Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Deductibility of year-end bonus accruals. Whether amount is to be based on actual employee-by-employee calculation or on an estimated aggregate, best efforts basis, if amount is paid within 180 days of the year end.
Position:
Accruals based on an employee-by-employee calculations would be preferred. However, estimated amount based on an aggregate and best efforts basis can be used if the amount is paid with 180 days of the year-end. The best efforts basis should take into account the reasonableness of the amount in the circumstances and the history of bonus accruals and payments made in previous years.
Reasons:
Requirements of subsection 78(4) in respect of 180 day after the year-end rule and section 67 regarding reasonability of the amount.
CANADIAN PETROLEUM TAX SOCIETY
Question 10
In determining the deductibility of bonus accruals for a taxation year, do the accruals have to be based on actual amounts, on an employee-by-employee basis? Or can the amount accrued be an estimated aggregate for all employees, using a best efforts basis, as long as the aggregate amount is paid within 180 days of the taxation year?
Response
With regard to the deductibility of bonus accruals in a taxation year, actual or estimated amounts on an employee-by-employee basis would be the preferred method for determining the accrual amount. However, bonus accruals in respect of a taxation year can be estimated for all employees, determined on an aggregate and best efforts basis, as long as the aggregate amount is paid within 180 days following the end of the year. What is considered a best efforts basis will depend on the facts of the particular case and should take into account the history, if any, of bonus accruals and payments made in previous years and whether the estimated amount is reasonable in the circumstances.
File 2000-005078
F.B. Fontaine
2000/10/18