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Susan Ward

Do You Have to Fill Out Income Tax Form T2125?

By February 17, 2009

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In a word, yes, if you are running an unincorporated business.

Income Tax form T2125 replaces form T2124, the Statement of Business Activities form and T2032, the Statement of Professional Activities form. The new form combines the two previous forms, so if you have either business or professional income, you'll fill out income tax form T2125. Likr the previous forms it replaces, form T2125 will be included in your T1 income tax form package.

Here's what income tax form T2125 looks like.

Do You Have Business Income You're Not Declaring?

Some people get confused about the scope of business income. For instance, because they haven't registered a business, they think they don't have to fill out T2125 when they're completing their T1 income tax form.

Or they think that because they haven't sold much, what they've done doesn't count as business income.

But all the money you make counts, and if you've sold items for profit (even just a few!) you're engaging in business activities according to the Canada Revenue Agency. (See Surprise! You're Running a Small Business for more on this.)

Remember, it's your total world-wide income that the government expects you to declare (and will tax).

More on Preparing Canadian Income Tax

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Comments
March 28, 2009 at 3:42 pm
(1) Charlie MJ says:

Good article.

Which form to fill out the self-employment business expense? Is it T777?

I’m doing some part time IT consultant.

Thanks,
Charlie

March 28, 2009 at 4:10 pm
(2) Charlie Yi 木匠 says:

http://sbinfocanada.about.com/od/incometaxcanada/a/firstincometax.htm

After read above post, I guess I only need to fill form T2125 part 5 – Net income (loss) before adjustment, am I right?

So I don’t have to worry about T777.

Thanks,
Charlie

March 29, 2009 at 1:42 pm
(3) sbinfocanada says:

That’s right, Charlie. It’s all recorded and figured out on the one form.

March 29, 2009 at 2:08 pm
(4) Charlie Yi 木匠 says:

Thanks you Susan !

May 9, 2009 at 10:05 pm
(5) Sara says:

If I use Quicktax, is the Income Tax form T2125 incorporated into the software, or is this something I will have to do separately?

May 10, 2009 at 10:40 pm
(6) Susan Ward says:

It’s incorporated into the software, Sara.

November 12, 2009 at 1:27 pm
(7) Ashley says:

Does Simply Accounting Pro provide a T2125?

February 27, 2010 at 4:29 pm
(8) Muhammad says:

I got T4 From my employment agency and they mentioned my income in box 81, Do I need to submitt T2125? If yes what information do I need to fill up?

February 28, 2010 at 1:51 pm
(9) Susan Ward says:

Muhammad: Not unless you also have self-employed income. The T4 slip shows your employment income which you will declare in the appropriate box on your T1 income tax form.

March 3, 2010 at 12:35 am
(10) Terry says:

I am an employee as a travelling sales person (salary and commission) – all my expenses are paid by my company – car, phone, exp hotels etc – however I maintain a home office – is it my employer’s resposibility to supply a T2200 or a T2125 so I can claim the office as a tax deduction?

March 4, 2010 at 12:37 pm
(11) Susan Ward says:

Hello Terry; Sorry, but no, as an employee you can’t claim your office as a business expense. Only businesses can claim business expenses (and fill out Form T2125.

March 11, 2010 at 2:38 pm
(12) Neal says:

Good Day Susan!
In regards to #8 Muhammad’s question, I am the same. I worked with an Agency, and they put my income in box 81 (though I paid tax/CPP etc).

When you go to use the quicktax program it says to fill out a statement of decloration for income, saying this is the only personal income you made.
I was told this form is the T2125, but you’ve said No.

Can you clarify, what in addition to the T4 do we need?
(Moving the income from box 81 to 14 makes my refund fo from 3.5K to 1.5K which seems more reasonable…I’d love it, but sounds too good!)

Thanks!

March 11, 2010 at 6:54 pm
(13) Susan Ward says:

Hi Neal. As you’re an employee, the only form you need is the T4 slip and all you do is copy the numbers from the appropriate boxes onto your tax form. You don’t get to move anything around. :-) The only way you would fill out the T2125 is if you were self-employed (were running your own business).

March 29, 2010 at 4:24 pm
(14) Monica says:

Susan

in regards to Neal # 12, my friend has the same situation, the income show in Box 81 on T4 slip , and the note of box81 on the back of his T4 slip “don’t enter this amount to line 101, enter in T2125″ what is that mean?

