# T2125 form: a part-by-part guide for sole proprietors

Source: https://canadataxdesk.com/self-employed/t2125-form-self-employed
Publisher: Canada Tax Desk (canadataxdesk.com), independent editorial site
Topic: Self-Employed
Last updated: 2026-10-22

> The T2125, Statement of Business or Professional Activities, is the CRA form a sole proprietor or partner files with the T1 return to report business income, expenses and net profit. You complete one T2125 for each business, and the net income on line 9946 flows to line 13500, 13700 or 13900 of your return.

## Key facts

- Full name: T2125, Statement of Business or Professional Activities
- One form per: Business you operate
- Gross income line: Line 8299
- Net income line: Line 9946, carried to T1 line 13500, 13700 or 13900
- Meals and entertainment: 50% deductible, line 8523
- Guide: T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income

## What is the T2125 form for?

The T2125 is the statement a self-employed person uses to show the CRA how business profit was calculated. It combines two older forms, the T2124 for business activities and the T2032 for professional activities, so freelancers, trades, consultants, commission earners and professionals all use the same T2125 form today.

You do not send receipts with it. The form summarizes your year: gross sales, cost of goods sold if you sell products, each expense category, capital cost allowance and home office costs. The CRA can ask for the records behind every line later, which is why the checklist below matters.

### Who needs to file a T2125?

- Sole proprietors with business or professional income, including side businesses and gig work.
- Partners in a partnership, reporting their share of the partnership's income.
- Self-employed commission salespeople.
- Not incorporated businesses: a corporation reports on its T2 return with Schedule 125 instead.
- Not farmers and fishers: farming income goes on Form T2042 and fishing income on Form T2121.

## Records to gather before you start the T2125

Having your records sorted first saves most of the time the form takes. The CRA expects you to keep these records for six years from the end of the tax year they relate to.

## Part 1: identification

Part 1 asks for the business name, address, fiscal period, main product or service and a six-digit industry code from the North American Industry Classification System (NAICS). Choose the code that matches the activity that brings in most of your income; the T4002 guide lists them. Most sole proprietors must use a calendar-year fiscal period, January 1 to December 31.

If you are a partner, you also enter the partnership's business number or filer identification number and your percentage share. If you are registered for GST/HST, enter your business number here as well.

## Part 2: internet business activities

Part 2 asks whether you earn income from web pages or websites, how many you earn income from, and what percentage of your gross income was generated online. Include selling through your own site, auction and marketplace platforms, affiliate programs and advertising revenue. A plumber whose customers merely find them online does not count that as internet income.

## Part 3: how to report business or professional income on the T2125

Part 3A is for business income and Part 3B for professional fees. Enter gross sales, commissions or fees **including** GST/HST collected or collectible, then subtract the GST/HST, provincial sales tax, returns, allowances and discounts on the next line. The result becomes line 8000 in Part 3C, and line 8299 shows your gross business or professional income after adding reserves and other income.

Report the full amount you earned, not just what appears on slips. A T4A from a client, or an annual summary from a platform, is a cross-check, and the CRA matches those slips to your return. Your gross figure also goes on the T1 as the gross amount on line 13499 (business), 13699 (professional) or 13899 (commission).

> **Registered for GST/HST with the quick method?:** If you use the quick method, the GST/HST you keep because of the lower remittance rate is income. It is reported on the T2125, typically under other income, not left out.

## Part 4: cost of goods sold

Businesses that sell products fill in Part 4: opening inventory, purchases during the year, direct wage costs, subcontracts and other costs, minus closing inventory. The result is subtracted from sales to arrive at gross profit. Service businesses with no inventory can skip it.

## Part 5: T2125 expenses and net income

Part 5 lists each expense category with its own line number. Enter only the business portion of any shared cost. The table shows the lines most sole proprietors use; the full rules for what qualifies are on the [business expenses page](https://canadataxdesk.com/self-employed/business-expenses-canada).

| Line | Expense |
| --- | --- |
| 8521 | Advertising |
| 8523 | Meals and entertainment (enter 50% of the cost) |
| 8690 | Insurance |
| 8710 | Interest and bank charges |
| 8760 | Business taxes, licences and memberships |
| 8810 / 8811 | Office expenses / office stationery and supplies |
| 8860 | Professional fees, including legal and accounting |
| 8910 | Rent |
| 9200 | Travel expenses |
| 9220 | Telephone and utilities, such as electricity, water and cable (business share) |
| 9281 | Motor vehicle expenses (not including CCA) |
| 9270 | Other expenses that no other line covers |

Common T2125 expense lines (T4002 guide)

Line 9368 totals the expenses and line 9369 shows net income before adjustments. Partners then allocate shares, and everyone moves on to capital cost allowance (line 9936) and business-use-of-home expenses (line 9945). Line 9946 is your final net income or loss.

## Business-use-of-home and vehicle expenses on the T2125

### Business-use-of-home (Part 7, line 9945)

You can claim a share of home costs only if the workspace is your principal place of business, or you use it only for business and regularly meet clients, customers or patients there. Divide the workspace area by the total area of the home and apply that share to heat, electricity, insurance, maintenance, and rent or mortgage interest and property taxes.

The claim cannot create or increase a business loss. Any amount you cannot use is carried forward to the next year. Owners should think twice before claiming CCA on the home itself, because capital gain and recapture rules can then apply when the home is sold.

