Income Tax Act s. 127(26): Payments 180 Days from Year End

SR&ED salaries and other current expenditures only earn investment tax credits once they are actually paid. Under subsection 127(26), an amount still unpaid 180 days after the taxation year-end is deemed not to have been incurred until the year it is paid. Unpaid bonuses and accrued salaries, especially amounts owing to owner-managers, are a common audit target under this rule.

Text of the Provision

127(26) For the purposes of subsections 127(5) to 127(25) and section 127.1, a taxpayer’s expenditure described in paragraph 37(1)(a) that is unpaid on the day that is 180 days after the end of the taxation year in which the expenditure is otherwise incurred is deemed

(a) not to have been incurred in the year; and

(b) to be incurred at the time it is paid.

Source: Income Tax Act (Canada), subsection 127(26), as consolidated May 14, 2010. Archived excerpt; subsequent amendments are not reflected. For the current text see the Income Tax Act at Justice Laws.