March 29, 2010 at 5:26 pm
(15) Susan Ward says:

Oho- Box 81 relates to “Placement or employment agency workers”. I’m not totally conversant with the subject myself, but I assume this means that you do have to fill out form T2125. If you need more information on this, I recommend calling or emailing the Canada Revenue Agency – or, if you’re using one, ask your tax preparer about this. I’m not an accountant or a tax lawyer and this is a situation I don’t know all the ins and outs of.

May 11, 2010 at 1:46 pm
(16) Anthony says:

Hi Susan.

My T4A indicates that I have self-employed commissions. I worked in a company last year from May til September. They asked me to declare myself self-employed. Does that mean I have to fill in T2125?

T2125 requires the business number and other information but I have none. Do I have to register for one, given the fact that I had only worked for 4 months last year?

Thank you so much!

May 12, 2010 at 1:50 pm
(17) Susan Ward says:

Hmm… nice of them to bring this up after the fact. According to my understanding, as a self-employed person you would have to fill out form T2125 as part of your T1 income tax form. I ‘t think you would have to also register for a business number.
However, I am not a tax accountant; to be safe I would contact the Canada Revenue Agency and ask them.

November 27, 2010 at 12:02 pm
(18) Dave Morrison says:

Hi Susan: This is a very interesting link you have. My question is do I have to register a business if I fill out form T-2125?

November 29, 2010 at 1:27 pm
(19) Susan Ward says:

Not necessarily, Dave. Whether or not you have to register your business depends on what form of business ownership you’ve chosen and what province or territory your business is in.

In most provinces you do not need to register your business name if you are a sole proprietorship operating under your own legal name with no additions. For details, see Do I Have to Register a Business Name?

December 22, 2010 at 1:12 am
(20) 木匠Charlie says:

Hi Susan,

I work as computer consultant for a local University.
They send me T4A each year and put payment total to Other Income on T4A.

If I fill T4A, I cannot claim expense.

The University accountant suggest me use T2125 Professional Income.

Can I not fill T4A form? And then put T4A total into T2125
Professional Income.

Thanks,
Charlie

December 22, 2010 at 1:51 pm
(21) Susan Ward says:

Hi Charlie. No, you can’t “double claim” for the same work. I would think that if you’re a computer consultant, you should be a contractor rather than an employee which means you would be billing your employer each month or job, keeping track of all your expenses and then declaring your income on Form T2125.
If in doubt, you know what I always say – consult an accountant or professional tax preparer.

January 11, 2011 at 3:26 pm
(22) Raf says:

Hi Susan,

I worked as a subcontractor for a recruitment agency for one of their clients. I was traveling to the customer location daily using my car. I have a sole proprietorship registered but I have not done any business through it and that contract was with my name as individual not a business, in other words, the recruitment agency advertised a job, I applied, interviewed and got the contract. The agency did not withhold any taxes on my fees.
My question is: Can I use form T2125 for Professional Income (or any other form) to get tax credits for using my car and the cost associated with it (lease, kilometers driven daily, oil, gas, insurance, maintenance, etc)?

Can you please advice?

Thanks much!
Raf

January 12, 2011 at 12:12 pm
(23) Susan Ward says:

Hi Raf; It sounds to me as if you were working as a contractor, not an employee, which means you should be claiming this as business income and using Form T2125. Then you will be eligible to claim business expenses. As always, though, I have to say that I’m not an accountant and you might want to consult one about this.

January 12, 2011 at 7:00 pm
(24) Matt says:

Hi Susan,

Regarding the temp worker T4 slip, I also have the same problem, (for my 2008 return) and I called revenue canada and they didnt know the answer and had a tax specialist call me. The tax specialist told me to fill out the t2115 form, but the t2125 form has no space for anything related to my T4. I am at a loss here and was about to just include both the blank T2125 with my T4 and tell them to do it themselves but I have the same issues with my 2009 return.

This is so annoying I don’t know what to do.

Thanks,

Matt

January 13, 2011 at 2:40 pm
(25) Susan Ward says:

Wow, Matt this must be incredibly frustrating. One would think that the Canada Revenue Agency would be able to help you sort this out one way or another. I would try again with them. Other than that, the only thing I can think of is to consult a tax accountant or other tax specialist but that will cost you money…

February 27, 2011 at 10:09 pm
(26) Veronica says:

Hello Susan,

I am in Canada on a study permit and have no income in Canada however I have income in my home country from selling staff online. I am just about to fill my Canadian tax return however I am not sure how should I report my World income? Should I fill the T2125 form even though I do not have business number in Canada (or should I have one?). I haven`t found any column where to fill my foreign income,

Thank you very much for your answer.

