T2125 basics for self-employed owners

If you're a sole proprietor, your business doesn't file its own tax return. Its income and expenses go on Form T2125, which is part of your personal return. Getting it right is mostly a matter of putting each amount on the right line.

Who files a T2125

Anyone with self-employment business or professional income: sole proprietors, freelancers, and partners in a partnership (who report their share). If you run more than one business, each gets its own T2125.

Income

Start with your sales, commissions, or fees (line 8000), then adjustments, reserves, and other income. The total is your gross business income on line 8299. If you're GST-registered, don't include the GST you collected in sales; it isn't your income.

Expenses

You can generally deduct any reasonable expense you incur to earn business income, as long as it isn't personal. The common lines:

• 01Meals and entertainment are 50% deductible. Enter the deductible portion.
• 02Vehicles are split by use. Only the business share of vehicle costs counts, based on business kilometres over total kilometres. A mileage log is what supports it.
• 03Equipment isn't an expense. Computers, tools, furniture, and vehicles are capital property, deducted over time through CCA on line 9936.

Getting to net income

• 01Line 9369, net income (loss) before adjustments: gross income minus your expenses, including CCA.
• 02Line 9945, business-use-of-home expenses: the business share of home costs if you work from home. These can't create or increase a business loss; any excess carries forward.
• 03Line 9946, your net income (loss): the final figure, carried to your personal return.

Deadlines

If you or your spouse or common-law partner is self-employed, your personal return is due June 15. But any balance owing is still due April 30, and interest runs from then. If you owe a lot each year, the CRA may ask you to pay instalments, due March 15, June 15, September 15, and December 15.