Claiming unpaid rent as an expense

[jace the ace]

If a commercial property is GST registered on the payments basis.
What happens if the tenants unpaid rent becomes a bad debt.It wouldn't have been declared as income in the GST returns.
Does this mean it doesn't have to be declared as income in the end of year financial accounts,but can be claimed as a revenue expense thus reducing the overall taxable income.
If GST registered on an invoice basis then the rent would've been declared & later put thru as a bad debt which results in a nil transaction with the lost income not being claimed thru the end of year financials.

[Keithw]

On a payments basis, it is effectively the same as with residential rent, unpaid rent is simply expected income that is never received.
Why would it be declared as income ? - it wasn't
Neither was it an expense !!!

The only effect it might have is if you are estimating a tax loss in order to get a special tax code (ir23b)
It could also be on the books as outstanding debtors, but on a payments basis I can't see how that has an impact on cashflow / tax

[jace the ace]

KeithW.Are you saying it's a capital loss & not a revenue loss and therefore non deductible.

[ChrisD]

Jace I think you're confused. It's not an expense at all, it's just income you didn't receive. No adjustments are required, no expense is claimable (capital or otherwise).

[Keithw]

when on a payments basis, net income = actual income minus actual expenses (disregarding depreciation)
If the expected income doesnt come in, so that actual income = 0 then the resulting net income will be a loss to the equivalent value of the Actual expenses.
Not a loss to the value of the expenses plus EXPECTED income that was not received.

[jace the ace]

Chris D.
What is a bad debt then & why would bad debts be shown as an expense in end of year financial accounts if the income was never declared in those same accounts.
Or are bad debts only shown as an expense when GST is done on the invoice basis.

[ChrisD]

You would record a bad debt expense where you had accrued income in a previous period. This is distinct from the GST component of rent transactions - though if you were paying GST on an invoice basis you would be able to recover the GST returned on the income originally.

edit: By the way, you're mixing up calculations/reporting for a GST liability and an incomt tax liability. These two components should be considered distinct from one another.