Form T2125 checklist for self-employment income

Start with the right form and fiscal period

Form T2125, Statement of Business or Professional Activities, is where a sole proprietor reports business income and expenses. The result carries to your personal return. If you have both business and professional income, or more than one separate activity, the CRA expects a separate form for each, so decide how many T2125s you need before you start.

Part 1 asks for your CRA program account number, the dates of your fiscal period and an industry code. Self-employed individuals generally report on a December 31 year-end, so for the 2026 return the period is normally January 1 to December 31, 2026. If your business started or stopped during the year, the period can be shorter. If you think a different year-end applies to you, raise it with your accountant before filing rather than changing it on your own.

Report gross income and handle GST/HST carefully

Report all sales, fees and commissions, whether you were paid in money, goods, services or barter. The CRA’s instructions have you enter gross sales including any GST/HST collected or collectible, then subtract that GST/HST, along with returns, allowances and discounts, to reach adjusted gross sales on line 8000. In other words, tax you collect for the government is not business income, but the sale price is, even if the customer has not paid yet.

Other income, such as grants or government assistance, goes on line 8230, and the total at line 8299 is your gross business income. If you use the quick method of accounting for GST/HST, the form has extra steps for the credit you claim, so tell your accountant which method you use. Reconcile your sales to your GST/HST returns and bank deposits before you finish; a gap between them is the first thing a reviewer notices.

Calculate cost of goods sold if you sell products

If you buy goods for resale or make goods to sell, Part 3D works out your cost of goods sold: opening inventory, plus purchases net of returns and discounts, plus direct wages and subcontracts, minus closing inventory. The CRA states that you claim the cost of goods in the period in which you sell them, and that you should count your stock at the end of the period unless you keep a perpetual inventory system.

Value inventory consistently from year to year, using one of the two methods the CRA describes. Remove any goods you took for personal use from your purchases, and do not include your own pay or withdrawals as wages. A service business usually skips this part, but a consultant who resells equipment or materials may not.

Sort expenses by line and by purpose

You can generally deduct reasonable current expenses incurred to earn income, but not personal expenses and not the purchase price of capital property. Enter only the business part of mixed costs such as a phone plan or software subscription. Meals and entertainment are limited to 50% of the lesser of the amount incurred and a reasonable amount.

If you are a GST/HST registrant and claim input tax credits, reduce the related expense by the credit, so the form shows the net cost. Keep invoices that describe the item, and keep a separate record of equipment you bought, because those assets belong in the CCA section rather than in an expense line. The two are easy to confuse, so ask your accountant about any single purchase that is large or lasts several years.

Handle CCA, vehicle and home claims with records

Capital cost allowance is the way you deduct the cost of equipment, vehicles and similar property over time. You do not have to claim the maximum each year; the CRA lets you choose any amount from zero up to the maximum allowed. In the year you acquire property, the half-year rule generally limits the claim to half of net additions, although special incentives can change that. If you later sell the property for more than its remaining undepreciated cost, earlier claims can be recaptured into income.

For a vehicle, you can deduct only the part of the costs that relates to earning income, and the CRA expects a record of total kilometres and business kilometres, with the date, destination, purpose and distance of each trip. After a full year of logbook you may be able to use a three-month sample if your use stays within about 10% of the base year.

For business-use-of-home, the workspace generally must be your principal place of business, or be used only to earn business income and used regularly to meet clients. Allocate costs on a reasonable basis, such as workspace area over total area. As an illustration, a 20 square metre office in a 100 square metre home with $10,000 of eligible household costs gives a 20% share, or $2,000, before any adjustment for part-time use. You cannot use this claim to create or increase a loss, but unused amounts can be carried forward.

Plan for CPP on your self-employment income

The CRA says that if your net self-employment income is more than $3,500, you have to contribute to the CPP. There is no employer to withhold it, so you calculate it on Schedule 8 when you file, and it flows to lines 22200, 31000 and 42100 of your return.

Because CPP is calculated on your net income, every deduction on T2125 also changes the CPP bill. Ask your accountant to show the CPP, income tax and any instalments together so there are no surprises in the spring.

Know the 2027 dates for your 2026 return

Most self-employed people can file the 2026 return by June 15, 2027, but any balance owing is still due by April 30, 2027. Filing in June does not extend payment, so estimate what you owe before April 30. If your business spending is mainly tax shelter investments, the filing date is April 30, 2027.

Instalments are separate: if you earn business, professional or commission income and have to pay them, the dates are March 15, June 15, September 15 and December 15. GST/HST annual filers with a December 31 year-end also pay by April 30 and file by June 15, 2027. If you are close to a deadline without your records in order, speak to an accountant early rather than filing a rough estimate.