CRA Form T2125, officially titled the Statement of Business or Professional Activities, is the Canadian federal tax form used by self-employed individuals, sole proprietors, and professionals to report their business income and expenses as part of their annual T1 General Income Tax and Benefit Return. It is Canada’s functional equivalent of the U.S. Schedule C and serves as the primary vehicle for calculating net business or professional income subject to personal income tax. The form is administered by the Canada Revenue Agency (CRA) and governed by the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)), with business income defined under section 9(1) as the profit from a business for a taxation year.

Form T2125 requires taxpayers to report all sources of business revenue, including gross sales, commissions, fees, and other income, and to deduct all eligible business expenses incurred during the fiscal period. The form is structured into several parts covering business identification, income calculation, cost of goods sold, operating expenses, motor vehicle expenses, and Capital Cost Allowance (CCA). CRA Guide T4002, Business and Professional Income, provides detailed line-by-line instructions for completing the form. Self-employed individuals who are GST/HST registrants must also file a separate GST/HST return (Form GST34) to report and remit goods and services tax collected.

The form applies to a wide range of business activities, from freelance consulting and professional services to retail operations and trades. If a taxpayer operates more than one business, a separate T2125 must be completed for each. Partnership income is reported on the individual partner’s T2125 based on their proportionate share as determined by the partnership agreement. The net business income calculated on Form T2125 is transferred to the taxpayer’s T1 return and is subject to both federal and provincial income tax, as well as Canada Pension Plan (CPP) contributions on self-employment earnings.

You must file CRA Form T2125 if you earned any self-employment income from a business, profession, commission, farming, or fishing activity during the tax year. The filing obligation applies regardless of whether the business was profitable or operated at a loss. Under the Income Tax Act, s. 150(1), every individual who carries on a business in Canada must file an income tax return for each year in which they have tax payable or have a taxable capital gain. Self-employed individuals have an extended filing deadline of June 15, but any balance of tax owing is still due by April 30 (ITA s. 150(1)(d.1)).

Common situations requiring Form T2125 include operating a freelance consulting practice, running a small retail business, providing professional services (legal, medical, accounting, engineering), earning commission income as an independent sales agent, operating a home-based business, and providing services as an independent contractor. The form is also required if you operate a side business in addition to employment income. If your self-employment earnings exceed $3,500 in a calendar year, you are required to pay both the employee and employer portions of CPP contributions on those earnings.

You should also file Form T2125 if you wish to claim a business loss to offset other income, as business losses can be carried back three years or forward twenty years under ITA s. 111(1)(a). Maintaining accurate records and filing T2125 annually establishes a documented history of your business activities, which is essential in the event of a CRA audit. CRA requires all business records and supporting documents to be retained for at least six years from the end of the last tax year to which they relate (ITA s. 230(4)).

A properly completed Form T2125 must include several essential components to satisfy CRA requirements and ensure accurate calculation of net business income. The taxpayer identification section requires the individual’s full legal name, Social Insurance Number (SIN), and mailing address. The business identification section requires the business name (if different from the taxpayer’s personal name), business address, six-digit NAICS industry code, a description of the main product or service, and the fiscal year end date. For most unincorporated businesses, the fiscal year end must be December 31.

The income section must report all gross revenue from the business, including sales, commissions, fees, and any other income received. The cost of goods sold section applies to businesses that sell inventory and requires reporting of opening inventory, purchases during the year, and closing inventory. The expense section must itemize all deductible expenses by category, with each amount supported by receipts or other documentation. Key expense categories include advertising, meals and entertainment (subject to the 50% limitation under ITA s. 67.1), insurance, interest and bank charges, office expenses, professional fees, rent, salaries and benefits, travel, and utilities.

The motor vehicle expenses section requires a detailed accounting of total kilometres driven, business kilometres driven, and all vehicle-related costs. The CCA section requires identification of each class of depreciable property, the opening undepreciated capital cost (UCC), additions and disposals during the year, the applicable CCA rate, and the amount of CCA claimed. The net income calculation subtracts total expenses from gross income, and this figure is transferred to the T1 return. The taxpayer must sign the form, certifying that the information is correct and complete under penalty of law (ITA s. 239 provides penalties for false statements).