Can I write off bad debts as a business expense in Ontario?

If you have reported income from a client who never paid you and the debt is now uncollectible, you can generally claim a bad debt deduction to reverse that income. However, you must have already included the amount in business income in a prior year — a bad debt deduction is essentially the reversal of previously reported income.

If you use the accrual method of accounting (reporting income when earned, not when received), bad debts are clearly recognized as such. If you use the cash method (reporting income when received), you wouldn't have reported unpaid amounts in the first place, so there is nothing to write off.

To claim a bad debt, you need to demonstrate that you made reasonable efforts to collect and that the debt is genuinely uncollectible — not just unlikely to be paid in the near term. Documentation of collection attempts, correspondence with the debtor, and professional advice about collectibility supports the claim. You report bad debt deductions on Form T2125. If you later collect on a debt you previously wrote off, you must report that amount as income.