Published Monday 22 June 2026

Table of contents

• Key takeaways
• What is the T2125 form?
• Who needs to file the T2125 form?
• Business income vs. professional income
• What expenses can you claim on the T2125 form?
• Common mistakes to avoid when filing the T2125
• What documentation do you need?
• How to fill out the T2125 form
• Understanding capital cost allowance (CCA)
• When and how to file the T2125 form
• Simplify your T2125 filing with Xero
• FAQs on the T2125 form

Key takeaways

• The T2125 is the CRA form self-employed Canadians use to report business income and expenses with their T1 personal tax return. You need a separate T2125 for each business or professional activity you operate.
• You can claim a wide range of deductible expenses, from advertising and office supplies to motor vehicle costs and business-use-of-home expenses, to reduce your overall tax bill.
• Keep detailed records of all income and expenses for at least 6 years, as the CRA can request documentation at any time during that period.
• Your tax return is due by June 15 if you're self-employed, but any balance owing must be paid by April 30 to avoid interest charges.

What is the T2125 form?

The T2125 form is the Canada Revenue Agency's (CRA) Statement of Business or Professional Activities. Self-employed Canadians use it to report business income and expenses with their T1 personal tax return.

The form calculates your business profit or loss for tax purposes. It serves 3 key functions:

• Income reporting: documents all your business revenue streams
• Expense tracking: records your deductible business costs
• Tax calculation: determines the final amount you owe or get refunded

This information directly affects your tax refund or payment amount each year. If you have more than 1 business or professional activity, you must complete a separate T2125 form for each one.

Who needs to file the T2125 form?

If you earn income from self-employment in Canada, you'll likely need to file a T2125 form. This applies whether self-employment is your primary income or a side activity.

Self-employment categories that require T2125 filing include:

• Sole proprietors: you own an unincorporated business with no shareholders
• Business partners: you receive income from an unincorporated partnership
• Freelancers: you work on a project basis for multiple clients. See our guide on freelance taxes in Canada for more detail on filing requirements.
• Gig workers: you earn income through rideshare driving, food delivery, or similar platforms
• Content creators: you earn revenue from online platforms, sponsorships, or digital products
• Self-employed workers: you control your own work schedule, provide your own equipment, and assume business costs

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

GST/HST registration

If your self-employment revenue exceeds $30,000 in a single calendar quarter or over 4 consecutive calendar quarters, you must register for a GST/HST account. Once registered, you'll collect GST/HST from your customers and remit it to the CRA.

Exceptions to the T2125 form

Not all self-employment income uses the T2125. If you earn business income through fishing, you'll use the T2121 Statement of Fishing Activities form. If your business income is from farming, you'll use the T2042 Statement of Farming Activities form.

If you're unsure whether you're considered an employee or self-employed, the CRA has guidance on the difference. You can also ask a tax professional for advice.

Business income vs. professional income

The T2125 form distinguishes between business income and professional income. This distinction affects which sections of the form you complete, so it's helpful to understand the difference before you start.

Professional income comes from regulated professions with governing bodies:

• Dentists, lawyers, and accountants
• Engineers, architects, and doctors
• Other licensed professionals with certification requirements

Business income comes from selling products or services:

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

NAICS industry codes

When completing the T2125, you'll need to provide a North American Industry Classification System (NAICS) code that describes your business activity. The CRA uses these codes to classify your type of business. You can find the correct code for your industry on the CRA's T2125 completion guide.

What expenses can you claim on the T2125 form?

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

You can claim expenses in these common categories:

• Advertising (line 8521): costs to promote your business, such as social media ads or printing flyers
• Meals and entertainment (line 8523): you can claim 50% of the cost of meals with clients when discussing business
• Insurance (line 8690): premiums for business-related insurance policies
• Office expenses (line 8810): everyday items such as pens, paper, and printer ink
• Supplies (line 8811): the cost of items your business uses to provide goods or services
• Legal and accounting fees: fees you pay for professional advice related to your business
• Motor vehicle expenses (line 8710): a portion of your vehicle costs, such as fuel and maintenance, based on business use
• Business-use-of-home expenses: a portion of your home expenses, such as electricity and heating, if you use a dedicated workspace

The CRA has a full list of deductible expenses and more detail about each category.

Common mistakes to avoid when filing the T2125

Filing your T2125 accurately helps you avoid reassessments, penalties, and missed deductions. Here are the most common mistakes self-employed Canadians make.

• Mixing personal and business expenses: keep your personal and business spending separate. Open a dedicated business bank account and use it exclusively for business transactions.
• Forgetting income from side gigs: all self-employment income must be reported, including occasional freelance work, gig platform earnings, and cash payments.
• Filing 1 form for multiple businesses: if you operate more than 1 business or professional activity, you need a separate T2125 for each one.
• Missing the payment deadline: your tax return is due June 15, but any balance owing must be paid by April 30. Interest starts accumulating on May 1 if you haven't paid.
• Not keeping records long enough: the CRA requires you to keep all business records and supporting documents for at least 6 years from the end of the tax year they relate to.

What documentation do you need?

Good record-keeping throughout the year makes completing your T2125 much easier. Our guide on how to track business expenses covers the essentials. The CRA requires you to keep all business records and supporting documents for at least 6 years from the end of the last tax year they relate to.

Required documentation for your T2125 includes:

• Income records: client invoices, payment receipts, and bank statements
• Expense proof: business receipts, credit card statements, and bills
• Banking details: all business account transactions
• Professional records: contracts, professional fees, and membership costs

Digital tools like Hubdoc can automate document collection and organization, reducing errors and preparation time. You can also use accounting software like Xero to track your income and expenses, and to issue invoices and quotes.

