The Bonus Accrual 180-Day Rule: Pay-By Dates for Your Corporation's Year-End Bonus

The short version: accrue it now, pay it within 180 days

If your corporation has a year-end coming up, or has just passed one, this is the season to decide on a year-end bonus. Under subsection 78(4) of the Income Tax Act, a corporation can deduct a salary or bonus in the year it is accrued, even though it pays the money out in the next calendar year, as long as the amount is paid within 180 days of the corporation's year-end. Miss that window and the deduction moves to the year the bonus is actually paid.

Nothing about the rule changed this year. It matters now because a corporation with a December 31, 2026 year-end has until the end of June 2027 to pay a bonus it accrues in its 2026 accounts, and corporations with September and October year-ends are already inside their windows.

• What it is: a timing rule for unpaid salary, wages, bonuses and other remuneration, retiring allowances and pension benefits (ITA s. 78(4)).
• Who it affects: every employer that deducts remuneration it has not yet paid at year-end, at arm's length or not. Owner-managers who accrue a bonus to themselves are the most common case.
• The consequence of missing it: the deduction is deferred, not lost. The expense is treated as incurred in the year it is paid.

The bonus accrual 180-day rule: what the law says

Subsection 78(4) says that where remuneration is unpaid on the day that is 180 days after the end of the taxation year in which the expense was incurred, the amount is deemed not to have been incurred in that year and is instead deemed incurred in the taxation year in which it is paid. Reasonable vacation or holiday pay and deferred amounts under a salary deferral arrangement are carved out of the rule. (Income Tax Act, section 78)

The CRA's archived Interpretation Bulletin IT-109R2 adds two practical points:

• The CRA considered a payment made on the 180th day to be within the time limit.
• The rule applies to both arm's length and non-arm's length payments, so it covers ordinary staff bonuses as well as bonuses to shareholders.

The bulletin is archived and no longer updated, so treat it as the CRA's historical position rather than current guidance. (CRA, IT-109R2 Unpaid Amounts (archived))

Pay-by dates for common year-ends

The count starts the day after the corporation's own fiscal year-end, not December 31. The table shows day 180 (the CRA's stated outer limit) and day 179, which we suggest as a safer target because the statute tests whether the amount is still unpaid on day 180.

Where the date lands on a weekend or holiday, pay on the business day before. Don't assume the deadline rolls forward to the next business day, and leave time for the bank transfer to clear.

How the 180-day rule works for each side

The employee side does not change: a bonus is taxed to the employee when it is received. The CRA's payroll guidance says to withhold income tax and CPP using the bonus or irregular payments method, deduct EI premiums, and report the bonus in the year it is received in box 14 (employment income), box 24 (EI insurable earnings) and box 26 (CPP/QPP pensionable earnings). (CRA, Bonuses, retroactive pay increases or irregular amounts)

That gap is why the accrual is useful. The corporation deducts the bonus in, say, its 2026 return, while the owner-manager reports it as 2027 employment income, with source deductions due when it is paid in 2027.

Why owner-managers accrue a year-end bonus

• To manage the small business limit. A bonus reduces the corporation's active business income. Owners often size it to keep taxable income within the $500,000 federal business limit, which is taxed at the 9% federal small business rate instead of the 15% general rate. See our small business deduction guide for how the limit is shared and ground down.
• To create RRSP room. Salary and bonuses are earned income for RRSP purposes; dividends are not. Our salary vs. dividends guide walks through the trade-off.
• To time personal tax. The corporation's deduction lands in the year accrued, while the owner's personal tax falls in the year the bonus is received.

The numbers that drive the decision come from the corporation's year-end results, so the bonus is usually set once the year's profit is known.

What a business should do before year-end

1. Document the bonus before year-end. Record the decision in a directors' resolution dated on or before the year-end, with an amount or a formula that can be worked out from the year's results.
2. Book the liability in the year-end financial statements as accrued wages or bonus payable.
3. Calendar the pay-by date from the table above, counting from your own fiscal year-end.
4. Run it through payroll when you pay it. Withhold income tax, CPP and, where the employment is insurable, EI. Remit by your regular remittance due date and include it on the T4 for the year paid.
5. Pay with cash, not a promise. IT-109R2 notes that an ordinary promissory note is a promise to pay later, not payment of the debt on the day the note is issued.

Edge cases

What if the bonus is paid on day 181 or later?

The corporation does not lose the deduction. Section 78(4) deems the expense incurred in the taxation year in which it is paid, so the deduction moves into that later year. In the year you accrued it, the corporation's taxable income is higher than planned, which can push income over the business limit for that year.

Does the rule apply to a short or first taxation year?

Yes. The 180 days run from the end of the taxation year in which the expense was incurred, whatever that year's length. A first year, a stub year after an amalgamation or a change of year-end, or a deemed year-end on an acquisition of control each start their own 180-day clock.

Is a bonus to an owner who holds more than 40% of the voting shares subject to EI?

The CRA says employment may not be insurable when the employee controls more than 40% of the employer's voting shares. Where that applies, no EI premiums are deducted on the bonus. Income tax and CPP still apply. (CRA, Determine if employment is pensionable and insurable)

Can the corporation deduct any bonus amount it chooses?

No. Section 67 of the Income Tax Act allows a deduction only to the extent the expense was reasonable in the circumstances. (Income Tax Act, section 67)

Does the 180-day rule cover vacation pay?

No. Reasonable vacation or holiday pay is excluded from s. 78(4), as are amounts under a salary deferral arrangement.

What about other unpaid amounts owed to a shareholder, such as rent or interest?

Those fall under a different rule. Subsection 78(1) deals with deductible expenses owed to a non-arm's length person that are still unpaid at the end of the second taxation year after the year they were incurred. Subsection 78(5) confirms that 78(1) does not apply where 78(4) does, so a bonus is governed only by the 180-day rule.

Where this fits in your year-end

A year-end bonus is one piece of the owner-manager compensation decision, alongside dividends, the small business limit and personal RRSP room. RN Canada prepares T2 corporate returns and T4 slips for owner-managed corporations and can help you size and document the accrual before your year-end. Our corporate tax deadlines guide lists the other dates that follow a fiscal year-end, and the CPP, CPP2 and EI guide covers the contributions a bonus attracts.

This article is general information as of November 1, 2026, and not advice for your specific situation.