Bad Debts and Obsolete Equipment - How to Write Them Off Before Year-End

As the financial year draws to a close, savvy business owners are looking for ways to legally reduce taxable income and ensure their financial records reflect the true state of their operations. Two often overlooked opportunities? Writing off bad debts and obsolete equipment.

Whether you’re an Aussie expat running a business from overseas or an offshore business entering the Australian market, this guide will help you understand how to identify, document, and write off these items before June 30 — so you can stay compliant and cash-flow savvy.

🧾 What Is a Bad Debt?

A bad debt is an amount owed to your business that you have determined is uncollectible. This could be due to insolvency, long-term non-payment, or disputes that make recovery unlikely.

✅ Criteria to Write Off Bad Debts:

• The debt must have been previously included as assessable income.

• It must be genuinely unrecoverable.

• The write-off must occur before the end of the income year.

• You must document your efforts to collect the debt (emails, calls, collection notices).

🔍 For Aussie Expats:

• If your Australian-registered business is run from overseas, writing off bad debts can help reduce your Australian taxable income.

• Ensure your records clearly show when the debt was written off, especially if facing an ATO audit, which is common for expats with irregular reporting.

🔍 For Offshore Businesses Operating in Australia:

• If you’ve issued invoices to Australian clients from your local entity or branch, make sure bad debts are reviewed annually to prevent overstated income.

• Consider transfer pricing implications if related-party transactions are involved.

🛠️ What Is Obsolete Equipment?

Obsolete or scrapped equipment refers to business assets that are no longer usable, have no market value, or are technologically outdated.

✅ When Can You Write Off Obsolete Assets?

• The asset must be permanently retired or disposed of from use in your business.

• You must remove it from your fixed asset register and calculate the remaining unclaimed depreciation.

• The balance can be deducted as a loss, reducing taxable profit.

🔍 For Aussie Expats:

• If you maintain equipment in Australia while living overseas, consider whether it still serves a commercial purpose. If not, writing it off may provide a tax deduction before ceasing tax residency or reporting foreign income.

🔍 For Offshore Businesses Entering Australia:

• During your first year of setup, clean up any inherited or transferred asset registers. Obsolete IT systems, office fixtures, or machinery may still be on your books and inflating your asset base unnecessarily.

  
  

• Writing off outdated equipment can help with accurate depreciation claims and reduce Permanent Establishment (PE) risk.

📌 Year-End Tips to Maximise Deductions

1. Review Aged Receivables

Use your accounting software to pull overdue invoices and assess collectability.

2. Inspect Your Fixed Asset Register

Identify items not in use, broken, or no longer aligned with your current operations.

3. Document Everything

Keep written evidence of collection efforts and disposal decisions. This is crucial for ATO compliance.

4. Consult a Tax Advisor

The rules around asset disposals, depreciation, and debt write-offs can be complex, especially with cross-border implications.

📞 Don’t Leave It Too Late

At Worldwide Advisory, we work with businesses in over 30 countries — from Aussie expats to international investors — to help them stay compliant and tax-efficient.

Let us help you write off what no longer serves your business and make the most of year-end deductions.

Call us at +61 7 3180 1684 or email us at contact@worldwideadvisory.au to speak with a tax expert today.

Worldwide Advisory

Australian Tax. Worldwide Perspective.