This guide reflects the rules for the tax year ending December 31, 2025.
It applies to individuals filing their 2025 tax return in 2026.

Form T2125 — Statement of Business or Professional Activities is the core tax form for self-employed Canadians. It reports your business income, expenses, home office deductions, vehicle expenses, and Capital Cost Allowance (CCA). This guide walks you through the entire form, line by line.

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🧭 1. Overview of Form T2125

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T2125 is divided into several sections:

1. Identification
2. Business income
3. Cost of goods sold (if applicable)
4. Business expenses
5. Home office expenses
6. Vehicle expenses
7. Capital Cost Allowance (CCA)
8. Other information

Your net business income flows to:

• Line 13500 of your T1 return
• CPP is calculated on Schedule 8
• GST/HST is handled separately

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🧾 2. Section A — Identification

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You must provide:

• Business name (or your personal name if none)
• Business address
• Fiscal period (usually Jan 1 – Dec 31)
• Industry code (e.g., 541430 for graphic design, 541611 for consulting)
• CRA business number (if you have one)
• GST/HST registration status

Tip

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Use CRA’s industry code lookup to find the correct code.

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💰 3. Section B — Business Income

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Report:

• Gross sales
• GST/HST collected (if included in sales)
• Adjustments (returns, discounts)
• Other business income

Example:

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Description	Amount
Gross sales	$80,000
Returns	-$500
Net sales	$79,500

Do not include GST/HST in your income if you charge it separately.

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📦 4. Section C — Cost of Goods Sold (COGS)

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Only applies if you sell physical products.

You must report:

• Opening inventory
• Purchases
• Direct labour
• Subcontracting
• Closing inventory

\[ \text{COGS} = \text{Opening inventory} + \text{Purchases} - \text{Closing inventory} \]

Service businesses usually skip this section.

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🧾 5. Section D — Business Expenses

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This is where most self-employed deductions are claimed.

Common categories:

• Advertising
• Meals (50%)
• Bad debts
• Insurance
• Interest & bank charges
• Office expenses
• Supplies
• Legal & accounting fees
• Rent
• Salaries
• Travel
• Utilities
• Telephone & internet
• Delivery & shipping

Each category is entered separately.

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🏠 6. Section E — Home Office Expenses

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You must calculate:

• Workspace size
• Total home size
• Business-use percentage

Eligible expenses include:

• Utilities
• Rent
• Internet
• Property taxes
• Home insurance
• Mortgage interest
• Maintenance

\[ \text{Deduction} = \text{Total expenses} \times \text{Business-use percentage} \]

Unused home office expenses can be carried forward.

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🚗 7. Section F — Vehicle Expenses

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You must track:

• Total km driven
• Business km driven
• Business-use percentage

Eligible expenses:

• Fuel
• Insurance
• Repairs
• Parking
• Lease payments
• CCA (if owned)

\[ \text{Deduction} = \text{Total vehicle expenses} \times \text{Business-use percentage} \]

A mileage log is required.

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🛠️ 8. Section G — Capital Cost Allowance (CCA)

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CCA allows you to depreciate assets over time.

You must list:

• Asset class (e.g., Class 50 for computers)
• Opening UCC
• Additions
• Dispositions
• CCA rate
• Half-year rule
• CCA claimed

CCA is optional — you can claim less to manage taxable income.

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🧮 9. Section H — Net Income Calculation

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Final calculation:

\[ \text{Gross income} - \text{COGS} - \text{Expenses} - \text{CCA} = \text{Net business income} \]

This amount flows to:

• Line 13500 of your T1
• CPP calculation on Schedule 8

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🧮 10. Full Example: Completed T2125 Summary

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Income

• Gross sales: $90,000
• Returns: -$1,000
• Net sales: $89,000

Expenses

• Office supplies: $1,200
• Software: $600
• Internet (20%): $240
• Vehicle expenses (30%): $2,400
• Travel: $1,500
• Meals (50%): $300
• Home office (10%): $800
• CCA: $700

Total expenses: $7,740

\[ 89,000 - 7,740 = 81,260 \]

Net business income: $81,260

This flows to Line 13500.

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❓ 11. Frequently Asked Questions

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Do I need to submit receipts with my T2125?

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No — but you must keep them for 6 years.

Can I file T2125 if I have a loss?

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Yes — losses can offset other income.

Can I file multiple T2125 forms?

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Yes — one per business activity.

Do I need a business number?

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Only if you register for GST/HST.

Do I need accounting software?

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No — spreadsheets are acceptable.

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🔗 12. Related Guides

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• Self-Employed Taxes in Canada
• Self-Employment Tax Deductions
• Self-Employment Expenses
• GST/HST for Self-Employed Canadians
• CPP for Self-Employed Canadians
• CCA for Self-Employed Canadians

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