What is Form T2125 and How to Fill It In: Line by Line Overview
Form T2125, the Statement of Business or Professional Activities, is the form Canadian sole proprietors use to report self-employment income and expenses. If you run a business as an individual (not incorporated), you'll file this form along with your personal T1 income tax return each year.
Who Needs to File Form T2125?
You need to file form T2125 if you:
- Operate a business as a sole proprietor
- Work as an independent contractor or freelancer
- Have professional income (consultants, lawyers, accountants working for themselves)
- Earn income from a side business while employed elsewhere
You don't need this form if you're incorporated (you'd file a T2 corporate return instead) or if you only have employment income reported on a T4.
Overview of the Main Sections
Form T2125 has several parts that calculate your net business income, which then flows to line 13500 of your T1 return.
Identification and Business Information
At the top, you'll enter your name, social insurance number, and details about your business: business name, address, type of business, and fiscal period. Most sole proprietors use a December 31 year-end to match the calendar year.
Part 1: Revenues
Line 8000 is where you report your gross business income—all the money you earned from your business activities before any expenses. Don't subtract anything yet.
Part 3: Cost of Goods Sold
If you buy or make products to sell, you'll complete this section (lines 8300-8370) to calculate your cost of goods sold. This includes opening inventory, purchases, and closing inventory. Service businesses usually skip this section.
Part 4: Expenses
This is where you list all your business expenses, from line 8521 to 9270. Common expense categories include:
- Advertising (line 8521)
- Meals and entertainment (line 8523, usually only 50% deductible)
- Insurance (line 8690)
- Professional fees (line 8862)
- Office expenses (line 8810)
- Supplies (line 8860)
- Telephone and utilities (line 8890)
- Motor vehicle expenses (line 9281, with details on a separate chart)
- Home office expenses (line 9945, calculated on form T2125 or using the simplified method)
You can explore the home office deduction calculator and vehicle expense calculator to estimate these common deductions.
Part 5: Net Income (Loss)
Line 9946 shows your net income: revenues minus cost of goods sold minus expenses. This amount goes on line 13500 of your T1 return.
Worked Example with Simple Numbers
Sarah runs a freelance graphic design business. Here's her 2024 T2125:
Revenues:
- Line 8000: $45,000 (total client payments)
Cost of Goods Sold: Not applicable (service business)
Expenses:
- Line 8521 (Advertising): $1,200
- Line 8810 (Office expenses): $800
- Line 8860 (Supplies): $600
- Line 8890 (Telephone/Internet): $900
- Line 9200 (Software subscriptions): $1,500
- Line 9945 (Home office): $3,000
Total expenses: $8,000
Net Income (line 9946): $45,000 - $8,000 = $37,000
This $37,000 flows to line 13500 of Sarah's T1 return. She'll also calculate CPP contributions on Schedule 8 based on this net income.
GST/HST Considerations
If your revenues exceed $30,000 over four consecutive calendar quarters, you must register for a GST/HST number and charge tax on your services. The revenues you report on line 8000 should not include the GST/HST you collected—that gets reported separately on your GST/HST return. You can use the GST/HST calculator to help with your calculations.
For official guidance on completing form T2125, visit the CRA's T4002 guide.
Supporting Documentation
Keep all receipts, invoices, bank statements, and mileage logs for at least six years. You don't submit these with your return, but the CRA may ask for them if they review your file.
PlanTaxes.Pro helps you track income and expenses throughout the year, categorize them properly, and fill out your T2125 faster when tax time arrives.
This article is general information, not tax or legal advice.