T2125 Tax Form: Declare income and expenses from a business or profession
Who is the T2125 tax form designed for?
The Statement of Business Activities is used to calculate your business or professional income as a self-employed person. Use it if you are the only person in the business (sole proprietorship) or if you are in business with one to five other people (partnership).
What can I do on the T2125 form?
You calculate your gross income and your net income after deducting all your business expenses like advertising, rent, home office and motor vehicle expenses.
I work under contract. Am I an employee or self-employed?
- You are an employee if your employer decides where, when, and how the work is to be done; establishes your working hours; determines your salary amount; supervises your activities; and assesses the quality of your work. Do not use the T2125 to indicate your income.
- You are self-employed if you control the time, place, and manner of performing your activities; supply your own equipment and tools, and assume the rental and maintenance costs; make a profit or incur a loss, and cover operating costs; and integrate your client's activities into your own business activities. You can use the T2125 to report your income and expenses.
Are there special rules for partnerships?
If there are more than five partners, they will have to file a T5013 Partnership Information Return. Otherwise, each partner fills out the CRA’s T2125 form to report their share (percentage) of the partnership’s income and expenses.
What is business income?
You have business income when you do an activity for profit. It includes selling a product and providing a service. Business income includes sales, commissions or fees. You may or may not get a T-slip indicating that income.
What is professional income?
It is the same as business income, except that you got paid as a member of an officially recognized profession that has a governing body (i.e. engineer, health professional, lawyer, accountant, etc.) In addition, you may have work-in-progress (WIP) that you may want to deduct from your income.
What if I have several businesses or professions?
In that case, use a separate T2125 for every business or profession. If you have business and professional income, use two separate T2125 forms.
I have a home office. Where do I claim a portion of my expenses like home insurance and property taxes?
You claim those expenses in the business-use-of-home section. On the form, you calculate the total expenses and subtract the personal use part.
What does capital cost allowance mean?
Buildings, furniture and equipment that you use in your business or professional activities depreciate over time. Since you can deduct their cost over a period of time, the deduction is called a capital cost allowance (CCA). The form allows you to keep track of the CCA from year to year.
For more information, please check the CRA website.
For detailed information on the T2125, consult Guide T4002, Business and Professional Income.
For more information about partnerships, consult the T4068, Guide for the T5013 Partnership Information Return.