Here's a year-end maneuver every incorporated business owner eventually hears about: your corporation had a good year, so before the books close you accrue a bonus to yourself or a key employee. The accrual is an expense in the current year, so it lowers this year's corporate taxable income — useful for staying under the small-business limit, smoothing income, or deferring a bit of personal tax into next year.

It's a real strategy. But it rests on a single condition buried in the Income Tax Act, and missing it turns the plan inside out. The condition is timing: the accrued bonus has to actually be paid within 180 days of the corporation's year-end. Pay it after that, and the deduction is denied in the year you accrued it and pushed to the year you finally pay.

TL;DR — The Short Version
  1. An accrued bonus is only deductible in the year accrued if it's paid within 180 days of the corporation's year-end. This is the rule in ITA 78(4).
  2. Miss the 180-day window and the deduction moves to the year you actually pay the bonus — the current-year deduction you were counting on disappears.
  3. That can trigger a surprise corporate tax bill for the accrual year, because the income you thought you'd reduced is back.
  4. The fix is operational, not clever: if you accrue a bonus, actually run it through payroll and pay it (with source deductions) before day 180 after year-end.
  5. The employee/owner picks it up as income when received — so a December accrual paid in, say, February lands on the recipient's next personal year, which is part of the deferral appeal.

Read on for how the rule works, why "179 days" is the safe way to say it, the surprise it creates, a real example, and how to do it right.

The Rule

Accrue now, but pay within 180 days

Normally, a corporation deducts an expense in the year it's incurred, even if it's paid later — that's accrual accounting. Bonuses and other unpaid remuneration are a deliberate exception. Under ITA 78(4), if an amount of remuneration is unpaid on the day that is 180 days after the end of the taxation year in which it was incurred, it is treated as not deductible in that year — and instead becomes deductible only in the year it's actually paid.

Because the rule bites if the amount is still unpaid on the 180th day, the safe way to think about it is "pay within 179 days." For a December 31 year-end, that puts the practical deadline at the end of June. Pay by then and the bonus is deductible in the year you accrued it; pay later and it isn't.

Source: Income Tax Act, s. 78(4) (unpaid remuneration).

A bonus accrued at a December 31 year-end must be paid within 180 days (by late June) to be deductible in the accrual year. Paid within the window, it's deductible that year; paid after, the deduction moves to the year of payment. DEC 31 YEAR-END: THE 180-DAY PAYMENT WINDOW Dec 31 accrue bonus Day 180 (~late June) Paid here → deduct in accrual year ✓ Paid here → deduction moves to year of payment ✗
Same bonus, same intent — only the payment date decides which year gets the deduction.
Why It Backfires

The surprise: income you thought was gone comes back

The reason this rule is dangerous is that the planning happens in one year and the consequence lands on that same year's tax bill — after the fact. You accrue the bonus, file (or plan to file) on the basis that your taxable income is lower, and then the bonus sits unpaid past day 180. Now the deduction is disallowed for the accrual year, your taxable income for that year is higher than you reported or expected, and you owe corporate tax on the difference — possibly with interest if it's caught later.

You do eventually get the deduction — in the year you finally pay the bonus. But that's cold comfort if the whole point was to reduce a specific year's income (for example, to keep active business income under the $500,000 small-business limit). The benefit you were aiming for evaporates, and you've just shifted a deduction into a year where it may be worth less.

A Real-World Example

The practice that accrued a bonus and forgot to pay it

Meet Janelle, who owns Maplewood Dental, a busy incorporated practice in Moncton, New Brunswick, with a December 31 year-end. 2024 was strong, and to manage the corporation's income her accountant accrued a $60,000 bonus to her at year-end. On the 2024 books, that $60,000 is an expense — it brings the corporation's taxable income down, and the plan is for Janelle to receive the cash in 2025 (deferring her personal tax on it to her 2025 return).

So far, textbook. Then life happens. The practice is slammed through the winter, the bonus paperwork never gets actioned, and Janelle doesn't actually run the $60,000 through payroll until August 2025 — well past 180 days after the December 31 year-end.

Because the bonus was still unpaid on day 180, ITA 78(4) disallows the deduction in 2024. The corporation's 2024 taxable income is now $60,000 higher than the return assumed. At a small-business rate around 12%, that's roughly $7,200 of corporate tax the practice didn't plan for — plus interest, since 2024 is already filed and now needs adjusting.

The bonus wasn't wrong. The strategy wasn't wrong. The calendar was — and the calendar is the entire rule.

The $60,000 doesn't vanish as a deduction; the corporation gets it in 2025 instead. But 2025 might be a lower-income year where the deduction is worth less, and the immediate result is a reassessment and an unexpected bill for a year Janelle thought was settled. Paying the bonus in, say, May 2025 — inside the window — would have avoided all of it.

What should have happened

Use It Right

A short checklist for year-end bonuses

A year-end bonus is a good tool used with discipline and a costly one used loosely. Tracking the accrual and hitting the payment deadline is exactly the kind of thing that's handled as part of every CDL plan — and you can estimate the cost in about a minute.

The Bottom Line

The deduction is real — if you pay on time

Accruing a bonus to manage corporate income is legitimate and common. It just isn't a paper exercise: the deduction is conditional on cash actually moving within 180 days of year-end. Set the payment date when you set the accrual, run it through payroll, and the strategy works as intended. Let it drift, and you've handed yourself a reassessment for a year you thought was closed.

Accruing a bonus at year-end?

The deduction depends on paying it within 180 days — a deadline that's easy to miss when you're busy. A 20-minute call is enough to make sure your year-end plan actually lands.

Book a Free 20-Minute Call

This article is for informational purposes only and does not constitute tax advice. The rules around unpaid remuneration, payroll, and corporate income have detail and exceptions and change over time. Consult a qualified professional before relying on a year-end bonus accrual.

References

Primary sources, linked so you can read and interpret them yourself. The legislative link opens on the official Justice Laws website.