Have a nice day, Veronica

February 28, 2011 at 1:01 pm
(27) Susan Ward says:

Hi Veronica,

I’m not sure why you’re filling out a Canadian income tax form. Shouldn’t you be filling one out in/for your home country instead? Please check with the Canada Revenue Agency about this if you haven’t because you may not need to at all.
If you do need to fill one out, then you would have business income and would have to fill out T2125 from what you’ve said here.

April 14, 2011 at 2:25 pm
(28) Marc says:

Hi Susan,

Great Post!

I work full time at my job and on the side I’m a mortgage agent. So I get a t4 from my employment and nothing from the mortgage broker. They have told me that i’m an independent contractor.

In any case, i started in 2010 but did not close any deals in that year. However, i have about $3K in expenses.

Should i be filling out T2125?

I use turbo tax to do my filing. When i fill out t2125 my refund goes up because of my expenses….

am i allowed to do this?

April 14, 2011 at 3:17 pm
(29) Marc says:

Susan,

I’m answering my own post. I called the CRA today and they said that i can fill out the T2125 as long as i intend to continue with my business. They don’t expect a business to start generating income right away….

so…yeah to me for a larger refund :)

April 14, 2011 at 7:23 pm
(30) Susan Ward says:

Love it, Marc! Thanks for coming back & letting me know what you found out…

April 26, 2011 at 11:19 pm
(31) Tracy says:

Hi Susan,

For the expense section of the form, do you record them with the taxes included or is it supposed to be before tax amounts to be deducted from the Sales?

Thanks,

Tracy

April 27, 2011 at 12:41 pm
(32) Susan Ward says:

Hi Tracy,

That depends on whether or not you’re a GST/HST registrant.
The Canada Revenue Agency says,
“When you claim the GST/HST you paid on your business expenses as an input tax credit, reduce the amounts of the business expenses you show on Form T2125, Statement of Business or Professional Activities, by the amount of the input tax credit. Do this when the GST/HST for which you are claiming the input tax credit was paid or became payable.”

April 29, 2011 at 6:00 pm
(33) Tracy says:

Thanks Susan!

October 13, 2011 at 3:14 am
(34) Kimberly says:

Susan, quick question..hope you still read this article….

I don’t own a business but i did earn income via putting ads on my site. So i guess that means i have earned “self-employed income” and must fill T2125?

Assuming that is true then questions:

1. It asks for the “Account Number (15 characters)”. What does that mean? Business #s are not 15 characters long. They are 9 numerical digits (Master Business License).

2. Must i register a business name or can i just use my personal name on the form?

I know i can technically use my personal name as a business name but i gather that would still need to be registered (at no fee) so i can get a business number??? But then i dont see the purpose of the business number since one can just use their SIN # in its place.

I hope you can answer all the above.

March 24, 2012 at 11:15 pm
(35) JC says:

I’m also trying to find out what the Account Number (15 characters) is. Anyone know?

March 28, 2012 at 12:03 am
(36) Susan Ward says:

Hi JC – the Account Number is your Business Number (Canada Revenue Agency Number). For many small businesses, this is their GST/HST number.

June 12, 2012 at 4:30 pm
(37) andrea says:

Hi susan!
I just came from the phils almost 4mos for now got my first job as a casual caregiver.. I would like to ask do I need to declare my income If I file my gst? What are my options?

Thanks so muc.

June 13, 2012 at 1:36 pm
(38) Susan Ward says:

Hi Andrea, Yes, you will need to declare all your income when you file your income tax. I don’t understand why/ what you mean about filing your GST as you tell me this is a job. Do you mean you are a contractor and a GST registrant?

June 17, 2012 at 2:42 am
(39) Sophie says:

Hi Susan,

I am the owner/manager of an incorporated business for which there will be a separate T2 filed. However, for the filing of my personal T1, I will be receiving dividends from the corporation, and, as such, I would like to confirm that I do not need to complete the T2125 under my personal tax return, correct? And, also under the personal tax return, I do not need to indicate that I am self-employed, which seems to trigger entry of T2125, correct?

June 18, 2012 at 2:10 pm
(40) Susan Ward says:

Hi Sophie,

I would think not if your sole income from the corporation is through dividends. If you were taking any kind of draw or salary, then you would be self-employed.
BUT this is definitely something you should check with your accountant about as I am not a trained accountant or tax professional and the above is just my opinion.

