Basics, Business Income, Income & Investments

Small Business Tax Tips: Filing a T2125

June 15 is the tax filing deadline for self-employed individuals and small business owners. If it’s your first year filing taxes as self-employed, filling out your T2125 (Statement of Business or Professional Activities) may seem like a daunting task. In reality, completing a T2125 is simpler than you may think with these three simple steps.

Step 1 – Identification

Part 1: The identification section of form T2125 holds the basic info about your business including your name, the name, and address of the business (if your business doesn’t have a name you can just use your name and address), and your business’s main product or service. Other details such as the proper industry code and percentage of ownership are also required to complete this section. You will need the following information as well:

  • Fiscal period: when did you start and end your business activities in the year
  • Accounting method: the method used to account for the business income and it depends on the type of business
  • Business number if you have one registered with CRA. Not all self-employment income requires a business number.
  • Partnership business number and your percentage of the partnership

Part 2: If your business earns income from websites or web pages, identify the sites/pages in the section titled Internet Business Activities located just below the identification section.

Step 2 – Income Section

Part 3: Depending on the type of business you have, the income section can be quite straightforward. If you offer a service, such as landscaping, for example, enter the total amount you received from your clients. If you collected GST/HST, be sure to fill in the proper blanks in the income section to account for this. The income section can be more complex depending on if you had an opening inventory, paid subcontractors, or gave allowances or discounts:

  • Part 3A: business income and not the professional income
  • Part 3B: professional income: for example; dentist clinic, accounting firm, etc.
  • Part 3C: gross business or professional income: calculate the adjusted gross income that will be reported in your line 13499, line 13699, or line 13899
  • Part 3D: cost of goods and gross profit: calculate the gross business profit after deducting some costs such as direct wages, opening inventories, purchases.

Step 3 – Expenses

The expenses section of the T2125 has a number of parts. Straightforward expenses such as advertising, wages, and insurance are simple fill-in-the-blanks. But your business may have incurred other expenses that require a bit more calculation. Vehicle expenses for example must be calculated using the percentage of kilometres the vehicle was used for business versus personal use. If your primary workspace was a home office, claiming related expenses is also a calculation based on the size of your home office versus the size of the home.

If you purchased the capital property for your business such as a building, office equipment, or a computer, you may only claim a percentage of the expense each year based on the class of the property. Determining the proper amount to claim is done via the Capital Cost Allowance (CCA) chart in the expenses section.

  • Part 4: income loss before adjustments: starting from your gross income in part 3C, deduct your business expense: advertising, meals, bad debts, utilities, etc.
  • Part 5: calculate your net income or loss
  • Part 6: other deductions from your partnership that were not reimbursed to you.
  • Part 7: business use of home-expenses: calculate the percentage of the space of your house that you use to generate income and deduct home expenses accordingly.
  • Part 8: list the name and addresses of your partners and their share percentages
  • Part 9: Details of your business equity
  • Area A: calculate the capital cost allowance of your depreciable properties.
  • Area B: list new capital properties additions
  • Area C: list new building additions
  • Area D: list equipment that was disposed of in the tax year
  • Area E: list building disposition (not including the land) in the tax year
  • Area F: list land dispositions
  • Chart A: motor vehicle expenses owned or leased. You will have to calculate the business use percentage of your vehicle and deduct expenses accordingly
  • Chart B: calculate the interest you paid on your passenger vehicle and zero-emission passenger vehicle
  • Chart C: eligible leasing cost for passenger vehicle: if you are leasing instead of owning, you can deduct your leasing cost to a maximum amount instead of calculating the CCA

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