Section 87 Debts set off against profits and subsequently released

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(1) Where, in computing for tax purposes the profits or gains of a trade or profession, a deduction has been allowed for any debt incurred for the purposes of the trade or profession, then, if the whole or any part of that debt is thereafter released, the amount released shall be treated as a receipt of the trade or profession arising in the period in which the release is effected.

How should I treat the release of a bad debt for tax purposes?

(1) If, having written off a bad debt and received a tax deduction for the write off, you release the debt, the release is treated as a business receipt for tax purposes.

(2) If in any case referred to in subsection (1) the trade or profession has been permanently discontinued at or after the end of the period for which the deduction was allowed and before the release was effected, or is treated for tax purposes as if it had been so discontinued, section 91 shall apply as if the amount released were a sum received after the discontinuance.

How should I treat the release of a bad debt after the trade has ceased?

(2) If you release a debt after your trade has ceased, the release is taxed as a post-cessation receipt (section 91).