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Every South African tax law explained by our experts
The Practical Tax Loose Leaf Service
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All the definitions and legal regulations, useful advice, exceptions to the rules that help you slip through the legislative jungle of taxes.
Case studies and practical examples that show you what elements you should consider for your taxes to be perfect.
Red flags you need to watch out for and the penalties you'll face if you don't respect them.
Sample templates at your disposal, ready to be filled in, customised and printed.
So what is a doubtful debt and how can I benefit from it
A doubtful debt is where debt has passed the settlement date and initial efforts to collect have failed.
An allowable deduction for doubtful debt is subject to the discretion of SARS. To apply for this deduction, you must submit a detailed list of doubtful debts together with your annual tax return.
In practice, SARS allows 25% of doubtful debts as a deduction.
Just make sure you include any doubtful debts that SARS allows you to deduct, in your income the following year.
Of course, SARS being SARS, there are a few hoops you have to jump through before you can claim the allowance.
To qualify for the doubtful debt allowance, you must be able to prove you've made some effort to collect the outstanding amounts. That's why it's a good idea to set up a doubtful debt policy document.
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What should your doubtful debt policy contain?
This policy should contain:
Your company credit policy indicating terms of payments;
Possible actions to collect outstanding amounts;
Possible actions where either the debt is possibly not recoverable or legal action is to be pursued to aid the collection; and
Treatment of further dealings and sales with the defaulting debtor, such as suspending further credit and sales to that debtor in an effort to limit possible losses.
You should also:
Levy interest on overdue accounts;
Perhaps offer settlement discounts;
Send letters of demand; and
Pursue legal actions.
This justifies your claim to SARS that the debt is potentially irrecoverable.
Develop these policies today, if you don't already have them, and make the most of this doubtful debt allowance to save money.
For more on tax
and bad debt, check out the Practical Tax Loose Leaf Service.