In relation to the expense associated with the creation of an allowance for doubtful debts,the Australian Taxation Office:
A) never allows a deduction for taxation purposes for that amount.
B) allows a deduction for taxation purposes for that amount when it is recognised as an expense.
C) allows a deduction for taxation purposes immediately.
D) allows a deduction for taxation purposes only when there is a bad debt written off against a debtors account.

Question

Quizplus · Accepted Answer

The Australian Taxation Office (ATO) allows a deduction for taxation purposes only when there is a bad debt written off against a debtor's account. This means that merely creating an allowance for doubtful debts (a provision for potential future bad debts) does not qualify for a tax deduction. The deduction is permitted when the debt is actually deemed bad and written off.

In Relation to the Expense Associated with the Creation of an Allowance