When you start earning revenue, begin documenting your income and expenses right away. Small businesses with only a few expenses can get by with a spreadsheet. If your business is growing or you need detailed data analysis, accounting software gives you better visibility and saves you time.

How to fill out the T2125 form

The T2125 form contains several sections covering different aspects of your business finances. You can access it through:

• The CRA website: download directly from the official source
• Tax software: programs like TaxCycle include guided completion
• An accountant: professional preparation and filing services

Here's what each part of the form covers.

Part 1: Identification

Enter your personal and business information in this section. This includes your full name, Social Insurance Number (SIN), business name, address, and CRA business number.

You'll also need to provide your NAICS industry code and a description of the products or services you offer. You can look up your code on the CRA's website.

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 site.

Part 3: Income types and cost of goods sold

Use this section to record your income. There are 4 parts:

• 3A Business income: complete this only if you have business income, not professional income
• 3B Professional income: complete this only if you have professional income
• 3C Gross business or professional income: 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 your expenses over the year, broken down by category. Some costs, such as most fines and penalties, aren't deductible.

Deductible expenses include office expenses, insurance, travel expenses, licences and memberships, advertising, capital cost allowance (CCA), motor vehicle expenses, 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. Transfer the result to your T1 personal tax return.

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

Claim any other business expenses that don't fit into Part 4 or Part 5 here. Don't 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. Calculate the percentage of your home used for business and apply it to your eligible costs.

Part 8: Details of other partners

This section is only for those in a business partnership. Provide the names, addresses, and contact details of your partners along with the percentage of each partner's share.

Part 9: Details of equity

Report any debts the business owes, and all personal contributions or withdrawals you made for the business. This includes any startup capital you invested and any savings you used for business operations.

Understanding capital cost allowance (CCA)

Capital cost allowance (CCA) lets you deduct the cost of depreciable property over several years instead of claiming the full cost in the year of purchase. This applies to assets such as computers, vehicles, furniture, and equipment that you use in your business.

How CCA works

Each depreciable asset belongs to a CRA-defined class with a set depreciation rate. You calculate your CCA claim based on the undepreciated capital cost (UCC), which is the remaining balance of the asset's cost that you haven't yet claimed.

The half-year rule applies in most cases: in the year you acquire an asset, you can only claim CCA on half its cost. This means your first-year deduction is lower, with the full rate applying in subsequent years.

Common CCA classes

Here are some of the asset classes self-employed Canadians commonly use:

• Class 8 (20% rate): office furniture, fixtures, and certain equipment
• Class 10 (30% rate): motor vehicles and passenger vehicles costing $38,000 or less before tax
• Class 10.1 (30% rate): passenger vehicles costing more than $38,000 before tax; each vehicle is tracked separately
• Class 50 (55% rate): computers and related equipment
• Class 54 (30% rate): zero-emission vehicles; these qualify for a higher first-year deduction under the federal incentive

You report your CCA claims in Part 4 of the T2125 form. If you're unsure which class your assets fall into, check the CRA's guidelines or consult a tax professional.

When and how to file the T2125 form

Your T2125 form gets submitted as part of your T1 personal tax return. Understanding the deadlines and filing options helps you stay on track and avoid penalties. You can also review small business tax rates in Canada to understand how your net income is taxed.

Critical deadlines

If you're self-employed, your tax return is due by June 15. However, any balance owing must be paid by April 30. If you miss the April 30 payment deadline, the CRA charges interest starting May 1.

Installment requirements

If you owed $3,000 or more in tax in the previous year ($1,800 if you live in Quebec), the CRA expects you to pay quarterly instalments. These are due on March 15, June 15, September 15, and December 15.

Filing process

Follow these steps to file your T2125:

1. Gather all your income and expense records for the tax year.
2. Complete each relevant section of the T2125 form.
3. Submit the form with your T1 personal tax return.

You have several filing options:

• Mail: send your completed forms to the CRA
• NETFILE: submit online directly through the CRA's portal
• Professional filing: an accountant or bookkeeper handles EFILE submission on your behalf

Simplify your T2125 filing with Xero

Tax time doesn't have to be stressful. With organized records and a clear view of your finances, you can file your T2125 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 your finances are organized year-round, you have all the information you need when tax season arrives. Use Xero's income tax calculator to estimate your tax bill ahead of time. You can save time, reduce errors, and focus on running your business. Try Xero to manage your finances and prepare for tax time. Get one month free.

FAQs on the T2125 form

Here are answers to some frequently asked questions about the T2125 form.

What is the T2125 form?

The T2125 is the CRA's Statement of Business or Professional Activities. Self-employed Canadians use it to report their business income and expenses as part of their T1 personal tax return.

Who needs to file the T2125?

Anyone who earns self-employment income in Canada needs to file a T2125. This includes sole proprietors, freelancers, gig workers, and members of unincorporated partnerships.

What expenses can I claim on the T2125?

You can claim business-related expenses such as advertising, office supplies, motor vehicle costs, insurance, and business-use-of-home expenses. Only expenses directly related to earning business income are eligible.

What is capital cost allowance?

Capital cost allowance (CCA) lets you deduct the cost of depreciable assets, such as computers and vehicles, over multiple years. Each asset belongs to a CRA-defined class with a specific depreciation rate.

How do I report a business loss on the T2125?

If your business expenses exceed your income, you report the loss in Part 5 of the T2125. You can use this loss to reduce your other taxable income for the year or carry it forward to offset future income.

How long do I need to keep T2125 records?

The CRA requires you to keep all business records and supporting documents for at least 6 years from the end of the tax year they relate to. This includes invoices, receipts, bank statements, and contracts.