Employment benefits/expenses

According to the income tax act, employment is defined as the position of an individual in the service of some other person.

 

Bonus

Bonus is taxable to the employee as the employee receives it not when it is declared. However, employer can deduct this amount when it is declared if the bonus is paid within 180 days of the business year end. If it is paid after the 180 days after it is declared but before 3 years after the year end, then the employer can deduct the bonus amount when it is paid. However, if the bonus is paid after 3 years after the year end, the employer deducts it when it is earned. The table below summarizes the tax consequences of different types of bonus received by employees.

 

Types of Bonus Tax Consequences
Standard Bonus (Paid within 180 days of business year end) The employer deducts when declaredThe employee includes when received
Other Bonus (Paid more than 180 days after the employer’s year end, but prior to three years after the end of the year in which the bonus was earned) The employer deducts when paidThe employee includes when received
Salary Deferral Arrangement (Paid more than three years after the end of the year in which it was earned) The employer deducts when earnedThe employee includes when earned
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