Form T2125 is a Canadian tax form that self-employed taxpayers must use to report their business and professional income. It should be filed with form T1 for your annual personal income tax return.
Most sole proprietors, and even some partnerships, must report self-employment income to the Candian Revenue Association (CRA) on form T2125. Learn how to determine if you're responsible for filling out this form, along with how, where, and when to file.
What Is CRA Form T2125?
Canadian taxpayers must report self-employment or professional income to the CRA along with any income earned from regular employment. Although you report this on your T1 income tax form, you need to calculate it using form T2125 and include this with your tax return.
Who Uses CRA Form T2125?
Any self-employed person—even those who earn other income through regular employment—must complete and file tax form T2125 with their form T1 each year. So if you are operating a sole proprietorship or an unincorporated partnership, general partnership, or limited liability partnership (any of which with fewer than five members), you need to complete form T2125 when you are filling out your Canadian income tax return.
If you're self-employed, you will typically receive form T4A from any clients or other businesses who have paid you for your services during the previous year. These forms will have your self-employment income, and you will use them to fill out Form T2125.
Do not rely only on Form T4A from clients for filling out your form T2125. Clients may forget to send you one, and consumers to whom you sold directly won't send one, either. Keep accurate records so you can be certain you are reporting all of your business income.
Even if you haven't registered a business, you still have to fill out Form T2125 when you're completing your T1 Canadian income tax return if you have any business income at all—and that includes income earned from sales outside Canada.
In addition to monetary payments received for your labor or the goods or services you provide, business income also includes barter payments or payments received in alternate forms of currency such as Bitcoin.
For example, suppose you are a painter and you agree to paint the office of a massage therapist in exchange for massage treatments. If you normally would have charged $1,000 for the job and the massage therapist provides services valued at $1,000 in exchange, then you must include the $1,000 in your business income. The value of the painting services you provide is the same as it would be if you received cash for the service.
Note that the barter service is also valued the same way from an expense perspective—the massage therapist can claim $1,000 worth of expenses in the form of repairs to their business premises, and you would be able to claim $1,000 in medical expenses.
Self-employment income earned from farming or fishing operations should not be reported with form 2125. Use form T2042 for farming income and T2121 for fishing income.
Where to Get Form T2125
You can find form T2125 online on the CRA's website, where you can print it to fill out and fie. You should also be able to get it from any tax professional. Tax filing software such as TurboTax will also include the form automatically.
How to Fill Out and Read CRA Form T2125
The T2125 form is designed to lead you through the process of calculating your "true" business income—that is, what's left when you've taken away your business expenses from the original amount you made. Note that if you are engaged in several different business activities, have more than one business, or have both business and professional income, you will need to fill out a separate form T2125 for each.
Throughout the form, if something doesn't apply to you, just leave it blank.
Business and Professional Income
On page 2 of the form, you will enter your gross business income on the appropriate line in either the business income box or the professional income box, including GST/HST collected or collectible. Then, if your business collects GST/HST (i.e., you are not a small supplier), follow the instructions on the form regarding GST/HST and add the amount of GST/HST to your gross sales or fees to calculate your adjusted gross sales or adjusted professional fees. Follow the instructions in part 3 of your form to find your total business income for each form T2125.
Add Your Business Expenses
In parts 3D and 4, you will tally up your relevant business expenses, including any business-use-of-home expenses, if applicable. Meals and entertainment expenses, salaries, business licenses—whatever business expense you incurred that is eligible to be an income tax deduction goes here.
Expenses such as inventory, wage costs, and subcontracts are entered in Part 3D, cost of goods sold and gross profit. All other expenses get entered under Part 4 on the appropriate lines.
Remember that you can only claim the business portion of any expenses you are including on your T2125.
To Reveal the Bottom Line
Once all your expenses are tallied up, you will deduct the total from your total business income, and the record the resulting profit or loss from CRA form T2125 in the appropriate box on your T1 form, depending on whether it's business, professional, or commission income.
If you are involved in a partnership, the T2125 is also where you will record the names of your partners, their percentage(s) of the partnership, and their share(s) of net income or loss.
There's a separate capital cost allowance section on the form to calculate the proper percentages you're allowed to write off each year for assets such as property and equipment your business has acquired, and a separate section for motor vehicle expenses if you've been using a vehicle for business purposes.
If you had no business income during the tax year, you can still claim your business expenses. However, you might not want to claim them that particular year in order to maximize the tax benefit.
Can Form T2125 Be E-Filed?
You can file form T2125 online yourself through NETFILE or have a tax preparer file for you through the CRA's EFILE service. It's due when you file your form T1, which is generally due April 30 of each year. However, those with business income have until June 15 to file, as long as they still pay their taxes by the April 30 deadline. In 2020, these dates have been changed to June 1 for filing and September 30 for payments.
Where to Mail Form T2125
The filing office for your form T1 and T2125 varies depending on where you live in Canada. See the CRA's website to determine where you should send your forms if you decide to file by mail.
How to File Form T2125
Once you have completed CRA form T2125, use it to record relevant information on form T1 as instructed on the form. You should then send the forms, along with any payment and other required paperwork, to the appropriate tax office or file online.
- CRA form T2125 is a form that Canadian taxpayers use to report business and professional income when filing their tax returns.
- The form helps you to calculate your net income or loss from business activities, which you then report on form T1 for your personal income taxes.
- Any self-employed individual and many members of partnerships with fewer than five members must file form T2125.
- Taxpayers who must include form T2125 should include it with their T1 when they file their taxes, which are typically due April 30 in Canada.