Paying Yourself a Bonus Before Year-End: How the 180-Day Rule Works

This guide is for owners who pay themselves at least partly in salary. It explains how the 180-day rule in the Income Tax Act works and what to raise with your accountant. Your accountant decides whether a bonus fits your year.

What is the 180-day rule for an accrued bonus?

It is subsection 78(4) of the Income Tax Act. If salary, wages or other remuneration the corporation has expensed is still unpaid on the day that is 180 days after the end of its taxation year, the expense is treated as not incurred in that year.

Instead, the Act treats it as incurred in the taxation year in which the amount is paid. A bonus is remuneration, so it is covered, as are salary, wages, retiring allowances and pension benefits. It does not apply to reasonable vacation or holiday pay, or to amounts under a salary deferral arrangement.

How does an accrued bonus work?

The corporation records the bonus as an expense in the year it is earned, then pays it to you in the following months. When the timing works, the deduction and the personal tax fall in different years.

• The corporation generally deducts the bonus in the year it incurred the expense, if it is paid in time.
• You are taxed on it when you receive it. Section 5 of the Act taxes employment income received in the year.
• Payroll deductions are calculated and remitted when the bonus is paid, not when it is accrued.

The bonus has to be an expense the corporation actually incurred in that year. How to document it, and whether the amount is reasonable for the work you did, are questions for your accountant and lawyer.

When exactly is the deadline?

Count 180 days from the last day of the corporation's taxation year. The Act asks whether the amount is unpaid on that 180th day, so the cautious reading is to have the bonus paid before it.

Your corporation's year-end does not have to be December 31. Ask your accountant which payment date they work to for your actual year-end.

What happens if the bonus is paid late?

The deduction is not lost. It moves to the corporation's taxation year in which the bonus is paid.

That can still matter. The deduction is not allowed in the year you planned on, so the corporation's taxable income for that year is higher than expected. Your own tax position does not change, because you are taxed when you receive the bonus either way.

What payroll deductions apply to a bonus?

The CRA's special payments chart lists bonuses as subject to CPP contributions, EI premiums and income tax. The employer withholds them from the bonus and remits them with its other source deductions.

• Remittance timing. For a regular remitter, source deductions are due by the 15th of the month after the month you pay the remuneration. Quarterly and accelerated remitters have different due dates.
• EI. Employment is generally not insurable if the employee controls more than 40% of the corporation's voting shares, so an owner above that level generally pays no EI premiums on a bonus. Your accountant or the CRA can confirm your status.
• CPP. The 40% rule is an EI rule. A bonus paid to an owner-manager on payroll generally attracts CPP contributions, and the corporation contributes an amount equal to what it deducts from you, until you reach the year's maximum.

How does a bonus affect RRSP room?

A bonus is employment income, and employment income counts as earned income for RRSP purposes. Dividends do not create RRSP room.

The CRA generally calculates new RRSP room as 18% of the previous year's earned income, up to that year's dollar limit, less any pension adjustment. The RRSP dollar limit is $33,810 for 2026 and $35,390 for 2027.

Because the bonus is income in the year you receive it, a bonus accrued at a December 31, 2026 year-end and paid in 2027 counts toward 2027 earned income. That earned income feeds the RRSP room you get for 2028.

Salary also matters if you have, or are considering, an Individual Pension Plan. Our guide explains how those plans work.

When does a bonus accrual not fit?

An accrual is a timing tool. It does not make a bonus the right way to pay yourself, and it has trade-offs.

• The corporation needs the cash to pay the bonus and the source deductions within the 180 days.
• A bonus adds CPP contributions that a dividend would not. Whether the CPP credits are worth that cost depends on your plans.
• Salary and dividends are taxed differently, and the right mix depends on your corporation's income, your personal income and your retirement plans.
• Bonuses paid to family members raise separate questions about reasonable pay for real work.

What should you ask your accountant before year-end?

• Does a bonus accrual make sense for us this year, compared with dividends or a mix?
• How much, and how do we document that the corporation incurred it before year-end?
• What is our day 180, and what payment date are we working to?
• Do we have the cash for the bonus and the source deductions by then?
• How would the bonus change my RRSP room, my CPP, or an Individual Pension Plan?

Where do we fit?

LG Financial Group is an insurance agency. Your accountant leads the tax side, and we complement them. Our planning guide for business owners covers how pay, pensions and benefits fit together, and our tax strategies overview shows the other year-end timing questions owners review with their accountants. Our year-end checklist lists the rest.

Sources

• Justice Laws, Income Tax Act, section 78 (unpaid remuneration)
• Justice Laws, Income Tax Act, section 5 (income from employment)
• Canada Revenue Agency, Special payments chart
• Canada Revenue Agency, When to remit (pay)
• Canada Revenue Agency, Determine if employment is pensionable and insurable
• Canada Revenue Agency, How contributions affect your RRSP deduction limit
• Canada Revenue Agency, MP, DB, RRSP, DPSP, ALDA, TFSA limits and YMPE
• Canada Revenue Agency, T4040 RRSPs and Other Registered Plans for Retirement