Can my Ontario corporation accrue a bonus to me at year end and deduct it this year?

Yes, a corporation can accrue a bonus to an owner-manager at its fiscal year end and deduct it in that tax year, even if the bonus is not actually paid until the following year. This is a common year-end planning technique to shift income out of the corporation and reduce corporate taxable income in a high-profit year.

The critical rule is that the bonus must actually be paid within 180 days after the corporate year end. If the 180-day deadline passes without payment, the deduction is denied and the corporation must add the accrued bonus back to income for the year it was accrued. The 180-day rule applies specifically to amounts owing to persons who do not deal at arm's length with the corporation.

The owner-manager reports the bonus as employment income in the personal tax year when it is received, not when it is accrued. CPP contributions and income tax withholding apply at the time of payment. Coordinate the bonus amount with your accountant before year end — the goal is usually to reduce corporate income to the small business deduction limit while not pushing personal income unnecessarily into the top marginal bracket.