How to File T2125: Self-Employment Income for Canadian Freelancers (2026)

Form T2125 connects your business records to your personal tax return. It reports a sole proprietor's or individual partner's business or professional income, expenses and resulting net income. It is not a corporate T2 return.

This guide follows the 2025 T2125 currently published by CRA, used for the 2026 filing season. The CPP planning example below is explicitly for income earned in 2026. Use the form and limits for the tax year you are reporting.

The deadlines

For the 2025 tax year, CRA's dates were April 30, 2026 to pay a balance and June 15, 2026 to file for most self-employed people and their spouses or common-law partners. The usual extension does not cover a business whose expenditures primarily relate to a tax shelter investment.

Instalments are a separate question. They generally apply when net tax owing exceeds $3,000 ($1,800 in Quebec) in the current year and either of the two preceding years. The regular dates are March 15, June 15, September 15 and December 15, with weekend/holiday adjustments. Check CRA's instalment rules and calculation options, rather than deciding from last year's total bill alone.

Form T2125 part by part

Start with a profit-and-loss report, invoices, expense records, asset purchases, vehicle log and any home-workspace calculation. Reconcile the records to the reporting period before copying totals. Use a separate T2125 for each business or profession.

Part 1: Identification

Enter the business identity, fiscal period and industry code that fits the actual activity. Do not pick a computer-consulting code merely because you work online. The CRA income chapter explains the industry and accounting-method fields. Most sole proprietors report on a calendar-year basis; an alternative fiscal period requires the applicable election and adjustments.

Part 2: Internet business activities

Include income-generating websites and third-party marketplaces. This can cover your own store, an Etsy or other marketplace profile, and advertising revenue. Report up to five principal addresses and the percentage of gross income generated online. The test is income generation, not whether you own the platform. See CRA's e-commerce reporting rules.

Part 3: Income and gross profit

Part 3A is for business income; Part 3B is for professional income. Business amount 3A starts with sales including GST/HST collected or collectible; 3B removes the taxes and other listed adjustments. Amount 3F is a Quick Method adjustment, not the ordinary GST/HST subtraction. Adjusted sales reach line 8000 in Part 3C, then line 8299 includes other income and prior-year reserves.

Part 3D works out cost of goods sold and gross profit. Keep inventory purchases separate from operating expenses so the same cost is not deducted twice. A business with no inventory still needs its revenue to flow correctly into the expense calculation. CRA's income instructions explain these paths.

Part 4: Net income before adjustments

Use only the deductible business portion. The CRA expense guide covers each category and its restrictions. Common lines include:

Line 9368 totals expenses. Line 9369 is net income before adjustments, not the final amount to put on the T1.

Part 5: Your net income

This applies your share and relevant adjustments, then the allowable home-business deduction. Line 9946 is the final net income or loss transferred to the appropriate business, professional or commission-income line of the T1. Keep a bridge from the books to this figure so an accountant can identify tax adjustments.

Part 6: Partnership expenses

This section covers eligible unreimbursed expenses incurred personally by a partner that were not already deducted in the partnership accounts. A solo proprietor does not use it to deduct ordinary business expenses a second time.

Part 7: Business-use-of-home expenses

The workspace must be your principal place of business, or be used exclusively to earn business income and regularly and continuously to meet clients, customers or patients. Allocate shared space reasonably, including time where relevant. The deduction cannot create or increase a business loss; eligible unused amounts can carry forward for the same business. CRA's business-use-of-home folio explains the conditions.

Part 8: Other partners

Provide partner details where required. This is the partnership section; it is not the equity section.

Part 9: Equity

Report business liabilities, owner drawings and capital contributions. Equity information is not limited to partnerships. Moving money to yourself does not turn it into an expense. Check the layout against the current T2125 PDF before filing.

Motor vehicle expenses

Keep total and business kilometres, trip purpose and supporting cost records. Calculate eligible running costs in Chart A. For a sole proprietor, the business amount reaches line 9281; vehicle CCA is calculated separately and goes to line 9936. Do not put vehicle fuel on line 9224 or count CCA twice. A partner's personally incurred vehicle expenses can instead follow line 9943. CRA's motor-vehicle guide sets out the records and calculation.

Capital cost allowance (CCA)

An asset's useful life, nature, acquisition date and available-for-use date determine its treatment. There is no universal rule that every purchase below $500 is a current expense. The $500 threshold applies to specified small-tool and similar classes.

Regular class rates include Class 8 at 20%, Classes 10 and 10.1 at 30%, Class 12 at 100%, and Class 50 at 55%. These are not necessarily the first-year deduction. Class 12 covers qualifying small tools and application software; computer hardware and systems software commonly belong in Class 50. Subscription services are a different question from owning software. See CRA's class descriptions.

For passenger vehicles acquired in 2026, the Class 10.1 ceiling is $39,000 before tax, compared with $38,000 for 2025 acquisitions. Vehicles above the applicable ceiling have a separate Class 10.1 pool. Finance Canada publishes these annual limits.

Use Area A for CCA. The half-year rule has exceptions, and accelerated incentives can change the first-year claim. Check CRA's CCA instructions and the CCA reference for the actual asset and year.

CPP on self-employment income

For 2026 income, a person subject to CPP all year with no employment income pays 11.9% on net pensionable earnings over $3,500 to $74,600, plus 8% on the band over $74,600 to $85,000. The maximum is $9,292.90. CPP contribution rules explain the limits.

At $60,000 net business income, the calculation is ($60,000 − $3,500) × 11.9% = $6,723.50, not 11.9% of the whole $60,000. Employment contributions, age and pension status can change the answer; Quebec has QPP rules. The CPP guide walks through those distinctions. Use the prior-year limits when filing a 2025 return.

What Ledg does for T2125 prep

Ledg organizes confirmed entries into a T2125 Preview and an accountant handoff pack. The preview uses your books and Tax Profile; it is not a filed return. Review the tax treatment and supporting records before transferring amounts to your return.

The Solo plan also connects to Claude or ChatGPT for work drafted into Stage. You confirm entries before they affect the books. Pricing explains the available plans.

Common mistakes to avoid

• Using a current-year rate on a prior-year return.
• Skipping marketplace income in Part 2.
• Deducting vehicle CCA twice or treating vehicle fuel as other fuel.
• Sending line 9369 to the T1 before the final adjustments on line 9946.
• Treating owner drawings as an expense or skipping the equity details because there is no partnership.
• Claiming a home workspace without checking its eligibility and allocation.
• Assuming a separate business bank account proves every expense is deductible. Keep the invoice and business purpose too.

What about GST/HST?

GST/HST registration and returns are separate from T2125. CRA's small-supplier tests distinguish a single quarter from four consecutive quarters and give each test's effective date.

For a regular-method registrant, recoverable GST/HST generally does not remain in the corresponding income or expense. The Quick Method has different T2125 adjustments, so do not remove every sales-tax amount mechanically. The form's income and expense instructions specify the treatment.

TL;DR

Choose the correct tax-year form, reconcile the records, complete the sections that apply, and transfer final net income from line 9946. Check vehicle, home-office and CCA calculations separately. Payment and filing deadlines differ, and CPP is an additional personal-return calculation.