Know About the T2125 Form for Canadian Businesses
One of the most important Canadian documents for your business or professional activities is T2125. It’s applicable if you run a small business, freelance on the side, consult, create content, or earn any type of self-employed income in Canada. Its official name is the Statement of Business or Professional Activities. It is a mix of two previous forms, T2124, Statement of Business Activities, and T2032, Statement of Professional Activities.
The T2125 form is filed with your personal tax return. Sole proprietors and self-employed individuals report to the CRA how much they earned and what they spent on running their business. Check out this Bizincs guide for everything you need to know about the T2125 form.
Who Files T2125?
Earning money independently, not as an employee, makes you eligible to file the form T2125. Your income might come from your:
- Sole proprietorship
- Partnership (your share of the income/expenses)
- Freelancing (writing, design, consulting, tutoring, gig work)
- Side hustles (Airbnb, cleaning, online store, coaching, etc.)
- Professional activities (accountants, doctors, lawyers, consultants)
- Home-based businesses
When not to File T2125?
You do not file a T2125 if you own a corporation. Incorporated businesses report income through a separate corporate tax return (T2), not your personal taxes.
For employment income, also, T2125 is not the form to fill out.
If you have rental income only, you must use the T776 form, not T2125.
What does the T2125 do?
The T2125 form lets you calculate your net income. This number helps CRA decide the tax amount you owe. The things it covers are detailed here.
| Things Covered | What You Report |
| Gross Income | Sales or services revenueCommissionsPayments from clientsAny other business-related earnings |
| Legitimate Business Expenses | Advertising & marketingOffice suppliesBank feesTravel & meals (portion allowed)Phone & internetVehicle expensesProfessional fees (accounting, legal)InsuranceSalaries or subcontractor paymentsEquipment and toolsSoftware and subscriptions |
| Capital Cost Allowance (CCA) | LaptopsCamerasVehiclesOffice furnitureWork equipmentAll long-term assetsCCA enables you to claim a percentage each year instead of deducting the full cost at once. |
| Home Office Deductions | Rent or mortgage interestUtilitiesProperty taxHome insuranceMaintenanceApplicable when you use a part of your home for business. Claim a share of these portions. The amount depends on the workspace size and how often it is used for businesses. |
| Vehicle and Mileage Expenses | Claim the expenses for your business drives:GasRepairsInsuranceLease or depreciationParkingYou must keep a mileage log to support your claim. |
Make sure you keep the proof for every deduction you claim because CRA can ask you anytime about it.
The Importance of T2125
You file the T2125 form because it matters in the following ways:
- Lowers Your Taxes: You report all your eligible expenses and pay tax only on profit, not the total sales. It lowers your taxes.
- Needed By Law: If you have self-employment income, you must file it using the T2125. When you fail to report business income, you have to pay penalties.
- Transparent Finances: When you fill out the T2125 form, you get to know your income and expenses, keeping you organised and making CRA reviews smoother.
T2125 Mistakes You Should Avoid
If you’re a self-employed Canadian, you may run into a few issues. These may cause a lot of problems in your form submission and review. So, avoid them as follows:
- Mixing personal and business expenses
- Not tracking mileage
- Forgetting home office deductions
- Claiming ineligible expenses
- Not keeping receipts
- Guessing numbers instead of keeping records
- Claiming 100% of something used only partially for business
How to File a T2125 Form?
A T2125 form is not submitted separately. It is included in your T1 personal tax return. However, you can simplify the filing process through the following methods:
- DIY tax software (TurboTax, Wealthsimple Tax, TaxFreeway)
- Accountant or tax professional
- CRA’s certified software options
Software may also give you a step-by-step guide to complete the T2125.
Conclusion
The T2125 form is essential for anyone earning self-employed or business income in Canada. It’s where you report how much you made and deduct the expenses you incurred to run your business. Doing it properly can save you a significant amount of tax and keep your business compliant with the CRA.
