A debt that is not collectible and therefore worthless to the creditor. This occurs after all attempts are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. This debt, once considered to be bad, will be written off by the company as an expense.

This definition implicitly defines a policy that is probably less aggressive than most businesses use.  When you declare bad debt you get to write it off against your income for the year, which reduces your tax burden.  Frequently, debts that are still probably collectible in the long run are still written off in order to save money today

The downside is the collection of bad debt, as you must declare the full amount as profit.  For example, if you buy a widget for $100 and sell it for $120 but aren’t repaid you will end up declaring a bad debt of $120 against a profit of $20 for a loss of $100.  You would have paid tax on $120 in profit and claimed $100 in expenses, in effect paying tax on $20 of income.  If you declared it as bad debt and are repaid the following year, you will have to pay income tax on $120 in income.  This sort of strategy needs to be be approached with a full understanding of your tax situation and what the pros and cons really are.

There are a few criteria which you have to meet to be eligible for this CRA program. First and foremost, the filing of income tax return has to be voluntary from your side. Your request for filing return under this program gets rejected in case you have been already questioned regarding your non- filed returns or in case you have the knowledge that you are going to be audited for tax.

Another requirement is that your return should be complete in all respects and should have all necessary information. It should have a penalty like an installment or a filing penalty. Moreover, the due filing date of the year for which you are availing this facility, should be more than one year earlier.

When you comply to all these criteria, fill out the RC199 form and mail it to the Assistant Director of Enforcement Division of your nearest tax office, along with all other relevant documents. You also have the option of submitting the documents after the approval of your RC199 application. Discuss your situation honestly with the officer in charge and you can expect to get your application approved.