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 do I input on the T2125 form?
You calculate your gross income and your net income after deducting all your business expenses such as:
- home office expenses
- motor vehicle expenses
- legal fees, interest, and bank charges
- repairs and maintenance
- travel expenses
- motor vehicle expenses
- salaries paid to employees
- capital cost allowance CCA
- meals and entertainment
I work under a 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 as you would have received a T4 and that is recorded under employment income.
- However, you might be eligible to claim employment expenses if your employer provides you with a T2200 form. The employer has to agree on the expenses you incurred to earn income before you can claim them. You do not file the T2200, instead, you fill the T777, Statement of Employment Expenses form to claim the expenses in your return. Keep the T2200 for your record in case CRA asks for it.
- 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.
All partners report the same information on the T2125, your percentage is taking into account once you add in your partner details and their percentage of ownership.
Business Income vs Professional Income
What is business income?
- You have business income when you do an activity for profit. That 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 a 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, or accountant).
- 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 a 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. Complete part 7 of the T2125 form.
- On the form, you calculate the total expenses and subtract the personal-use part.
- Track all year long and be aware of what you are allowed to deduct.
- Not everything is an allowable expense.
Can I claim expenses for a vehicle that I use for personal and business use and how can I claim these expenses?
Yes, you can claim vehicle expenses if you use the same car for business and personal purposes. However, you can deduct the expenses related to earning business income only. Use chart A in the T2125 form to calculate the business use portion of your vehicle. Then add the result to the expenses in Part 4.
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.
Calculate your CCA by using chart A of your T2125 form. You can claim tools, furniture, vehicles, etc.
For detailed information on the T2125, consult Guide T4002, Business, and Professional Income.
TurboTax Self-Employed helps you easily manage your business earnings and expenses. However, if you feel a bit overwhelmed, consider TurboTax Live Assist & Review, Self-Employed, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service for Self-Employed* and have one of our tax experts do your return from start to finish.
*TurboTax Live™ Full Service is not available in Quebec.