GST/HST on Bad Debts
How to recover the GST/HST on invoices customers never paid: conditions, the tax fraction, recoveries and records.
The short version
- If a customer never pays, you've still remitted the GST/HST on the invoice. You can get it back with a bad debt adjustment once you write the debt off in your books.
- The adjustment is the tax fraction of the amount written off: 5/105 for GST, 13/113 for Ontario HST, 14/114 for Nova Scotia, 15/115 for NB, NL and PEI. It goes on line 107 of your return.
- You must have charged and accounted for the tax, the customer must be at arm's length, and the debt must actually be written off as uncollectible.
- You have four years from the end of the period you wrote it off to claim.
- If you later collect any of it, the tax fraction of the recovered amount goes back on line 104.
GST/HST on Bad Debts
A customer who doesn't pay costs you twice: the money for the work, and the GST/HST you already sent CRA on the invoice. The first loss is a business expense for income tax. The second one you can get back through the GST/HST return, as long as you do it properly. Here's how.
The Conditions
- The sale was taxable, and you charged GST/HST on it.
- You reported and remitted the tax on an earlier return (or the quick method included it).
- You dealt with the customer at arm's length (not a related company or a family member).
- You wrote off the debt in your books as uncollectible, after reasonable efforts to collect.
- You claim within four years after the end of the reporting period in which you wrote it off.
Calculating the Adjustment
| Example: Ontario contractor | Amount |
|---|---|
| Invoice: $8,000 plus 13% HST | $9,040 |
| Customer paid | $3,000 |
| Written off as uncollectible | $6,040 |
| Bad debt adjustment: $6,040 x 13/113 | $694.87 (line 107) |
| Income tax: bad debt deduction (the $6,040 less the $694.87 recovered through the adjustment) | $5,345.13 |
When a customer pays part of an invoice, payments are generally treated as covering the price and the tax proportionally, which is why the adjustment uses the tax fraction of the unpaid balance.
Customers who never paid? Get the GST/HST back
List the unpaid invoices, amounts, rates and write-off dates. The SmartFile calculates the bad debt adjustment for each, checks the four-year window, and shows the line 107 total and the income tax deduction.
When the Customer Pays Later
If you recover some or all of a debt you've already adjusted for, add the tax fraction of the recovered amount on line 104 of the return for the period you received it. Example: recovering $2,260 of the Ontario debt above means adding $260 (13/113) back.
What Doesn't Qualify
- Debts from exempt or zero-rated sales (there was no tax).
- Debts owed by related persons.
- Amounts you simply haven't chased yet, or haven't written off in your books.
- Debts you sold to a collection agency or factoring company (different rules apply).
- Price reductions or discounts you agreed to after the sale: those are credit notes, adjusted as reductions in tax collected rather than bad debts.
Records to Keep
- The original invoice showing the GST/HST.
- Your collection efforts: emails, reminder letters, collection agency reports.
- The journal entry or accounting record writing off the debt, with the date.
- Any bankruptcy or proposal notices for the customer.
Records rules are on business recordkeeping requirements.
The Income Tax Side
For income tax, a bad debt is deductible in the year it becomes uncollectible, if the amount was included in your income earlier, which it is when you report sales on an accrual basis. The GST/HST you recovered through the adjustment isn't part of the deduction. See business expense deductions.
The adjustment fits into the return as shown on net tax calculation and how to file a GST/HST return. Back to the GST/HST guide.
GST/HST Bad Debt Questions
Can I get the GST/HST back on an unpaid invoice?
Yes. Once you write off the debt as uncollectible, you can claim a bad debt adjustment for the tax fraction of the amount written off, if the customer was at arm’s length and you accounted for the tax.
How do I calculate the GST/HST bad debt adjustment?
Multiply the amount written off, including tax, by the tax fraction: 5/105 for GST, 13/113 for 13% HST, 14/114 for 14% and 15/115 for 15%.
Where do I claim a bad debt on my GST/HST return?
As an adjustment on line 107. If you later recover the debt, the tax fraction of the recovered amount goes on line 104.
How long do I have to claim a bad debt adjustment?
Four years after the end of the reporting period in which you wrote off the debt.
Can I claim a bad debt from a related company?
No. The bad debt adjustment is only available for debts owed by persons you deal with at arm’s length.
Sources: CRA, RC4022 General Information for GST/HST Registrants (bad debts); Instructions for preparing a GST/HST return. Checked October 2026. Rules for sold debts, factoring and debts under the quick method are not covered in detail.
Last reviewed October 4, 2026 against CRA and Government of Canada sources. How we check our facts.