Small business corporations often use year end bonuses to defer tax payments for a few months. As long as the bonuses are reasonable and they are properly documented, this technique is acceptable to the Canada Revenue Agency.

If a corporation with a July 31st year end has taxable income, its taxes are due no later than October 31st in most cases. It may declare bonuses payable to its shareholders or employees as at July 31st and deduct them for tax purposes. The bonuses must be included in the income of the shareholders or employees no later than 180 days from the year end date, in this case January 27th of the following year. Employee deductions on the bonuses must be remitted by February 15th (or February 10th for accelerated remitters.)

By using this technique, the due date for the tax payments has been deferred from October 31st of one year to February 15th of the following year.

The shareholders must also consider corporate and personal tax rates and all of the other factors that affect their tax planning and administration when considering the use of bonuses.

Please contact your accountant at Harvey, Lister & Webb Incorporated to discuss the possibilities.

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