Year-End Bonus Calculator: Cut Income to the $500,000 Limit
The classic advice is to bonus down to the small business limit. Run the numbers and it is far closer than that advice suggests. Work out the bonus, what it genuinely costs against leaving the money in, and the deadline for paying an accrual.
bonus to reach the limit
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The Real Comparison
| Route | Corporate Tax | Personal Tax | Total | You Keep |
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What the Bonus Costs Right Now
| Item | Basis | Amount |
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The Deadlines
| Obligation | Basis | Date |
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Points That Decide This
What to Do Next
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Disclaimer: Income above the small business limit is taxed at the Ontario general rate of 26.5%, and after-tax income taxed at that rate is added to the general rate income pool, allowing an eligible dividend taxed at 39.34% at the top Ontario rate. A bonus is deductible to the corporation and taxed to the recipient at personal rates reaching 53.53%. The comparison shown assumes the retained amount is eventually distributed as an eligible dividend at the top rate, which is the only basis on which the two routes are comparable. Personal tax uses 2026 federal and Ontario brackets with the surtax and approximate basic personal amounts of $16,500 and $12,950. The Ontario small business rate fell to 2.2% effective 1 July 2026, giving a combined small business rate of 11.2%. Under subsection 78(4) an accrued bonus must be paid within 179 days of the corporation’s year end or the deduction is deferred to the year of payment. Registered retirement savings plan room is 18% of earned income to the annual limit. This page is general information, not tax advice.
The Advice Is Older Than the Arithmetic Supports
“Bonus down to the small business limit” was standard guidance for years. It rests on the idea that income above the limit is taxed punitively at 26.5% and should be stripped out. Run the full comparison and the gap is under two percentage points.
| On $250,000 Above the Limit | Total Tax | You Keep |
|---|---|---|
| Bonus it out now | 53.53% | $116,175 |
| Leave it in, distribute as an eligible dividend later | 55.41% | $111,475 |
The bonus wins by about 1.9 points, not by the twenty-seven points the corporate rate difference suggests. That is integration working as designed. Income taxed at the general corporate rate creates general rate income pool, which supports an eligible dividend at 39.34% rather than a non-eligible one at 47.74%.
What the Simple Comparison Misses
Comparing corporate tax saved against personal tax paid makes a bonus look catastrophic. It converts a 26.5% corporate charge into a personal charge above 50%, which on the face of it is a loss of more than twenty points.
That comparison is wrong because the corporate tax is not the end of the story. The money still has to come out. The only honest comparison is total tax through to the shareholder’s pocket, and on that basis the routes are almost identical.
The Deferral Is the Real Argument Against Bonusing
If the money is not needed personally, leaving it in the corporation defers the personal layer indefinitely. On $250,000 that is roughly $69,000 of personal tax not paid this year, available to work in the business instead.
A 1.9 point eventual advantage does not justify paying $124,000 of personal tax today on money you do not need. If the funds are staying in the business, the deferral is worth far more than the integration gap. The bonus only makes sense where you want the cash personally, or where one of the reasons below applies.
When a Bonus Still Makes Sense
- You want the money anyway. If you were going to draw it, salary beats an eligible dividend by about two points.
- RRSP room. Only salary creates it. A bonus of $187,833 or more generates the full annual maximum, and dividends generate none.
- Avoiding the passive income grind. Retained earnings that get invested produce investment income, which can reduce next year’s small business limit.
- Canada Pension Plan contributions, where you want the entitlement.
- A one-off spike in income that will not repeat, where the general rate applies once rather than structurally.
- Cleaning up a shareholder loan, where a bonus clears a debit balance that would otherwise be taxable.
The 179 Day Rule
A bonus can be accrued in one year and paid in the next, which is how the deduction is claimed in the year the income arose. Subsection 78(4) requires it to be paid within 179 days of the corporation’s year end.
Miss that and the deduction is denied in the accrual year and deferred to the year of payment, which usually defeats the entire purpose. Source deductions are due by the fifteenth of the month following payment, so the cash needs to be there for both.
| Year End | Bonus Must Be Paid By |
|---|---|
| 31 December 2026 | 28 June 2027 |
| 30 June 2026 | 26 December 2026 |
| 30 September 2026 | 28 March 2027 |
The Ontario Rate Cut Changes the Baseline
Ontario reduced its small business rate from 3.2% to 2.2% effective 1 July 2026, so the combined small business rate is now 11.2% rather than 12.2%. That widens the gap between the small business rate and the general rate to 15.3 points.
It makes the small business limit more valuable and makes protecting it, through the associated group allocation and by managing investment income, worth more than it was.
Do the Comparison Before the Year End, Not After
- Project the taxable income with enough time to act, which means the tenth or eleventh month, not after the books close.
- Check the small business limit is actually $500,000, since sharing across an associated group or the passive income grind may have reduced it.
- Decide whether you want the cash, because that question settles it more often than the tax arithmetic does.
- Accrue by the year end if you are bonusing, and diarise the 179 day date.
- Fund the source deductions, which follow the payment rather than the accrual.
The right answer is usually about cash flow rather than tax. The integration gap is small enough that whether you want the money personally should drive the decision. Our tax planning service covers the projection, the bonus decision and the accrual.
Frequently Asked Questions
Common questions on year-end bonusing.
Related Calculators and Guides
More tools for year-end planning.
Do This in Month Eleven, Not in February
Send us your projected income and the year end. We will confirm the actual small business limit, run the comparison properly, and set the accrual and the 179 day payment date.