RR FID

							Revenue Rulings

                                   Credit entries to write off
                                            a bad debt
                                        Revenue Ruling FID.056
Preamble
This ruling explains why a credit entry to a                 A credit entry made to a customer's account to write
customer's account to write off a bad debt is not a          off a bad debt is not made to provide the account
receipt by the financial institution which keeps the         holder with an amount of money, as in fact the
account.                                                     financial institution may still actively pursue recovery
The State Revenue Office has been asked whether a            of the amount owing by the account holder. Rather
credit entry to a customer's account, made for the           the credit entry is merely a bookkeeping entry, made
purpose of writing off the balance as a bad debt, is a       to transfer the balance to another account in order
deemed receipt under section 9(1A) of the                    to write it off as an expense. This entry recognises
Financial Institutions Duty Act 1982 (the Act).              that the balance is viewed as irrecoverable.

Section 9(1A) of the Act reads:                              Ruling
‘If a financial institution credits or causes to be          The Commissioner has ruled that a credit entry
credited an amount of money to an account of a               made by a financial institution to a customer's
person kept by it in Victoria, not being an amount           account to write off a bad debt is not an entry which
deposited by that person with the financial institution      credits the customer's account with an amount of
for the credit of the account, that amount is                money within the meaning of section 9(1A) of the
deemed, for the purposes of this Act, to have been           Act. Therefore, in these circumstances, a financial
received by the financial institution at the time it is so   institution is not deemed to have received money
credited.’                                                   under this section and no duty is payable on this
                                                             credit entry.
Section 9(1A) applies to situations where a financial
institution makes a credit entry to a customer's             Please note that rulings do not have the force of law.
account to transfer some of its own funds to the             Each decision made by the State Revenue Office is
customer. Once the credit entry is made, the                 made on the merits of each individual case having
account holder has access to an amount of money              regard to any relevant ruling. All rulings must be
which he or she did not deposit to the account.The           read subject to Revenue Ruling GEN.01.
amount of money can be withdrawn, transferred to
another account or used to reduce a debit balance.
Financial institutions frequently pay interest to their               Commissioner of State Revenue
customer's by crediting their accounts and such
                                                                      April 1999
credit entries are deemed receipts under
section 9(1A).




                                                                                                            FID.056