This means the firm’s income accounts continue to reflect the full amount originally billed, and the write-off or discount appears as a separate expense. The net effect on profit is the same, but the income and incomes tax figures that flow through to your accounting system are not reduced by the write-off.

What this means for provincial sales tax (PST) filings

Because the income account is not reduced, any PST that was charged on the original invoice is still reflected in the income figures LEAP sends to QuickBooks Online or Xero. Input tax credits do not apply to PST, so there is no automatic offset for the tax portion of a written-off receivable (unlike GST or HST).

Firms that wish to account for receivable write-offs on their PST return will need to make the adjustment themselves, either directly in QuickBooks Online or Xero, or on the applicable provincial sales tax filing portal. LEAP does not make this adjustment on your behalf.

Recommendation

If your firm regularly writes off or discounts invoices that included PST, discuss with your accountant or bookkeeper how these should be treated on your provincial return, and agree on a consistent process for making the adjustment at each filing period.