What to take away
- An accrued bonus is generally deductible for the year it is incurred only if it is paid within 180 days after the corporation’s year-end.
- The employee reports the bonus in the year it is received, and the T4 shows it for that year.
- A bonus triggers payroll withholding and employer costs, so compare it with other ways of paying yourself before deciding.
Two dates decide the outcome
A bonus involves two taxpayers, and each follows a different calendar. The corporation deducts remuneration in its fiscal year. The CRA says an employee reports a bonus as employment income on the T4 slip for the year the bonus is received. Those years need not match, particularly when the corporation’s year-end is not December 31.
Write both dates at the top of your notes before you decide anything: the fiscal year-end, and the date you expect the money to leave the corporate bank account. Most mistakes with year-end bonuses come from assuming that approving a bonus and paying a bonus are the same event.
Accrue now, pay within 180 days
The CRA’s archived bulletin on unpaid amounts explains the rule in subsection 78(4) of the Income Tax Act. If salary, wages or other remuneration is not paid within 180 days of the end of the taxation year in which it was incurred, the amount is deemed not to have been an expense of that year and is not deductible then. If it is paid later, it becomes deductible in the year it is paid. The bulletin says the CRA treats a payment made on the 180th day as made in time, and the rule applies whether or not the employer and employee deal at arm’s length.
The bulletin is archived and reflects the CRA’s position at its 1993 date, so treat it as reference material and have your accountant confirm the current wording of the Act. It also lists exceptions, such as reasonable vacation or holiday pay. In practice, the rule means a corporation can generally record a bonus at year-end and still claim it for that year, provided it actually pays within the window.
When the recipient is taxed
For the employee, the timing follows receipt. If a bonus is accrued at a September 30, 2026 year-end and paid in January 2027, the employee reports it on the 2027 return and receives a 2027 T4. The corporation may have its deduction in the earlier fiscal year. That gap is the reason some owner-managers accrue a bonus rather than pay it before year-end.
The gap appears when payment falls after December 31 of the year in which the fiscal year ends. With a September 30 year-end, a bonus paid in November 2026 is still 2026 income for the employee, while one paid in January 2027 is 2027 income. With a December 31 year-end, a bonus paid by December 31 is income for that year, while one paid from January 1 onward within the 180 days is income for the following year. Check the exact dates against your own year-end rather than relying on a rule of thumb.
Payroll obligations on a bonus
A bonus is employment income, so you must withhold. The CRA says you deduct income tax using the bonus or irregular payments method, EI premiums, and CPP contributions, and that you report the payment on the T4 in box 14 for employment income, box 24 for EI insurable earnings and box 26 for CPP pensionable earnings. The CRA’s payroll deductions online calculator can work out the amounts.
The corporation also carries employer costs. For 2026 the employer CPP contribution matches the employee’s, up to the maximum in the 2026 tax guide, and the employer EI premium is normally 1.4 times the employee’s. Those costs stop once the annual maximums are reached, so a bonus to someone already near the maximums costs less in payroll than one to a lower earner. The T4 filing date for 2026 is March 1, 2027, and remittances follow their own schedule.
An illustrative example
The figures here are round and for illustration only. A corporation has a September 30, 2026 year-end and expects taxable income of $120,000 before any bonus. Its owner-manager is also an employee. On September 28 the directors approve a $30,000 bonus and the bookkeeper records it as an accrued expense.
The 180th day after September 30, 2026 is March 29, 2027. If the corporation pays the bonus on January 15, 2027 and withholds the required deductions, it can generally deduct the $30,000 for the year ended September 30, 2026, and the owner reports it as 2027 employment income. If payment slips to March 30, 2027, the deduction generally moves to the year in which it is actually paid. Paying on time is the entire point of the exercise.
Whether a bonus makes sense at all
A deduction does not make tax disappear. It moves income from the corporation to the individual. CRA’s rate table shows that a Canadian-controlled private corporation claiming the small business deduction has a federal net rate of 9%, and Ontario’s lower rate is 2.2% from July 1, 2026, on income within the $500,000 business limit. Personal tax on a bonus follows the graduated brackets in the 2026 tax guide and can be higher.
So the question is rarely whether to deduct, but how much income should be taxed where, and when. Your answer may involve a salary instead, a dividend, retained earnings, or reducing income to stay within the business limit. Our guide on salary versus dividends and the article on paying yourself a salary from your corporation cover that comparison. A bonus also requires cash: the corporation must be able to pay the bonus and the related remittances.
Documentation and common mistakes
Keep a dated resolution or written approval stating who receives the bonus, the amount, the reason and the planned payment date. Record the liability in the books at year-end, then record the payment, the withholdings and the remittance. Keep the T4 and payroll account records with the file.
Common mistakes include approving a bonus and forgetting to pay it, paying one day late, and not withholding on an owner’s bonus because the owner is also the person approving it. Another is assuming that issuing a promissory note counts as payment. The CRA’s archived bulletin says an ordinary promissory note is regarded as a promise to pay later, not as payment, unless the agreement clearly shows it was accepted as absolute payment. If an owner is paid by moving money through a shareholder loan account, see our article on shareholder loans, and ask your accountant exactly how payment should be made.
What to bring to your accountant
Before year-end, bring a draft income statement, the fiscal year-end date, current payroll records and the owner’s other income. Ask how much taxable income the corporation will have with and without the bonus, what the personal tax cost is, whether to accrue or pay, and the latest date payment must be made.
Raise the bonus early enough to make a decision, set up payroll if you do not have an account, and fund the remittances. A conversation in the weeks before year-end leaves time to act, while a conversation after year-end can only describe what has already happened.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- Bonuses, retroactive pay increases or irregular amountsCanada Revenue Agency
- Archived IT-109R2: Unpaid amountsCanada Revenue Agency
- Corporation tax rates and Ontario’s July 1, 2026 reductionCanada Revenue Agency
- 2027 tax deadlines for businesses and self-employed individualsCanada Revenue Agency
- CPP contribution rates, maximums and exemptionsCanada Revenue Agency
- EI premium rates and maximumsCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.