Form T2125 Explained: A Step-by-Step Guide for Canadian Freelancers
Form T2125 is how self-employed Canadians report business income and expenses to the CRA. Here's a line-by-line walkthrough so you don't miss a deduction.
Sarah Tremblay
CPA, Tax Advisor
Form T2125 (Statement of Business or Professional Activities) is the core CRA form for self-employed income. It's where you report gross revenue, subtract business expenses, and arrive at net business income — the number that flows onto your T1 personal tax return and determines your tax and CPP owing.
Part 1: Identification and Business Info
Enter your name, SIN, and business details: the name of your business (or your own name if you're a sole proprietor without a trade name), the main product or service you provide, your industry code (found in the T4002 guide), your fiscal year-end (usually December 31 for individuals), and your business address.
Part 2: Business Income
- Line 8000: Gross professional fees or business revenues — all invoices issued, regardless of whether they've been paid
- Line 8230: Reserve for professional fees from prior year (if applicable)
- Line 8290: Subtracted amounts — returns, discounts
- The result is your 'net sales' — this is your starting point for calculating net business income
Part 4: Business Expenses
Part 4 has 22 expense lines. The most commonly used by freelancers: advertising (8520), meals and entertainment at 50% (8523), office expenses (8810), professional fees (8860), telephone and utilities (9220), travel (9200), and other expenses (9270). Vehicle expenses have their own section in Part 7 and are calculated separately based on your business-use percentage.
Meals and entertainment: enter the full gross amount on line 8523 — the form automatically applies the 50% deductibility limit. Don't pre-calculate the 50% yourself or you'll get half the deduction you're entitled to.
Capital Cost Allowance (Part 8)
Capital purchases (computers, equipment, vehicles) are not deducted all at once. They go in the CCA schedule in Part 8, where the declining balance method applies based on asset class. Class 10 for most vehicles (30%), Class 10.1 for luxury vehicles (30%), Class 50 for computers (55%), Class 8 for other equipment (20%). You claim CCA against your Class UCC (undepreciated capital cost) at year-end.