Bad Debts on Your T2125
Write off uncollectable invoices — but only if you already reported the income.
What You Can (and Can't) Deduct
Know exactly what belongs on Line 8590 — and what the CRA says doesn't qualify.
What Qualifies
- Amounts previously included in income that are now uncollectable
- Invoices sent to clients who have gone bankrupt or disappeared
- Debts where you have made reasonable efforts to collect but failed
Does NOT Qualify
- Personal loans that went bad
- Amounts never reported as income (never invoiced or recorded)
Rules & Limits
Special CRA rules and percentage limits that apply to bad debts.
Special Rules
Must Have Been Previously Included in Income
Heads upYou can only deduct a bad debt if the amount was previously included in your business income. If you never reported it as revenue, you cannot claim it as a bad debt.
Section 20(1)(p) of the Income Tax ActRecovered Bad Debts Must Be Re-Included in Income
Heads upIf you deducted a bad debt and later recover all or part of it, you must include the recovered amount in your income for the year you receive it.
Real-World Examples
See how different professionals use Line 8590 deductions in practice.
Client Invoice Unpaid After 6 Months
Invoiced a client for a completed software project, but the client ceased operations and the invoice remains unpaid after 6 months of collection attempts.
$3,500
$3,500 (100%)
Wedding Deposit Never Received
Invoiced a client for a wedding photography deposit that was never paid despite multiple follow-ups and the event was cancelled.
$1,200
$1,200 (100%)
Common Mistakes to Avoid
These errors on Line 8590 can trigger a CRA review — here's how to get it right.
Claiming amounts never reported as income
A bad debt deduction is only available for amounts you previously included in income. If the amount was never invoiced or reported as revenue, it cannot be written off as a bad debt.
Forgetting to report recovered bad debts as income
If you later collect on a debt you previously wrote off, you must include that recovered amount in your income for the year of recovery.
Commonly Confused Categories
These categories are often mixed up with Bad Debts. Here's the difference.
Sample Receipt Walkthrough
See how ScanForTax processes a typical bad debts expense.
Internal Write-Off Document
2025-06-15
Ontario
How ScanForTax categorizes this
ScanForTax flags this internal write-off and confirms the original invoice was previously recorded as income. The full $3,500.00 is deductible on Line 8590 as a bad debt.
Frequently Asked Questions
Can I claim a bad debt for an invoice I never reported as income?
What happens if I recover a bad debt I already wrote off?
Related Professions
Profession-specific guides that frequently use Bad Debts deductions.
Tax Guides by Province
See how tax recovery works for bad debts expenses in each province.
Related Expense Categories
Tax deadline is April 30th.
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