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Two ways to increase your chance of qualifying for the doubtful debt allowance

by , 11 April 2014
Have you been trying to collect debt and failed? You could claim it from SARS as a doubtful debt. To make sure you qualify for this allowance, do these two things so you can shrink your tax burdens.


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Two things that'll help you qualify for the doubtful debt allowance so you can shrink your tax burdens


According to SARS, a debt is doubtful if it's passed the settlement date and you've tried everything to collect, it but all your efforts have failed. And the good news is, if you do these two things, you could claim this back from the taxman…

#1: Before you can claim a doubtful debt allowance, make sure you have a doubtful debt policy in place to manage the debt

The Practical Tax Loose Leaf Service says your company's doubtful debt policy must contain:

  • Your company's credit policy, indicating terms of payments;
  • Actions you take to collect outstanding amounts;
  • Actions you take where either the debt is possibly not recoverable or you need to pursue legal action to aid the collection; and
  • A clause that states you'll suspend any business with the defaulting debtor, except on a 'cash on delivery' basis.


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#2: You must make some effort to collect the outstanding amounts

This means you should also:

  • Levy interest on overdue accounts;
  • Offer settlement discounts;
  • Send reminders to the debtor;
  • Send letters of demand;
  • Follow up on outstanding payment telephonically; and in the final instance
  • Pursue legal action.

If you do ALL the things we've mentioned, you can justify to SARS that the debt is potentially irrecoverable. And this means you may be allowed to claim a doubtful debt allowance to shrink your tax burdens.

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