A bonus accrued at year-end is a common way to reduce a corporation’s taxable income before the books close. The accrual itself is straightforward: a board resolution authorizes the amount, the corporation books it as an expense and a payable, and the T2 deduction is claimed for that fiscal year. The part that gets missed is what has to happen after the accrual, not at the time it’s recorded.
What the Accrual Actually Does
Accruing a bonus creates a corporate expense and a corresponding liability (bonus payable) on the balance sheet in the fiscal year the resolution is passed, even if no cash moves that day. Assuming the bonus is otherwise deductible, reasonable in the circumstances, and supported as remuneration for employment services, each dollar of accrued bonus reduces the corporate tax otherwise payable for that year, the same way a paid salary would.
The accrual is only provisional, though. Subsection 78(4) of the Income Tax Act provides that salary, wages, or other employment remuneration accrued and deducted in a fiscal year is deemed not to have been incurred in that year if it remains unpaid 180 days after the end of the fiscal year. If that happens, the deduction is denied for the year it was accrued and instead becomes deductible in the fiscal year the amount is actually paid. A properly documented set-off against an existing shareholder loan balance can satisfy that payment requirement, but only if it is a real reduction of an amount the shareholder owes to the corporation.
For a calendar-year corporation, a bonus accrued for the year ending December 31, 2026 must be paid, or applied against a shareholder loan balance, on or before June 29, 2027 to preserve the 2026 deduction. Miss that date and the deduction moves to whichever fiscal year the payment lands in, which for most owner-managers is the 2027 fiscal year.
The Deduction Timing Is Not the Same as the Income Timing
The 180-day rule governs when the corporation can deduct the expense. It does not change when the shareholder-employee has to include the amount in personal income. Employment income, including a bonus, is reported by an individual for the calendar year in which it’s received or credited, under the ordinary rules that apply to salary and wages. That inclusion timing runs independently of the corporation’s fiscal year-end and independently of subsection 78(4).
This produces an asymmetry that catches contractors off guard: the corporation can accrue and deduct a bonus in a fiscal year without the shareholder including anything in personal income yet, provided the amount is unpaid at that point, but only for as long as the 180-day clock allows. Once the bonus is actually paid or credited, it lands on the recipient’s T4 for that calendar year, and withholding applies at that time, not retroactively to the accrual date.
Documentation the Accrual Needs
An accrued bonus that will hold up under CRA review needs a paper trail created before the fiscal year closes, not reconstructed afterward:
- a board resolution (or a sole director’s resolution) dated before the fiscal year-end, stating the amount, the intended recipient, and the employment services being compensated
- a journal entry recording the bonus expense and the corresponding bonus payable liability, dated to the fiscal year
- a clear payment or set-off date, tracked against the 180-day deadline calculated from the corporation’s actual fiscal year-end
- for amounts applied against a shareholder loan rather than paid in cash, an entry showing the set-off against the specific loan balance, not a general note that the loan was “cleared”
A bonus accrual without a dated resolution is difficult to distinguish from an informal year-end adjustment made by the bookkeeper. CRA reviewing the deduction will look for evidence that the liability was fixed and determinable before the year-end, not just that an expense appeared on the trial balance.
Tracking the 180-Day Window
The 180-day period runs from the corporation’s fiscal year-end, not from the calendar year-end and not from the date the resolution was signed. A corporation with a September 30 fiscal year-end that accrues a bonus for that year has until roughly March 29 of the following year to pay or set off the amount, well before the December 31 date an owner might assume from habit.
Because the deadline is tied to the fiscal year-end rather than a fixed calendar date, it’s easy to miscalculate for a non-calendar year-end corporation, or to lose track of it entirely once other year-end tasks are underway. Diarizing the 180-day deadline at the same time the accrual is booked, rather than relying on memory closer to the date, avoids the deduction slipping into the wrong year by default.
Paying or Setting Off Against a Shareholder Loan
Most incorporated IT contractors clear a bonus accrual one of two ways: an actual cash payment through payroll, or a set-off against an outstanding shareholder loan balance. Both satisfy subsection 78(4), provided the set-off is a real, documented reduction of the loan account rather than a paper adjustment made after the fact.
Where a shareholder loan already carries a debit balance from draws taken during the year, applying the bonus against that balance can resolve two things in a single entry: it satisfies the 180-day payment requirement, and it addresses the shareholder loan’s own repayment deadline under section 15(2) of the Income Tax Act. The two rules are separate, and the timing windows do not automatically align, but a bonus accrual set off against a current-year loan balance early in the 180-day window generally clears both obligations at once. If the debit balance relates to an older shareholder loan period, the section 15(2) issue may already exist and should be reviewed separately. The shareholder loan account guide covers the repayment deadline and how CRA treats a series of draws and repayments.
Payroll Consequences of the Payment Date
Source deductions follow the payment date, not the accrual date. When a December-accrued bonus is actually paid the following June, income tax, CPP or QPP, and any applicable EI are withheld and remitted based on that June pay period, not retroactively to December. The bonus is reported on the T4 for the calendar year of payment.
This means a bonus that was accrued to reduce one fiscal year’s corporate tax can still create a payroll remittance obligation in a different calendar year, and the personal income tax impact lands in whichever year the shareholder actually receives it. Coordinating the payment date with the shareholder’s overall personal income picture for that year (not just the corporation’s fiscal year the accrual was meant to benefit) avoids an unplanned personal tax outcome layered on top of the corporate deduction.
Why the Rule Exists
Subsection 78(4) prevents a corporation from claiming an ongoing deduction for remuneration that is never actually paid, or paid so far in the future that the deduction and the corresponding personal income inclusion become permanently mismatched. Without the rule, a corporation could accrue and deduct a bonus every year, roll the payable forward indefinitely, and never generate the matching personal income inclusion on a comparable timeline. The 180-day window is the mechanism that forces the deduction to track actual payment within a reasonable period.
What to Review Before the Fiscal Year Closes
Before booking a bonus accrual for the current fiscal year, confirm:
- the exact fiscal year-end date the 180-day window will run from
- whether the bonus will be paid in cash, through payroll, or set off against a shareholder loan balance
- whether the bonus amount can be supported as reasonable compensation for services performed by the shareholder-employee
- whether an existing shareholder loan debit balance needs to be cleared in the same window, and whether the bonus amount is sized to address both the 78(4) deadline and the section 15(2) repayment deadline
- how the payment date will interact with the shareholder’s other personal income for the calendar year in which payment actually occurs
- whether the resolution and journal entry will be dated and filed before the fiscal year-end, not added afterward
A bonus accrual decided and documented before the year closes, with the payment or set-off scheduled well inside the 180-day window rather than at its edge, is the version of this planning tool that reliably delivers the deduction it’s meant to produce. The year-end corporate tax planning guide covers how the salary and bonus decision fits into the broader year-end estimate, and the shareholder loan account guide covers the parallel repayment deadline that often needs to be resolved at the same time.