Form T2125 Guide: How to Fill Out Every Line (2026)

Form T2125, Statement of Business or Professional Activities, is the schedule where a Canadian sole proprietor reports self-employment income and expenses. It attaches to your personal T1 return, and its bottom line (your net income) flows to line 13500 of the T1. This guide walks every part of the form and every expense line, with a worked example and the record the CRA expects behind each number.

If you have already read our guide to self-employed tax deductions in Canada, think of this as the companion: that post is what you can claim, this one is how you enter it on the form.

Who files a T2125, and how many

You file a T2125 if you earned business or professional income as a sole proprietor or in a partnership: freelancing, consulting, trades, gig platforms, commissions, an online store. You file one T2125 per business. A designer who also drives for a delivery app runs two separate activities and completes two forms, each with its own income and expenses.

The form is part of your T1, so it follows the self-employed filing calendar. You have until June 15, 2026 to file your 2025 return, but any balance owing is still due April 30, 2026, and the CRA charges interest on unpaid tax after that date regardless of the later filing deadline (CRA, 2026 tax deadlines for self-employed individuals).

Part 1: Identification (where quiet mistakes start)

Part 1 sets up the business. Most of it is straightforward (business name, address, your fiscal period), but three fields cause trouble:

• Fiscal period. Almost every sole proprietor uses a calendar year, so the period runs January 1 to December 31. Enter both dates.
• Industry code. This is a six-digit North American Industry Classification System (NAICS) code, for example 541430 for graphic design or 611692 for automobile driving instruction. Pick the code that best matches your main activity; it does not change your tax, but a mismatched code invites questions.
• GST/HST number. You have to register for GST/HST once your taxable revenue crosses $30,000 over any single calendar quarter or four consecutive quarters (CRA, when to register for GST/HST). Below that you are a "small supplier" and this field stays blank.

Part 3: Reporting your income

Part 3 splits by income type. Part 3A is for business income; Part 3B is for professional income, which lets you handle work-in-progress under the billed-basis rules. Most freelancers and trades report business income; regulated professionals such as accountants, lawyers, and doctors report professional income.

Two things trip people up here:

• Report gross, not net. Enter your total sales or fees before expenses. If a client withheld a platform fee or a holdback, your income is still the gross amount; the fee becomes an expense later.
• Cost of goods sold (Part 3D). If you buy or make inventory to sell (a retailer, a maker, an e-commerce seller), your gross profit is sales minus the cost of goods sold, computed from opening inventory plus purchases minus closing inventory. A pure-service freelancer has no inventory and skips this. Your gross business or professional income lands on line 8299 (CRA, gross business or professional income).

Part 4: The expense lines, mapped

Part 4 is the heart of the form. Each expense sits on a numbered line, and putting a cost on the right line matters: the CRA applies specific rules to some of them (meals are capped, motor vehicle has its own chart). Here is every operating line a sole proprietor commonly uses (CRA, expenses section of Form T2125):

Two placements catch people out. Software subscriptions (Adobe, Microsoft 365, your accounting app) go under line 9270, Other expenses, not under licences. And a payment to yourself is a draw, not a wage: it never appears in Part 4, because a sole proprietor is taxed on net profit, not on what they withdraw.

Add every line and the total is your total business expenses on line 9368. Subtract that from gross income to get line 9369, net income before adjustments.

The two proportional claims: vehicle and home

Motor vehicle and home office are different from the flat lines above. You do not deduct the whole cost, only the business-use share, and each has its own calculation.

Motor vehicle (Chart A)

A sole proprietor does not deduct a per-kilometre rate. The cents-per-kilometre figure people search for is the tax-free allowance an employer pays an employee, which is a separate thing (we cover it in the CRA mileage rate 2026 guide). Instead you deduct actual vehicle costs times your business-use percentage, worked out in Chart A on the form.

The business-use percentage is business kilometres divided by total kilometres, which is why a mileage log is non-negotiable. Say you drove 18,000 km in the year and 5,400 of them were for business:

• Business use: 5,400 / 18,000 = 30%
• Total vehicle costs: fuel $2,400 + insurance $1,600 + repairs $800 + licence $120 = $4,920
• Deductible: 30% × $4,920 = $1,476, entered on line 9281

Depreciation on the vehicle itself is claimed separately as capital cost allowance, not on line 9281. Our vehicle expenses CRA guide walks the logbook and the vehicle CCA classes in detail.