### Motor vehicle expenses (Chart A, line 9281)

Add up fuel, insurance, licence and registration, maintenance, and interest or lease payments, then multiply by your business kilometres divided by total kilometres. The kilometre figures come from your logbook, which must show the date, destination, purpose and distance of each business trip, plus odometer readings at the start and end of the year. Chart A always uses actual costs: the per-kilometre rates Finance Canada sets each year (73 cents for the first 5,000 km in 2026) limit the tax-free allowances employers pay employees and are not a T2125 deduction.

### Capital cost allowance (Area A, line 9936)

Equipment, computers and vehicles are claimed through CCA. Examples of rates: Class 8 equipment 20%, Class 10 and 10.1 vehicles 30%, Class 50 computers 55%, Class 12 small tools under $500 100%. The first-year claim depends on the half-year rule and the Accelerated Investment Incentive rules for the year the asset became available for use.

## Do I file one T2125 per business?

Yes. The CRA asks you to fill in a separate T2125 for each business you operate. A graphic designer who also runs an online store files two forms, and each has its own industry code, income and expenses. The net amounts from all forms are added together on the T1.

Activities that are really one business, such as a bookkeeper who also does payroll for the same clients, go on one form. When the activities are unrelated, split them, because a later question about one business then does not pull in records from the other.

## Common T2125 mistakes and how to fix them

- **Leaving out GST/HST in line 3A and then also subtracting it.** Enter sales including GST/HST first, then remove the GST/HST on the next line, so it is not counted twice either way.
- **Claiming 100% of meals.** Only 50% of food, beverage and entertainment costs is deductible.
- **Deducting a laptop or vehicle as an expense.** These are capital purchases claimed through CCA over several years.
- **Paying yourself a salary and deducting it.** Drawings by a sole proprietor are not an expense.
- **Using a home office claim to create a loss.** The claim is limited to net income before that expense.
- **Missing platform or T4A income.** The CRA receives copies, and unmatched slips often lead to a reassessment.

If you already filed and spot a mistake, you can correct the T2125 figures through Change my return in My Account, ReFILE in your software, or Form T1-ADJ. CPP on the corrected profit is recalculated at the same time; see [CPP for self-employed people](https://canadataxdesk.com/self-employed/cpp-self-employed).

## How the T2125 fits into the rest of your return

Once line 9946 is final, your software carries it to the T1 and to Schedule 8 for CPP. If the result shows tax owing above $3,000, you may be required to make instalments next year. The overview in [self-employed taxes in Canada](https://canadataxdesk.com/self-employed) connects each of these steps, and a [T4A slip explainer](https://canadataxdesk.com/tax-slips/t4a-slip-canada) covers fees reported by clients.

## Step by step

1. **Gather records.** Collect invoices, platform summaries, T4A slips, receipts, bank statements and your vehicle logbook for January 1 to December 31.
2. **Complete identification.** Enter the business name, fiscal period, NAICS industry code and, if registered, your GST/HST business number.
3. **Report gross income.** Enter sales including GST/HST at line 3A, subtract GST/HST and returns, and confirm the total on line 8299.
4. **Enter expenses.** Record the business portion of each expense on its line, with meals at 50%, and check line 9369.
5. **Add CCA and home office.** Claim capital cost allowance on line 9936 and business-use-of-home expenses on line 9945 if you qualify.
6. **Carry net income to the T1.** Transfer line 9946 to line 13500, 13700 or 13900 and let Schedule 8 calculate CPP.

## Common questions

### Where do I get the T2125 form from the CRA?

The CRA publishes fillable and print PDFs of the T2125 on canada.ca, with versions for each year. The current one is for the 2025 tax year (t2125-fill-25e.pdf to fill in on screen, t2125-25e.pdf to print); the version for 2026 income had not been posted as of October 22, 2026. Certified tax software includes the form, so if you file with NETFILE you complete it inside the software instead of downloading it.

### Is the T2125 the same as T2 Schedule 125?

No. Schedule 125, Income Statement Information, belongs to a corporation's T2 return and reports the corporation's income and expenses using General Index of Financial Information (GIFI) codes; partnerships filing a T5013 return have their own Schedule 125. The T2125 is for individuals: sole proprietors and partners who report business or professional income on their personal T1 return.

### Can I file a T2125 if I had no expenses?

Yes. Report your gross income, leave the expense lines blank, and the gross figure becomes your net income. You still pay CPP on that net amount if it is above $3,500.

### What is line 9369 on the T2125?

Line 9369 is net income before adjustments: gross income minus the expenses in Part 5, before capital cost allowance and business-use-of-home expenses are subtracted.

### Does a T2125 need an industry code?

Yes. Part 1 asks for the six-digit NAICS industry code that best describes your main business activity. The T4002 guide lists the codes.

### Can a T2125 show a loss?

Yes, a business can report a loss on line 9946 and use it against other income, but the business-use-of-home claim cannot create or increase that loss. Expect questions if losses repeat year after year with no realistic path to profit.

## Sources

- [T2125 Statement of Business or Professional Activities](https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2125.html)
- [T4002 Self-employed Business, Professional, Commission, Farming, and Fishing Income](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002.html)
- [Business-use-of-home expenses](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/business-use-home-expenses.html)
- [Motor vehicle records](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses/motor-vehicle-expenses/motor-vehicle-records.html)