Fill Out CRA Form T2125 Online

What is Form T2125 used for

The form converts your gross revenue into net self-employment income using the CRA's standard categories. It covers identification of the business, gross income, cost of goods sold for businesses that carry inventory, operating expenses, business-use-of-home expenses, motor vehicle expenses, and capital cost allowance on equipment and other depreciable property.

The resulting net income or loss flows to the self-employment lines of your T1 return, where it is taxed with your other income and drives Canada Pension Plan contributions on self-employed earnings.

Who files Form T2125

Unincorporated self-employed individuals file it: sole proprietors, independent contractors, professionals in practice on their own account, and partners in a partnership that does not have to file a partnership information return in circumstances where the individual reports their share directly. Incorporated businesses do not use it; corporations file a T2 return instead.

If you have several unrelated activities, for example a consulting practice and a retail side business, complete a separate T2125 for each so income and expenses stay attributable to the right activity.

How to fill out Form T2125

Work through the parts in order, using your bookkeeping records for the fiscal period:

• Identification: your name, business name, address, main product or service, industry code, and your percentage of the business if there are partners.
• Internet business activities: how many websites earn income for the business, where that applies.
• Income: gross sales or professional fees, adjusted for items such as work in progress where the rules require it.
• Cost of goods sold: opening inventory, purchases, and closing inventory for businesses that sell products.
• Expenses: the CRA's expense categories, including advertising, meals and entertainment at the allowed portion, insurance, office costs, professional fees, rent, salaries, and travel.
• Motor vehicle and home office: kilometre-based business-use calculations for your vehicle and the workspace calculation for business-use-of-home expenses.
• Capital cost allowance: depreciation claims on vehicles, equipment, and other capital property, calculated in the CCA areas of the form.

Filing with your return and deadlines

The T2125 is filed as part of your income tax and benefit return, not on its own. Self-employed individuals and their spouses generally have until June 15 to file the return, but any balance owing is still due by April 30, so filing earlier usually makes sense when tax is payable.

Keep the records behind every line, including invoices, receipts, and your vehicle log, for at least six years. If your revenue is approaching the small supplier threshold, look into whether you also need to register for GST/HST, and consider professional advice as the business grows.