CRA addresses the GST creditability of a receivable that is written off when it arises

A supplier after debiting accounts receivable and crediting revenue for an amount it has invoiced, immediately reverses this entry because, for example, the recipient has declared force majeure but the supplier continues to invoice to protect its legal rights but, on the other hand, is advised by its auditors that it cannot recognize the revenue even though it has a more-likely-than-not legal option that it could successfully sue.

The supplier would be required to add the GST/HST amount invoiced to its net tax under s. 225(1) – but could it claim an offsetting bad deduction under s. 231(1)?

In its response, CRA did not make anything out of the fact that the receivable essentially was not recognized as revenue in the first instance – rather than being recognized and then promptly written off, and instead stated:

[I]t does not appear that the conditions of subsection 231(1) would be met. For example, it is not clear that all reasonable steps have been taken to obtain payment and that it has become evident that the debt has become a bad debt.

Accordingly, it may not be problematic under s. 231 for a debt to become bad essentially at the outset.

Neal Armstrong. Summary of 25 March 2021 CBA Commodity Taxes Roundtable, Q.8 under ETA s. 231(1).