Business-use-of-home

Home office costs are calculated in a dedicated part of the form and entered near the bottom, on line 9945. You take the share of your home used for the business (usually floor area, so a 200 sq ft office in a 1,600 sq ft home is 12.5%) and apply it to home costs: heat, electricity, insurance, and, for an owner, property tax and mortgage interest.

The key rule: business-use-of-home expenses cannot create or increase a business loss. If your net income before this deduction is already at or below zero, you claim nothing this year and carry the amount forward. See home office expenses CRA for the full method.

Capital cost allowance: why you can't expense a laptop in one year

When you buy something durable (a laptop, a camera, a vehicle, furniture), you generally cannot deduct the full cost in the year of purchase. You deduct it gradually through capital cost allowance (CCA), calculated in Area A of the form and totalled on line 9936.

Each asset belongs to a class with its own rate. Computers and systems software sit in Class 50 at 55% declining balance. First-year deductions are affected by the Accelerated Investment Incentive, which suspends the old half-year rule and enhances the first-year claim during a phase-out that runs through 2027 (CRA, Accelerated Investment Incentive). Because the class rate and the incentive both apply, run the CCA tables for the specific class rather than guessing a figure, or let your accountant handle Area A.

A worked T2125: one freelancer's numbers

Here is a full-year T2125 for a freelance graphic designer, sole proprietor, calendar 2025, no inventory. It shows how the parts connect from gross income down to the number that reaches the T1.

The $600 restaurant bill only counts for $300 because of the 50% meals rule. The software subscriptions sit on line 9270, not with licences. And the vehicle line is the $1,476 from Chart A, not the raw $4,920. Net income of $75,790 is what gets taxed and what your CPP contributions are based on, so every accurate expense line lowers both.

The record each line needs

The CRA can ask you to support any line on your T2125, and a claim without a record behind it gets denied. You must keep your books and records for six years from the end of the tax year they relate to (CRA, keeping records). What "support" means differs by line:

• Line 8523, meals: the itemized receipt plus a note of who you met and the business purpose. A credit-card slip alone is not enough. See meal expenses CRA.
• Line 9281, motor vehicle: a mileage log showing date, destination, purpose, and kilometres, backed by fuel and repair receipts.
• Line 9270, software: the subscription invoice or the email receipt, usually digital.
• Line 9945, home office: utility bills, the property tax and insurance statements, mortgage interest, and your workspace measurement.
• Every other line: the supplier invoice or receipt, ideally showing the GST/HST so you can also claim input tax credits if you are registered.

For the full retention rules and what counts as an acceptable record, see CRA receipt requirements.

How SparkReceipt fits

The T2125 is only as easy as your records. If you have a shoebox of receipts in April, filling the form is a slog; if every expense is already captured and categorized, it is data entry.

SparkReceipt's AI receipt scanner reads each receipt (vendor, date, total, and the GST/HST breakdown) and its expense tracker sorts spending into categories that map to your T2125 lines, so the totals for advertising, software, meals, and the rest are ready when you fill the form. Connect your email and the receipts from SaaS tools and online orders are captured without forwarding. You can invite your accountant to the account at no extra seat cost so they work from clean data instead of a year-end pile. See pricing to get started.

Frequently asked questions

Do I file a separate T2125 for each business? Yes. One form per distinct business or professional activity, each with its own income and expenses. Driving for a platform and freelancing are two forms.

Business income or professional income, which part do I use? Report business income in Part 3A. Use Part 3B (professional income) only if you earn income from a profession that can elect work-in-progress treatment, such as accounting, law, medicine, or dentistry.

Can I deduct my own salary on line 9060? No. A sole proprietor is taxed on net profit, so money you take out is a draw, not a deductible wage. Line 9060 is for pay to other people.

Where does the T2125 net income go on my return? Net income from line 9946 flows to line 13500 of your T1 for business income, or line 13700 for professional income. Gross income is also reported alongside it.

Do I need a GST/HST number to file a T2125? No. You file a T2125 regardless. You only register for GST/HST once your taxable revenue passes the $30,000 small-supplier threshold.

Key takeaways

• File one T2125 per business; it attaches to your T1, so file by June 15 but pay any balance by April 30.
• Report gross income in Part 3; only inventory businesses complete cost of goods sold.
• Each expense has a numbered line; software goes on 9270, meals are 50% on 8523, and your own draws are never an expense.
• Motor vehicle (line 9281) and home office (line 9945) are business-use percentages, not flat amounts, and home office cannot create a loss.
• Durable assets are deducted through CCA over years, not expensed at once.
• Keep the record behind every line for six years; capturing and categorizing receipts as they arrive turns filing into data entry.