Form T2125 Statement of Business or Professional Activities is used to report self-employment income and expenses on your Canadian tax return. Sole proprietors, freelancers, contractors, and professionals use this form to calculate net business income.

When do I need to file a T2125?

You must file T2125 if you have self-employment income over $500, or any self-employment income if you want to claim business expenses. This includes freelancing, contracting, gig work, and running a sole proprietorship.

What is the difference between T2125 and T2042?

T2125 is for general business activities, while T2042 is specifically for farming income. If you run a farm, use T2042. For all other self-employment including professional practice, use T2125.

Can I use T2125 for rental income?

No. Rental income is reported on Form T776 Statement of Real Estate Rentals. T2125 is for active business income where you provide services or sell products, not passive rental income.

T2125 Guide: Self-Employed Business Income in Canada (2026)

What Is Form T2125?

Form T2125 Statement of Business or Professional Activities reports:

Gross business income (what you earned)
Business expenses (what you can deduct)
Net business income (what’s taxed)

Feature	Details
Full name	Statement of Business or Professional Activities
Who uses it	Sole proprietors, freelancers, contractors
Part of	Personal tax return (T1)
Alternatives	T2042 (farming), T2121 (fishing)

Who Must File T2125

Situation	File T2125?
Freelancer/contractor	Yes
Side hustle income	Yes
Gig economy (Uber, DoorDash)	Yes
Professional practice (lawyer, doctor)	Yes
Online business	Yes
Rental income	No (use T776)
Employee with T4	No T2125, but may need T777

T2125 Section Guide

Part 1: Identification

Field	Enter
Name of business	Your business name or your name
Business address	Where you operate
Fiscal year end	Usually December 31
Industry code	6-digit NAICS code
Main product/service	Brief description
GST/HST number	If registered

Common industry codes:

Business	NAICS Code
Freelance writer	711510
IT consultant	541514
Graphic designer	541430
Real estate agent	531210
Rideshare driver	485310
Food delivery	492210

Part 2: Internet Business Activities

Question	Describe
Website address	Your business website
% of income from internet	e.g., 80%
Type of activity	E-commerce, services, advertising

Part 3: Business Income

Line	Description
8000	Gross sales/commissions/fees
8230	Cost of goods sold (if applicable)
8299	Gross profit

Reporting income:

Report all income received or receivable
Include cash, cheques, e-transfers, crypto
Include GST/HST collected (if registered)

Part 4: Cost of Goods Sold

For businesses that sell products:

Line	Description
8300	Opening inventory
8320	Purchases during the year
8400	Direct labour costs
8500	Subcontracts
8518	Closing inventory
8519	Cost of goods sold

Part 5: Expenses

Common deductible expenses on T2125:

Expense	Line	Deductibility
Advertising	8520	100%
Meals and entertainment	8523	50%
Bad debts	8590	100%
Insurance	8690	100%
Interest	8710	100% of business portion
Professional fees	8860	100%
Office expenses	8811	100%
Supplies	8811	100%
Legal fees	8862	100%
Travel	8960	100%
Telephone/utilities	8220	Business portion
Vehicle	9281	Business portion
Capital cost allowance	9936	By CCA class

Part 6: Business-Use-of-Home Expenses

Line	Expense Type
9945	Heat
9945	Electricity
9945	Insurance
9945	Maintenance
9945	Mortgage interest
9945	Property taxes
9945	Rent
9945	Other

Calculation:

Business-use % = Work space sq ft ÷ Total home sq ft
Deduction = Total expenses × Business-use %

Calculating Net Business Income

Line	Description
8299	Gross profit
−	Total expenses
=	Net income before adjustments
−	Capital cost allowance
−	Business-use-of-home
=	Net business income (Line 9946)

This amount is reported on Line 13500 (gross) and Line 13510 (net) of your T1.

Common Business Expenses Explained

Advertising (Line 8520)

Deductible	Not Deductible
Online ads (Google, Facebook)	Advertising to foreign audiences (limited)
Business cards	—
Website hosting	—
SEO services	—

Meals and Entertainment (Line 8523)

Rule	Amount
General meals/entertainment	50% deductible
Long-haul truckers	80% deductible
Meals while traveling overnight	50%

Keep receipts with: date, location, business purpose, attendees.