June 19, 2012 at 11:06 pm
(41) Sophie says:

Just a note to say thanks for the reply and for taking the time to respond.

Regards.

March 3, 2013 at 1:47 pm
(42) Chee Meng says:

Hi Susan,

I am an international student, but I have the off-campus permit. I did some guest-teaching or substitute teaching for some performing group, and I received cheques for my services. How can I report this income? I was looking into t2125, but I don’t really have a business name or account name. Or can I put this as honorarium under “other income”? Please advise.

March 4, 2013 at 3:02 pm
(43) Susan Ward says:

Hi Chee,

Hmm… there’s no “off-campus permit” that would allow you to work in this country that I’m aware of, but that’s something you need to sort out with Canada Immigration.

As for the money you made, that’s business income, and in Canada, Canadian citizens and landed immigrants can operate sole proprietorships under their own legal names. You then declare the money as business income on your T1 income tax return. How to Complete the T1 Canadian Income Tax Form as a Business will lead you through the process.

October 30, 2013 at 3:06 pm
(44) Joe says:

Hi.

If a business declares losses on a t2125 and taxeable assets paid by an individual, how do we fill a t1 to show that loss?

November 1, 2013 at 8:38 pm
(45) Susan Ward says:

Hello Joe, The loss gets entered on the appropriate line of your T1 tax form which will “write it off” against your income.

February 12, 2014 at 11:02 am
(46) adil sayeed says:

Just got my 2013 T4 from recruiting agency and am finally starting to understand the garbled explanation they gave me about how withholding works when they contract with a self-employed consultant.
Their payments to me show up as Box 81 income.

What about HST? Am I correct in thinking that I did not have to charge the agency HST for my services and am not obligated to remit HST for these services.

I filled out an online timesheet for them and never sent them invoices as I usually do. I never saw a record of withholding until now and just assumed that HST was being included in their payments to me, which they were then passing on to the ultimate client. But, I now think that this was not the case.

But, do I now have any HST liability for these services?

February 12, 2014 at 7:54 pm
(47) Susan Ward says:

Yes, if you made more than $30,000, you are responsible for the HST and should have been charging and remitting it. See <a href=”http://sbinfocanada.about.com/od/startup/f/registerGST.htm”>http://sbinfocanada.about.com/od/startup/f/registerGST.htm</a>.

March 12, 2014 at 4:13 pm
(48) Har says:

Hi susan
I worked as an employee in an employment agency in 2012 and i got t4 2013 with net income in box 81 and tax deducted in box 22 and also deducted Cpp and EI aswell stated in t4 but when i filed my tax CRA saying your a self employee as ur income is in box 81. I contacted to my employer the employment agency they said we have paid all ur taxes, Cpp, EI as needed and your not a self employee or bussiness. But when i talked to CRA they said your not eligible for tax return cuz u were self employee as ur income is in box 81. Can u help me out what u need to tellCRA about it asi was an employee not a self employee??
Thanks!

March 13, 2014 at 12:50 pm
(49) Susan Ward says:

Sorry, Har, but I can’t. I’m not a tax lawyer and I think you’re going to have to consult one in this case as it sounds like as far as the CRA is concerned, “Box 81″ is the end of it. And as far as I can see, Box 81 is the correct place for your employer to put your income: see http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4/slps/cmpltng/thr-eng.html and then click on line 81.

March 18, 2014 at 12:26 pm
(50) William says:

Hello there and thanks for the this article.

I have both a job as an employee and a partnership as well.

There has never been a payout to any of the partners. The money that the partnership makes goes into a bank account only for that partnership. The partnership/business does pay for a P.O. box and other things related to the partnership/business.

Since there’s no personal income from the partnership, do we still each fill out a T2125? If so, do we put any income in “Part 1 – Business Income”?

Finally, what do they mean by “Your net income (loss)” in Part 6 of the T2125?

Thanks kindly.

March 18, 2014 at 12:40 pm
(51) Susan Ward says:

Hi William, Partnership income is considered personal income. A partnership is not a separate legal entity like a corporation. So you and your partner have income from it, whether you’ve taken it out of the bank or not. You will both fill out a T2125 and split your income according to whatever your agreement is (i.e. 50- 50). Your net income(loss) is the result of that income minus the various expenses that you are able to deduct. It may be positive or negative, depending.

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