Bonus Accruals

Definition

A bonus accrual is a compensation liability recorded in the corporation's books at year-end for remuneration earned but not yet paid. For an owner-manager, accruing a bonus can shift corporate income out of a high-surplus year and into personal income in a later year, and it can bring corporate taxable income down to the small business deduction (SBD) threshold. The deduction is only preserved if the amount is actually paid within 179 days of the corporation's year-end, as required by ITA s.78(4). Otherwise the amount is deemed not to have been incurred and is added back to corporate income two years later.

Key rules

• s.78(4): remuneration owing to an employee (including an officer or director) is deductible only if paid within 180 days of year-end. In practice, the 179-day deadline is used as a safe margin.
• The deduction is taken in the fiscal year accrued. The employee reports the income in the calendar year received (the year of payment), which creates a one-year tax deferral when the fiscal year ends early in a calendar year and the bonus is paid in the following January.
• Payroll source deductions (income tax, CPP, EI if applicable) must be withheld and remitted when the bonus is paid. The remittance deadline follows the corporation's normal PD7A schedule.
• CPP at the 2026 YMPE/YAMPE caps the maximum employer and employee CPP contributions. A large bonus on top of regular salary may not create any additional CPP if the shareholder is already at the maximum.
• A T4 slip must report the bonus in the calendar year of payment, not accrual.
• The bonus amount must also satisfy s.67 reasonableness, particularly where the bonus is to a family member.
• A bonus declared at year-end but not paid, and then "left on the shareholder loan", is only deductible if an actual payment is made (withholdings remitted, net cheque credited) within the 179-day window. A pure journal entry is not a payment.

Example

A CCPC with a July 31, 2026 year-end has $620,000 of active business income and wants to keep corporate taxable income at or below the $500,000 SBD limit.

Before bonus:      Corporate active business income    $620,000
Declared bonus:    Owner-manager bonus                 $120,000
After bonus:       Corporate taxable income            $500,000 (at CCPC rate)

Deduction preserved if paid by:      July 31, 2026 + 179 days = January 26, 2027

Bonus paid January 15, 2027:
  Gross bonus                                          $120,000
  Federal + BC tax withheld (approx. top rate)         ~$40,800
  CPP (already at max from salary)                      $0
  Remitted by February 15, 2027                        Required by PD7A schedule
  Net cheque to owner                                  ~$79,200

Employee timing:
  Personal income reported in 2027 T1 (year of payment)
  T4 slip issued for 2027 calendar year

The combined plan keeps $500,000 at the CCPC rate (roughly 11% in BC) while the $120,000 bonus is taxed personally in 2027, a one-year deferral compared to paying the same amount in 2026.

Common mistakes

• Accruing the bonus with no plan or cash to pay it, then missing the 179-day deadline. The deduction is lost and the amount adds back two years later.
• Crediting the shareholder loan instead of physically paying the bonus. Without a cash or cheque payment and remitted source deductions, CRA frequently denies the deduction.
• Forgetting to remit source deductions when the bonus is paid, triggering late remittance penalties and possibly director liability under ITA s.227.1.
• Paying a bonus to a non-working family member without supporting the s.67 reasonableness test.
• Issuing the T4 for the wrong calendar year (accrual year instead of payment year).

Related concepts

Bonus accruals are a core tool within the salary versus dividends decision for owner-managers hovering near the SBD threshold. The planning only works when the accrued amount can satisfy s.67 reasonableness and when the cash path does not trip the s.15(2) shareholder loan rules. Bonuses to family members must additionally be tested against the income splitting framework.