Form T2125, Statement of Business or Professional Activities, is where a self-employed tradesperson reports the income and expenses of the business. It is filed as part of your personal T1 return, not separately. You complete one T2125 for each distinct business you run. The net income it produces flows onto your T1, where it is taxed with the rest of your income. Get the T2125 right and the rest of your self-employed return largely takes care of itself.
Where the T2125 fits
A sole proprietor does not file a corporate return. The T2125 is the engine that turns your year of invoices and receipts into one net profit figure. That figure, at line 9946 of the T2125, carries to line 13500 of your T1 General. Your fiscal year is the calendar year, January 1 to December 31. If you run two genuinely separate businesses, each gets its own T2125.
Income: the top of the form
- Gross sales or revenue (line 8000 area). Total money earned before any expenses: cash, cheque, e-transfer and card payments for labour and materials, barter at fair market value, and holdbacks released during the year. Report income when earned, on the accrual basis, which is the CRA standard for construction.
- GST/HST is excluded. The tax you collect from clients is not income. It belongs to your separate GST/HST return, not the T2125.
- Cost of goods sold. If you carry materials inventory, the form has a section to work out opening stock, purchases and closing stock to arrive at the cost of what you actually used.
Expenses: the heart of the form
The expense section lists standard categories. The ones a trade uses most:
- Subcontracts. Payments to other contractors and subcontractors on your jobs.
- Materials and supplies. Consumables and job materials not handled as inventory.
- Motor vehicle expenses. Fuel, insurance, repairs and licensing, claimed at your business-use percentage from a logbook. Loan interest is capped at $350 a month and leases at $1,100 a month for 2026.
- Insurance, licences, dues, office and phone. The business share of each.
- Meals and entertainment. Deductible at 50% of cost, with the business purpose noted.
- Capital cost allowance. Depreciation on vehicles, tools and equipment, worked out on the CCA tables and entered here (see Capital Cost Allowance Classes).
Special parts of the form
- Business-use-of-home (Part 7 area). If your home is your principal place of business, or a space is used regularly and exclusively for the work, you claim a share of housing costs based on the workspace area as a percentage of the home. This expense cannot create or increase a business loss, but the unused portion carries forward.
- CCA schedule (Area A). The grid where you add assets to their classes, apply the half-year rule and the class rates, and calculate the year's CCA.
- Motor vehicle worksheet. Where the logbook percentage is applied to total vehicle costs.
The bottom line
Gross revenue, minus cost of goods sold, minus expenses, minus CCA, minus business-use-of-home, gives net income at line 9946. That is the number the CRA taxes. It is also the number cross-checked against your GST/HST return: if the income on the two does not reconcile, it is one of the most reliable audit triggers in the trades.
Common mistakes
- Putting GST/HST collected into income. It is not yours and does not belong on the T2125.
- Expensing capital assets in the wrong place. Vans and major tools go through the CCA schedule, not the materials line.
- Claiming 100% of a vehicle or phone. Only the documented business-use percentage is allowed.
- Using business-use-of-home to create a loss. It can reduce business income to nil but not below; the rest carries forward.
- Income that does not match the GST/HST return. Reconcile the two before filing. A mismatch invites an audit.
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