deductible if the debt factoring arrangement has adequate commercial features, including ordinary business or commercial standards. In addition, there must not be any unusual circumstances or tax avoidance implications.

Refer to IT 2538 for further information about debt factoring arrangements.

TD 93/83 provides a helpful example which outlines circumstances where a factoring charge would be deductible. That example is extracted below:

XYZ Ltd has book debts of $10,000. It enters into a factoring arrangement with its subsidiary, ABC Ltd. ABC Ltd acquires the debts from XYZ Ltd at face value less the agreed factoring fee of 5 percent of face value.

The $500 factoring fee is an allowable deduction, provided the factoring arrangement is comparable to normal commercial standards in the taxpayers industry and there are no tax avoidance implications.

Bad Debts and GST

A creditor taxpayer registered for GST may be entitled to a decreasing adjustment in respect of bad debts. Conversely, a debtor registered for GST may be required to make an increasing adjustment.

For a decreasing adjustment to be available for a creditor taxpayer operating on an accruals basis, the key requisite conditions outlined in GSTR 2000/2 include that the taxpayer:

• Makes a taxable supply; and
• Has attributed the GST payable on the supply on a Business Activity Statement in a tax period; and
• Has not received the whole or part of the consideration; and
• Has written off as a bad debt the whole or part of the debt, or the whole or part of the debt has been overdue for 12 months or more.

Relevant to the final point above:

• A debt is overdue if there has been a failure to discharge the debt, and that failure is a breach of the debtors obligations in relation to the debt.
• Whether a debt is bad is a question of fact based on all relevant circumstances. In alignment with deductions for bad debts, the ATO will tend to accept a bona fide commercial decision that a debt irrecoverable provided there have been reasonable recovery efforts. GSTR 2000/2 also holds the position that a debt is not considered bad where there is a subsisting real and continuing dispute in relation to the sum of debt outstanding.
• A debt is considered written off if there is a written record to evidence that decision.

The decreasing adjustment is made for the tax period the debt is written off, or, if not written off, when the taxpayer becomes aware that the debt has been overdue for at least 12 months. The debt must still be owing to the creditor taxpayer for them to have a decreasing adjustment.

As relevant, the amount of the decreasing adjustment will either be, excluding interest, 1/11th of the amount written off, or 1/11th of the amount that has been overdue for 12 months or more. Unless the supply is only partly taxable, in which case: 1/11th of the proportion of the amount (written off or overdue for 12 months or more) which is taxable.

Of course, if the decreasing adjustment is made in a tax period and the debt is partly or wholly recovered, an appropriate increasing adjustment will need to be made in the tax period the part or whole of the debt is recovered.

Note that if a creditor taxpayer assigns a debt to another entity, that other party has no specific entitlement to make a bad debt decreasing adjustment.

The ATO provides a helpful example on its website which highlights key GST outcomes (and income tax outcomes) in the context of a bad debt. That example is extracted below:

Landlord Pty Ltd owns a commercial property and leases it to Tenant Pty Ltd. The lease income is included in Landlord Pty Ltds assessable income on an accruals basis (that is, when an invoice for rent due is issued to the tenant). Throughout the relevant period, there have not been any changes to the ownership structure of Landlord Pty Ltd.

On 15 March 2023, Landlord Pty Ltd issued an invoice to Tenant Pty Ltd for $15,000 for rent for the preceding 6 months. Under the accruals basis, Landlord Pty Ltd included this amount in its assessable income for the year ended 30 June 2023.

After the invoice issued, Tenant Pty Ltd vacated the property without notice, and the owners of the company were uncontactable. During the 2022–23 income year – despite numerous unsuccessful attempts to recover the unpaid invoice – Landlord Pty Ltd concluded that it was unlikely to be recovered. Landlord Pty Ltd has no security from Tenant Pty Ltd for the unpaid rent and determines that legal action to recover the amount would not be commercially viable.

Even though Landlord Pty Ltd has not commenced legal proceedings against Tenant Pty Ltd, the unpaid rental invoice can be considered a bad debt. If the debt is written off in the same income year as it became a bad debt (that is, before 30 June 2020), Landlord Pty Ltd can claim a deduction of $15,000 for the bad debt written off.

Landlord Pty Ltd is registered for GST and accounted for GST on the supply of the commercial premises in its March 2023 activity statement. Landlord Pty Ltd can claim a decreasing adjustment in the tax period that the bad debt is written off.

Onus of Proof

As with all tax matters, it is the taxpayers responsibility to possess evidence to prove its position in respect of the matters discussed within this article, including any argument that a debt was bad and was justified in being written-off.

The collection of appropriate records is of high importance.