During the 2021 tax year, Clive (a business taxpayer who owns an IT support business) reported gross
Question:
During the 2021 tax year, Clive (a business taxpayer who owns an IT support business) reported gross income from services totaling $150,000. Clive uses a cash basis accounting method for taxation and clients are required to pay invoices within 7 days of issue.
Clive also reported the following transactions:
- On 10 February 2021, Clive rebuild Tom’s computer, the invoice totaling $275.
- On 20 March 2021, Clive learned that Tom was wanted by the police
- On 30 June 2021 Clive was unsure whether Tom would pay his invoice
- On 10 April 2021, Clive installed new computers for Sanjay’s internet café, the invoice totaling $7,575.
- On 30 June 2021, Clive learns that Sanjay’s has become bankrupt.
- On 1 July 2021, Clive wrote off Sanjay’s debt in his business records.
Required:
Advise Clive as to whether he can claim either of the above two transactions as bad debts for the 2021 tax year. You must refer to sections in the Tax Acts and explain your answers.