Yes, freelancers may be able to claim a bad debt deduction if a client fails to pay an invoice and you have reason to believe the amount is uncollectible. Under CRA rules, you can deduct a bad debt in the year you determine it's unlikely to be paid, but only if you've already included the income from that invoice in a previous tax return. This applies whether you use cash or accrual accounting, though the timing and process differ slightly between the two methods. A bad debt occurs when a client owes you money for services or products delivered, but they don't pay and show no signs of being able to pay. The CRA allows you to write off this unpaid amount as a business expense in the year you determine it's truly uncollectible. Key points about bad debts: You must have already reported the income from the unpaid invoice in a prior tax year You need reasonable evidence that collection is unlikely (not just a late payment) You cannot claim a bad debt if you never reported the income in the first place The deduction reduces your business income for the current tax year How you claim a bad
No. With cash basis accounting, you only report income when you receive payment, so unpaid invoices are never recorded as income. Since there's no income to match the expense against, you cannot claim a bad debt deduction. You'd need to switch to accrual accounting to claim bad debts.
There's no set timeframe, but the CRA expects you to demonstrate the debt is truly uncollectible. Typically this means 6 months to over a year of non-payment with collection attempts. The key is showing reasonable evidence that payment is unlikely, not just that the invoice is overdue.
You must report the recovered amount as business income in the year you receive it. You cannot claim the bad debt deduction again since you've already taken it in a prior year.
No. You can only deduct a bad debt if you've already included that income in a previous tax return. If you never reported it, there's nothing to deduct against.
Keep your original invoice, proof of service delivery, email correspondence showing collection attempts, partial payment records if applicable, and your accounting ledger entries. The CRA wants evidence that you made reasonable efforts to collect and that the debt is genuinely uncollectible.