Accruing a bonus at year end: the 180-day rule

Weighing a bonus against a dividend? Enter your company’s profit in our 2026 pay planner: it works out corporate tax, CPP and personal tax at every salary level for 2026 and shows the split that leaves you the most.

The deduction is lost if day 181 arrives before the bonus is paid, and the year-end is when that gets planned. Ask us about it.

Accruing a bonus at year end is a long-standing owner-manager tax planning tool. The corporation expenses it in the year just ended, cutting that year's taxable income, and pays it the following year. Done properly it is legitimate; done a week late it costs the deduction for a full year.

Related: Cash vs accrual accounting: which basis your business has to use.

What the rule actually says

Subsection 78(4) of the Income Tax Act covers unpaid employee remuneration. Salary, wages or other remuneration still unpaid 180 days after the end of the tax year it was incurred in is deemed not to be an expense of that year and is not deductible then. If paid later, it is deductible in the tax year it is actually paid. If the employee leaves before payment, the bonus also belongs on the record of employment.

Pay within 180 days and the deduction stays put; pay later and it moves to the year of payment. The CRA accepts payment on the 180th day as within the limit. If you are asking when do bonuses need to be paid to be deductible in the accrual year, the answer is within 180 days after that year ends.

Why owners use an accrued bonus

There are three common reasons an owner-manager declares a bonus rather than simply leaving profit in the company:

• Bringing corporate income back under the small business limit. A bonus is deductible to the corporation, so it reduces active business income that would otherwise be taxed at the general rate.
• Creating RRSP room and CPP contributions. Salary and bonus are earned income for RRSP purposes; dividends are not. That trade-off is the heart of the bonus versus dividend decision.
• Timing personal income. The bonus is deductible to the company in the year accrued, but it is employment income to the recipient in the year it is received. That can shift personal income into a lower-income year.

Which of those matters most depends on your marginal rate, your RRSP plans and how much income the corporation is earning. Our salary versus dividends guide walks through the comparison.

What a properly documented accrual looks like

An accrual is only an expense if the corporation actually became liable for it by year end. A number typed into the trial balance after the fact is not a liability. Three things should exist:

1. A directors’ resolution or written authorization declaring the bonus, dated on or before the year end, naming the employee and the amount.
2. A recorded liability in the year-end accounts, usually accrued wages payable, that reconciles to the resolution.
3. Evidence of payment inside the 180-day window, a payroll register, the bank entry, and the source-deduction remittance.

Bonuses must also be reasonable. The CRA rarely challenges remuneration paid to an active owner-manager of a Canadian-controlled private corporation, but a bonus paid to a family member has to reflect work genuinely done for the business.

The payroll side people forget

The deduction date and the payroll date are not the same thing. The corporation deducts the bonus in the year of accrual, but the bonus is employment income to the employee in the year it is paid, and payroll obligations follow the payment:

• Source deductions — income tax, and CPP where applicable — must be withheld when the bonus is paid and remitted on the corporation’s normal remittance schedule for that period.
• The T4 slip reports the bonus in the calendar year of payment, which is often the year after the corporate deduction. See the slip filing deadlines.
• Cash has to be there. A bonus of any size can create a large withholding remittance in a single month.

A common mistake is to accrue the bonus, pay it within 180 days, and then forget to remit the withholding, which turns a clean planning move into a penalty.

What happens if you miss the deadline

Nothing dramatic happens automatically, which is exactly why it gets missed. The corporation must add the unpaid bonus back in computing income for the year of accrual, and claim it in the year of payment. The consequences are cash-flow ones: more corporate tax in the earlier year, possibly instalment interest if the earlier year’s tax was understated, and an amended return if the original one already claimed the deduction.

If the bonus was never really going to be paid, a cleaner alternative may be to leave the profit in the corporation and pay a dividend later, or to look at whether the money is already out through a shareholder loan.

Whether any of this applies to you turns on your year-end, your structure and what else is in the picture — ask about your own situation and a CPA replies, usually the same business day. Free either way.

A simple checklist

• Diarise the 180-day date the moment the resolution is signed.
• Do not schedule payment in the final week of the window.
• Confirm the corporation will have the cash for the bonus and the withholding.
• Keep the resolution with the year-end file, not loose in a drawer.
• Check the bonus against the rest of your year-end checklist before filing.

The 180-day rule is simple but unforgiving. Decide the bonus before year end, not three months after, when the deduction is committed and the clock running.

This article is general information, not tax advice for your specific situation. Tax rules and CRA administrative positions change — confirm anything that affects a decision with the CRA or with us first.