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Bad Debt Relief & Recovery

Bad Debt Relief & Recovery

Bad Debt Relief

For the purposes of GST in Malaysia, Bad Debt Relief refers to any amount owing on an invoice that has not been paid, or has been partially paid, after six calendar months from the date of issue.

Note that it is six calendar months and not 6 months from date of invoice.

As an example, an invoice issued on 27th Jan 2016 will be eligible for Bad Debt Relief immediately after 30th June 2016, and not 26th July 2016.

 

Jan Feb Mar Apr May June July
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7
27th Jan 2016
Invoice issued
30th June 2016
6 calendar months
from date of issue
1st July 2016
Claim bad debt relief

 

Bad Debt should therefore be included in your GST 03 submission on or before 31st July 2016.

Bad debt relief must be claimed immediately after the expiry of six months from the date of supply.

If the bad debt relief is not claimed immediately after the expiry of six months, the taxable person must apply in writing for the Director General's approval on his or her intention to claim at a later date.

What are the conditions for claiming bad debt relief?

  • GST (output tax) has already been accounted for and paid to Customs;
  • customer has not made payment, or has only made partial payment, 6 calendar months from date of invoice;
  • Customer has become insolvent (bankrupt, wound up or in receivership) before the six months has elapsed;
  • sufficient efforts have been made to recover the debt;
  • the supply is made by a GST registered person to another GST registered person;
  • if the supply is a supply of goods, the ownership of goods has been transferred to the customer; and
  • prepares, keeps and updates records and a list of debtors involved in the claim under section 58 Goods And Services Tax Act 2014 including records as prescribed in regulation 74, Goods And Services Tax Regulations 2014.

Bad Debt Recovery

When the amount (whether full or partial) is recovered from the debtor, the GST previously claimed as bad debt relief must be paid back to the Customs, proportionate to the amount recovered from the debtor.

When you claim relief on Bad Debts, and subsequently the customer makes payment, either full or partial, you are required to account for the GST on the amount received and pay it to Customs.

This is because when you made a Bad Debt relief claim, you received a credit on GST you have to pay (i.e. you have to pay less GST). Therefore, if a customer does make payment, the GST on that should now be paid back to Customs.

The amount of GST is equivalent to 6% of the amount received from the customer.

As an example:

  • Invoice amount is RM1,000.00. GST on that is RM60.00
  • Bad debt relief claimed would be RM60.00

If the customer only makes partial payment of RM500.00, then the GST recovered would be RM30.00 or 6% of RM500.00.

If the customer makes full payment of RM1,000.00, then the GST recovered would be RM60.00 or 6% of RM1,000.00.

If it seems complicated, don't worry, MYOB helps you handle this, and other GST obligations easily.

 

Sales Bad Debt Relief Adjustment
Claim bad debt relief
Bad debt recovered

 

Bad debt relief on Purchases

The same applies to purchases you have made

If you have not made payment in full on your supplier's invoice within 6 calendar months, then you will have to adjust for GST claimed on input tax.

For purchases however, it works in the reverse manner, you pay back GST claimed (Input tax) if you have not settled the supplier invoice after 6 calendar months, and claim credit on it if you subsequently settle it.

With MYOB, the process of keeping track of which supplier invoices to claim and/or recover is managed for you. All you need to do is check if there are any invoices due for claim/recovery and click the the relevant button to record it.

 

Purchases Bad Debt Relief Adjustment
Claim bad debt relief
Bad debt recovered

 



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