Vehicle Expenses (Line 9281)

Expense	Business Portion Claimable
Gas	Yes
Insurance	Yes
Maintenance	Yes
Lease payments	Yes, with limits
CCA (if owned)	Yes

Calculate business-use percentage:

Business km ÷ Total km = Business-use %

Keep a mileage log with: date, destination, purpose, km driven.

Capital Cost Allowance (CCA)

Asset	CCA Class	Rate
Computer equipment	Class 50	55%
Office furniture	Class 8	20%
Vehicle	Class 10	30%
Building	Class 1	4%
Software	Class 12	100%

CCA is claimed at half-rate in the year of purchase (half-year rule).

Home Office Expenses

Own or Rent	Claimable Expenses
Rent	Proportional rent
Own	Mortgage interest, property taxes, insurance, utilities
Both	Maintenance, repairs related to workspace

Cannot claim:

Mortgage principal
Decorating costs
Furniture (use CCA instead)

CPP on Self-Employment Income

Self-employed individuals pay both portions of CPP:

2026 CPP	Rate
Employee portion	5.95%
Employer portion	5.95%
Total	11.9%
Max pensionable earnings	$74,600
Maximum CPP	$8,460.90

Plus CPP2 on earnings $74,600 – $85,000:

Rate: 8% (4% × 2)
Maximum CPP2: $832

CPP is calculated on Schedule 8.

GST/HST Considerations

Registration Threshold

Situation	GST/HST Registration
Income under $30,000	Optional
Income over $30,000	Mandatory
Taxi/rideshare	Mandatory from first dollar

If Registered

Action	Treatment
GST/HST collected	Add to income (or remit separately)
Input tax credits	Recover GST/HST on expenses
Filing frequency	Annual, quarterly, or monthly

Quick Method

Simplified GST/HST accounting:

Keep all GST/HST collected
Pay reduced rate (varies by province)
No ITCs claimed

Common T2125 Mistakes

Mistake	Correction
Missing income	Report all, even without invoice
Personal expenses	Only business-related are deductible
No mileage log	Keep detailed records
Claiming meals at 100%	Most meals only 50% deductible
Missing HST on expenses	Claim ITCs if registered
No home office calculation	Document workspace percentage

Record Keeping Requirements

Record	Keep For
Receipts	6 years
Bank statements	6 years
Invoices issued	6 years
Mileage log	6 years
GST/HST returns	6 years

Acceptable formats:

Paper originals
Scanned copies
Digital receipts
Accounting software exports

Filing Deadline

Status	Tax Deadline	Payment Deadline
Self-employed	June 15	April 30
Self-employed with balance owing	June 15	Interest from May 1

You have until June 15 to file, but interest accrues from May 1 if you owe.

Business Loss

Situation	Treatment
Loss this year	Can offset other income
Reasonable expectation of profit	Required for loss claims
Home office in loss year	Cannot create/increase loss
Capital losses	Different rules (Schedule 3)

Business losses reduce your taxable income from employment, investments, and other sources.

Example T2125 Calculation

Freelance graphic designer:

Item	Amount
Gross income (Line 8000)	$85,000
Expenses:
Advertising	$2,000
Software subscriptions	$1,500
Computer (CCA)	$800
Office supplies	$500
Professional fees (accountant)	$1,200
Internet (60% business)	$720
Phone (50% business)	$600
Total expenses	$7,320
Home office:
Rent ($24,000 × 15%)	$3,600
Utilities ($2,400 × 15%)	$360
Total home office	$3,960
Net business income	$73,720

Then pay:

Income tax on $73,720
CPP of ~$8,460 (on Schedule 8)
No EI (unless opted in)

Tips for T2125

Separate bank account — Not required but simplifies tracking
Accounting software — Wave, QuickBooks Self-Employed, FreshBooks
Track mileage — Apps like MileIQ automate this
Quarterly estimates — Avoid interest by making instalments
Professional help — Consider an accountant for complex situations