How to use a T2125 form to report your professional income

Published Wednesday 26 November 2025

Table of contents

• What is the T2125 Form?
• Who is the T2125 Form designed for?
• What is the difference between professional income and business income?
• What expenses can I claim on the T2125 form?
• What kind of documentation do you need?
• How to fill out the T2125 Form
• When and how to file the T2125 form
• Get your T2125 form filing right with Xero
• FAQs on the T2125 form

Key takeaways

• Complete a separate T2125 form for each business or professional activity you operate, as self-employed individuals must file this form with their T1 personal tax return to report all business income and expenses.

• Maintain detailed documentation throughout the year including client invoices, business receipts, bank statements, and expense records, as proper record-keeping simplifies T2125 completion and ensures you can claim all eligible deductions.

• Claim all eligible business expenses such as advertising, office supplies, motor vehicle costs, business use of home expenses, and professional fees to reduce your overall tax liability.

• Submit your completed T2125 form with your personal tax return by June 15th, but ensure any taxes owed are paid by April 30th to avoid interest charges from the Canada Revenue Agency.

What is the T2125 Form?

The T2125 form calculates your business profit or loss for tax purposes. It serves three key functions:

• Income reporting: Documents all business revenue streams
• Expense tracking: Records deductible business costs
• Tax calculation: Determines final amount owed or refunded

This information directly impacts your tax refund or payment amount each year.

If you have more than one business or professional activity, you must complete a separate T2125 form for each one.

Who is the T2125 Form designed for?

Self-employment categories that require T2125 filing:

• Sole proprietorship: You own an unincorporated business with no shareholders
• Business partnership: You receive income from an unincorporated partnership
• : You work project-based for multiple clients
• Self-employed worker: You control your work schedule, provide equipment, and assume business costs

You can be both employed and self-employed. For example, you might work in a restaurant and also run a business selling crafts at weekend markets.

Exceptions to the T2125 Form:

• If you earn business income through fishing, you'll use the
• If your business income is from farming, you will use the T2042 Statement of Farming Activities form.

If you are unsure which form to use, ask a tax professional for advice.

What is the difference between professional income and business income?

Professional income comes from regulated professions with governing bodies:

• Dentists, lawyers, accountants
• Engineers, architects, doctors
• Licensed professionals with certification requirements

Business income comes from selling products or services:

• Freelance designers, consultants
• Retail stores, restaurants
• Service providers, contractors

This distinction affects which sections of the T2125 form you complete.

If you need help with the Canadian tax code, you can connect with an accounting professional for support.

What expenses can I claim on the T2125 form?

Claiming all your eligible business expenses on your T2125 form can help you reduce your tax bill. Keeping track of your expenses throughout the year makes this process much simpler.

You can claim expenses in these common categories:

• Advertising: Costs to promote your business, like social media ads or printing flyers.
• Meals and entertainment: Claim a portion of the costs for meals with clients to discuss business. Usually, only 50 per cent of these expenses are deductible.
• Insurance: Premiums for business-related insurance.
• Office expenses: Everyday items like pens, paper, and printer ink.
• Supplies: The cost of items your business uses to provide goods or services.
• Legal and accounting fees: Fees you pay for professional advice for your business.
• Motor vehicle expenses: A portion of your vehicle costs, like fuel and maintenance, based on its use for business.
• Business use of home expenses: Claim a portion of your home expenses, such as electricity and heating, if you work from home.

What kind of documentation do you need?

Required documentation for T2125 completion includes:

• Income records: Client invoices, payment receipts, bank statements
• Expense proof: Business receipts, credit card statements, bills
• Banking details: All business account transactions
• Professional records: Contracts, professional fees, membership costs

Digital tools like Hubdoc can automate document collection and organization, reducing errors and preparation time.

Use accounting software like Xero to track your income and expenses, and to issue invoices and quotes.

When you start earning revenue, it's important to immediately document your income and expenses. Small businesses that only have a few expenses can get by with a spreadsheet. If you use a spreadsheet, save it in the cloud so you can access it anywhere and keep it password protected.

If your business is growing or you need detailed data analysis, use accounting software.

How to fill out the T2125 Form

The T2125 form contains nine sections across seven pages. You can access it through:

• CRA website: Direct download from official source
• Tax software: Programs like TaxCycle include guided completion
• Accountants: Professional preparation and filing services

Each section covers a different part of your business finances.

Part 1: Identification

Enter your personal and business information.

This includes your full name and Social Insurance Number (SIN). You'll also need to provide your business name, address and CRA business number.

Add your business details, such as your industry code and the products or services you offer.

Part 2: Internet business activities

Complete this section if your business has a website that generates income. Enter each relevant URL and the percentage of gross income from each.

Part 3: Income types and cost of goods sold

Use this section to record your income and expenses. There are four parts to this section.

• 3A Business income: Only complete if you have business income, not professional income
• 3B Professional income: Only complete if you have professional income
• 3C Gross business or professional income: This is the gross total you calculated in either 3A or 3B
• 3D Cost of goods sold and gross profit: Deduct certain costs such as opening inventories and wages to calculate your gross business profit

Part 4: Net income (loss) before adjustments

Report any expenses over the year, and differentiate by categories. Some costs, such as most fines and penalties, are not deductible. Some deductible expenses include office expenses, insurance, travel expenses, licenses and memberships, advertising and marketing, capital cost allowance (CCA), motor vehicle expenses (not including CCA), property taxes and bad debts. The CRA has a full list of deductible expenses and more information about filling out this section.

Part 5: Your net income (loss)

This section lets you calculate your final net income or loss for the year. You can read more about this section on the CRA page.

Part 6: Other amounts deductible from your share of the net partnership income (loss)

Claim any other business expenses that do not fit into Part 4 or Part 5 here. Do not enter the same expense more than once.

Part 7: Calculating business use of home expenses

If you work from home, you can claim a portion of expenses such as heating, electricity, and mortgage interest.

Part 8: Details of other partners

This section is only for those in a business partnership. Provide the contact details, names and addresses of your partners and percentages of their shares.

Part 9: Details of equity

Report any debts the business owes, and all the personal contributions or withdrawals you made for the business. This includes any startup cash you entered the business with and if you used your savings for the running of the business.

When and how to file the T2125 form

Filing process for T2125:

1. Gather documents: All income and expense records
2. Complete T2125: Each relevant section
3. Submit with T1: Include with personal tax return

Filing options:

• Mail: Send completed forms to CRA
• : Submit online directly
• Professional:Accountant handles EFILE submission

Critical deadlines:

• June 15: Self-employed tax return deadline
• April 30: Payment due date (avoid interest charges)

Get your T2125 form filing right with Xero

Tax time does not have to be stressful. With organized records and a clear view of your finances, you can file with confidence. Using accounting software throughout the year helps you automate record-keeping, track expenses as they happen, and see your business performance in real time.

When you use accounting software, you have all your information ready for tax time. You can save time, reduce errors and focus on running your business. Try Xero to manage your finances and prepare for tax time. Start a free trial.

FAQs on the T2125 form

Here are answers to some common questions about the T2125 form.

I work under contract. Am I an employee or self-employed?

If the payer controls your work, you are an employee. If you control your work, services, and fees, you are self-employed. The CRA has more information on the difference.

What should partnerships be aware of?

Each partner has to complete a T2125 Form. Document the terms and conditions of your partnership. Include share percentages, salary details, decision-making processes, and business goals.

What if I have several businesses or professions?

Each business activity needs its own T2125 Form.

What does capital cost allowance mean?

You can deduct the cost of certain depreciable property over time.