Why the End of Financial Year Matters for Business Creditors
If a customer, client, or business partner owes you money, the end of financial year is not just an accounting milestone — it is a deadline with real legal and commercial consequences.
Each year, Queensland creditors make the same mistake: they wait until July to chase outstanding debts, letting the EOFY pass without taking action. The result? Lost tax deductions, weakened legal positions, and debts that are now another year older and harder to recover.
This guide explains what steps creditors should take before 30 June 2026 — and why acting now delivers results that waiting until next month simply cannot.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
1. Write Off Irrecoverable Bad Debts Before 30 June
Under section 25-35 of the Income Tax Assessment Act 1997 (Cth), a business may claim a deduction for a bad debt written off during the income year. To claim the deduction for the 2025–26 financial year, the debt must be written off in your financial records before 30 June 2026.
Two conditions apply:
- The debt must be genuinely “bad” — meaning you have made a commercial judgment that the debt is irrecoverable or unlikely to be recovered. This is not merely that the debt is overdue; it requires a genuine assessment of the debtor’s financial position.
- The debt must have been included in your assessable income in a prior year (generally applicable to businesses that account on an accruals basis).
Writing off a debt for tax purposes does not extinguish the legal right to recover it. If your debtor later pays, the amount received becomes assessable income. But acting before 30 June preserves the deduction for this financial year — acting on 1 July does not.
Action: Review your accounts receivable. Identify debts that are genuinely irrecoverable. Make the write-off decision and document it before 30 June 2026.
2. Issue a Letter of Demand This Week
A formal letter of demand does several things at once. It puts the debtor on notice that you are serious. It records the date from which the debtor cannot credibly claim they were unaware of the claim. And it starts the clock on a response period — creating a paper trail that will matter if you need to escalate.
For creditors who have been waiting and hoping, a letter of demand issued before EOFY signals a change of posture. The message is clear: the new financial year is not bringing a clean slate.
If the debtor is a company, a letter of demand is also the precursor to a statutory demand — the most powerful debt recovery tool available to creditors owed $4,000 or more by an insolvent or non-paying company.
Action: If you do not have a current, formal letter of demand on foot, issue one this week. Verbal reminders and informal emails are not the same thing.
3. Issue a Statutory Demand on Company Debtors
If a company owes you money and has not paid despite requests, a statutory demand under section 459E of the Corporations Act 2001 (Cth) is one of the most effective tools in a creditor’s arsenal.
Here is why timing matters at EOFY:
- A statutory demand gives the company 21 days to pay the debt, secure it, or apply to set it aside.
- If the company does not comply within 21 days, it is deemed insolvent — and you can apply to wind it up.
- A statutory demand served before 30 June means the 21-day period expires in mid-July — setting you up to commence winding up proceedings early in the new financial year if the debt is not paid.
Importantly, a company debtor who receives a statutory demand at the end of a financial year faces a difficult decision: pay the debt (clearing their books before EOFY), negotiate a resolution, or enter the new financial year with a deemed insolvency sitting on the register.
Action: For company debtors who have ignored letters of demand, consult a commercial lawyer about whether a statutory demand is appropriate. The $4,000 threshold is low — many commercial debts qualify.
4. Consider Your Limitation Periods
Contract claims in Queensland are subject to a six-year limitation period under the Limitation of Actions Act 1974 (Qld). This means a debt arising from a contract entered into or a cause of action accruing more than six years ago may be statute-barred — meaning you cannot sue to recover it, regardless of the amount owed.
End of financial year is a natural time to audit your debtors ledger and identify debts that are approaching or at risk of becoming statute-barred.
- If a debt is approaching six years old, commencing proceedings is the only way to preserve your rights.
- Issuing a letter of demand does not stop the limitation clock — only commencing proceedings does.
- For debts just over four years old, you have time — but not much.
Action: Review the age of outstanding debts. Identify any that are four years or older. Seek legal advice on whether limitation periods are a risk before acting.
5. Preserve Your Rights With Pre-EOFY Legal Advice
For creditors with significant outstanding debts — whether from a single large debtor or accumulated across several accounts — the end of financial year is the right time to get a strategic view from a commercial lawyer.
A one-hour consultation before 30 June can identify:
- Which debts are best positioned for statutory demand or court action
- Whether any debtors are in financial distress (and whether acting quickly matters more than acting later)
- Whether a pre-litigation approach (letter of demand, payment arrangement) is more commercially sensible for ongoing relationships
- What the realistic cost and timeline of recovery would look like
Debt recovery in commercial disputes is not always about going to court. Often, a well-timed legal letter achieves payment where months of internal chasing did not. But that outcome requires acting — and acting before the new financial year closes off options that were open before it.
What to Do Right Now
Before 30 June 2026:
- Review accounts receivable and identify outstanding debts by age and debtor type (individual vs company)
- Make a write-off decision on genuinely irrecoverable debts for tax purposes
- Issue formal letters of demand on all material outstanding amounts
- For company debtors owing $4,000 or more — consult on whether a statutory demand is appropriate
- Check the age of every debt over three years old — consider whether limitation periods require urgent action
Boss Lawyers acts for commercial creditors in Queensland on debt recovery, statutory demand proceedings, and enforcement. If you have debts you need to recover before or after EOFY, call Mark Harley on 1300 267 711 or send an enquiry through bosslawyers.com.au.
Frequently Asked Questions
Can I write off a bad debt for tax purposes without going to court?
If you need to pursue a debt before 30 June, Boss Lawyers’ debt recovery lawyers Brisbane can move quickly — from letter of demand to statutory demand to court enforcement. Call 1300 267 711 or contact us online.
Yes. Writing off a debt for tax purposes under section 25-35 of the ITAA 1997 is a business decision, not a legal one. You do not need a court judgment or to exhaust all recovery options first — you need to form a genuine commercial view that the debt is bad and record the write-off in your books before 30 June. Writing off the debt for tax purposes does not extinguish your legal right to recover it later. This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
How much does it cost to issue a statutory demand?
A statutory demand under section 459E of the Corporations Act must comply with precise formal requirements — including the prescribed form, supporting affidavit, and correct service. Errors in a statutory demand can allow the debtor to have it set aside on a technicality, which is costly and counterproductive. Legal costs for preparing and serving a statutory demand vary depending on complexity, but for a straightforward debt, the investment is modest relative to the leverage the demand creates. Call Boss Lawyers on 1300 267 711 for a straightforward fee estimate. This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
What if I miss the 30 June deadline?
Missing EOFY does not mean losing your rights to recover the debt. You can still issue letters of demand, statutory demands, and commence proceedings after 30 June. What you lose is the ability to claim the bad debt deduction in the 2025–26 tax year — that deduction can only be claimed if the write-off is made before 30 June 2026. Limitation periods are the other risk: these are not annual but run from the date the cause of action accrued. The urgency around any specific limitation period depends on when the debt arose. This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
