Quick answer
A write-off removes an amount from the books because it no longer has value. For Australian businesses it usually means one of three things: writing off a customer debt you'll never collect, claiming the full cost of an asset in one year under the instant asset write-off, or a lender writing off a loan it doesn't expect to recover. Each affects tax, profit and borrowing differently.
Key points
- A bad debt can generally be deducted only if it was counted as income first and written off in the year you claim it
- The instant asset write-off lets eligible small businesses claim an asset's full cost up front rather than depreciate it
- When a lender writes off your loan, you still owe it, and the default can stay on your credit file
- Big write-offs shrink reported profit, so explain them to a lender as add-backs
To write something off is to take it off the books because it’s no longer worth what the accounts say. The word turns up in three quite different places in business finance, and mixing them up can cost you money or a loan approval.
1. Writing off a bad debt
A customer goes quiet, ignores reminders and eventually stops trading. That invoice is still sitting in your debtors as if it were money coming in. Writing it off clears it out, leaving accounts that reflect what you can genuinely expect to collect.
The ATO sets clear conditions before a bad debt becomes a tax deduction. The debt has to exist, it has to be genuinely bad rather than just overdue, it has to be written off in the income year you claim it, and you must already have counted it as income. That last point trips up cash-basis businesses: if you only record income when it’s received, the unpaid amount was never taxed, so there’s nothing to deduct.
Timing matters. If a debt is plainly unrecoverable, record the write-off decision in writing before 30 June, not when your accountant does the return months later. If the money turns up later, it goes back into your income for that year.
For GST, businesses on an accruals basis can usually recover the GST already remitted on that sale after the debt is formally treated as bad, or after a year of it sitting unpaid.
2. Claiming equipment in one hit
Ordinarily a business recovers the cost of equipment gradually through depreciation. Under the instant asset write-off, an eligible small business deducts the entire purchase price in the year the item starts working for it.
As at October 2026, eligible businesses (aggregated turnover below $10m) have been able to claim items costing less than $20,000 each, and the ATO reports that the government has acted to keep it. The limit applies item by item, so buying three tools under the cap means three separate claims. Read the ATO’s current page for the year you’re claiming, because details have changed often.
It’s a tax-timing benefit, not free money. You still need to pay for the asset, which is why many owners pair it with equipment finance. We cover how the tax claim and the loan interact in a dedicated guide.
3. When a lender writes off your loan
Lenders write off loans they no longer expect to recover. It’s an accounting step to keep their own books honest, and it doesn’t cancel what you owe. The debt may be passed to collectors or sold, and an unpaid business or personal debt usually leads to a default listing. On a personal credit file a default generally stays for five years, even once paid.
Writing off a debt is also not the same as forgiving it. Formal forgiveness is a separate agreement and can carry its own tax consequences.
Carrying an old default and need funding now? Tell us about it here, since some lenders weigh the story behind it rather than the listing alone.
Why write-offs matter when you apply for finance
| Type of write-off | Effect on tax | Effect on a loan application |
|---|---|---|
| Bad debt you wrote off | Possible deduction | Lower profit; may raise questions about customer concentration |
| Instant asset write-off | Deduction brought forward | Lower taxable profit; lenders can add it back |
| Lender wrote off your debt | None for you directly | Default listing; specialist lenders may still help |
The middle row matters most for borrowers. A big write-off can make a strong year look weak on your tax return. Lenders who assess serviceability usually add back non-cash items like depreciation. Ask your accountant to show the figure clearly as one of your add-backs.
Example: an electrician’s big equipment year
A Townsville electrical contractor with turnover around $1.4m buys a thermal imaging camera, a cable locator and testing gear, each under $20,000, totalling $48,000. Under the instant asset write-off, all three are deducted that year, cutting taxable profit from $210,000 to $162,000. The same year, a builder client goes into liquidation owing $14,000, which the contractor writes off before 30 June.
When the owner applies for a vehicle loan the next spring, the tax return shows $148,000 profit. The accountant’s letter adds back the $48,000 write-off, explains the one-off bad debt, and the lender assesses the business on its real earning capacity.
Related terms
- Depreciation: the gradual tax claim on equipment over the years it’s used
- Add-backs: non-cash or one-off costs a lender adds back to profit
- Default: a missed obligation, often recorded on a credit file
- Debtor: someone who owes your business money
A write-off on the books? It may matter less than you think
A one-off loss, an equipment-heavy year or an old default doesn’t have to close the door on finance. Banks are often the cheapest money when your numbers fit their model, and when a write-off has muddied those numbers, other lenders look past the tax return to the actual business.
Getting in touch is a sixty-second form. Nothing is lodged against your credit by doing it, and we hold onto your details ourselves instead of firing them off to lender after lender. Someone here reads your situation in full and gives you a call. Mention any write-offs or defaults up front on the form; it helps us steer you to a lender who’ll see the full picture on the first try.
Frequently asked questions
When can I claim a bad debt as a tax deduction?
Under ATO guidance, the debt must exist, be genuinely bad rather than merely slow, be written off as bad in the income year you claim it, and have already been included in your assessable income. Businesses that account for income on a cash basis usually can't claim, because the unpaid amount was never counted as income.
Can I get the GST back on an invoice that was never paid?
If you account for GST on an accruals basis and paid GST on the sale, you can generally make a decreasing adjustment once the debt is written off as bad or has been overdue for 12 months or more. Your accountant or BAS agent can confirm the timing.
If a lender writes off my debt, do I still have to pay it?
Usually yes. An accounting write-off is the lender's internal decision about the value of the loan. The legal debt generally remains and may be passed to a collection agency or sold to a debt buyer.
What is the instant asset write-off threshold?
For eligible businesses with aggregated turnover under $10m it has been $20,000 per asset in recent years, and the government has moved to keep that threshold. Check the ATO's current rules for the income year you're claiming in.
Does a write-off hurt my chances of a business loan?
A tax write-off doesn't hurt your credit, but it lowers reported profit, so show the lender what profit looks like before it. A lender write-off of a debt you owed is different: it usually comes with a default listing that lenders will see.