Perry Mason is a barrister operating on his own account who returns his income on a cash basis. On 20 June of the current tax year he wrote a legal opinion for a solicitor Chris Skase for which he charged $22 000. On 29 June of the current tax year he is advised that Chris Skase was found to have stolen money from his client's trust account and had disappeared to Spain. It is unlikely that he will be paid anything for the work he did for Chris. The most correct tax treatment of this amount by Perry would be:

Select one:

1. Perry could not claim any amount for a bad debt because he would not yet have included the amount as assessable income because he operates on the cash receipts basis.

2. Perry could not claim a deduction in the current tax year ended 30 June because the debtor was not declared bankrupt and so it would be possible that some amount will still be received.

3. Perry could claim a deduction for the full amount of the bad debt in the current tax year ended 30 June.

4. Perry could not claim a deduction in the current tax year ended 30 June because he had not recorded the bad debt in his accounts for that year but may do so for the next income year.

5. Perry is in the business of lending money in the ordinary course of business so he would not be able to claim a tax deduction.