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

If you earn money as a freelancer, contractor, or sole proprietor in Canada, your business income flows onto Form T2125, Statement of Business or Professional Activities, attached to your personal T1 General return. There's no separate corporate filing, no GIFI, no Schedule 100. It's just you, your business, and the CRA.

This guide walks the form line by line, lists the deadlines that actually matter, and shows you how to keep your books so April doesn't ambush you.

The deadlines

The April 30 / June 15 split confuses people every year. To be clear: payment is due April 30, not June 15. If you owe money, paying late means CRA charges you interest from May 1 even though your filing deadline is six weeks later.

Form T2125 part by part

T2125 has eight parts. Here's what each one wants from you.

Part 1: Identification

Business name, address, your SIN, fiscal year (almost always Jan 1 – Dec 31), and an industry code (the six-digit NAICS code for your work). Most freelancers code as 541510 (computer systems design) or 711510 (independent artists, writers, performers) or whatever fits. The code drives a few statistics flags at CRA but doesn't affect your tax.

If you're registered for GST/HST, your Business Number goes here too.

Part 2: Internet business activities

Skip unless you sell through your own website (not a marketplace like Etsy or Shopify, the question is about a site you control). If you do, list the URLs and what percentage of revenue came from each.

Part 3: Income

Two main lines:

• Line 3A, Gross sales / commissions / fees before GST/HST.
• Line 3F, Subtract: GST/HST collected. If you charged sales tax, subtract it here.

The result, Line 8000 Adjusted gross sales, is your before-expenses revenue.

Part 4: Cost of goods sold (COGS)

Only relevant if you sell physical products. Service businesses (most freelancers) leave this blank. The math is opening inventory + purchases - closing inventory = COGS.

Part 5: Expenses

This is the bulk of the form. CRA gives you ~20 fixed lines plus an "Other" bucket. Common ones:

• Line 8521 Advertising and promotion (Google Ads, business cards, sponsorships)
• Line 8523 Meals and entertainment (50% deductible by default)
• Line 8590 Bad debts (invoices that went uncollected)
• Line 8690 Insurance (business liability, errors and omissions)
• Line 8710 Interest and bank charges (loan interest, payment processor fees, account fees)
• Line 8760 Business taxes, licences, dues (annual licence renewals, professional dues)
• Line 8810 Office expenses (consumables: pens, printer ink, software subscriptions if not capitalized)
• Line 8860 Professional fees (legal, accounting, bookkeeping)
• Line 9060 Salaries / wages / benefits (employees only, NOT yourself)
• Line 9180 Property taxes (on a workspace you own)
• Line 9200 Travel (out-of-town for business)
• Line 9220 Utilities (heat, hydro for a separate workspace)
• Line 9224 Fuel (vehicle, for the business-use portion)
• Line 9270 Other expenses (anything that doesn't fit the named lines)
• Line 9281 Motor vehicle expenses (covered separately below)
• Line 9936 Capital cost allowance (depreciation on assets, computed in Area A)

The form sums these into Line 9368 Total expenses.

Part 6: Net income (loss) before adjustments

Adjusted gross sales (line 8000) - Total expenses (line 9368) = Line 9369 Net income. If the number is negative, you have a business loss for the year, which can offset other personal income on your T1.

Part 7: Your share + business-use-of-home

Two adjustments here.

• Your share of the partnership (if you split a sole prop with someone, but for solo operators this is 100%).
• Business-use-of-home expenses (Line 9945) — your home office. Eligible costs include a portion of rent or mortgage interest, property tax, utilities, internet, and home insurance, prorated by the floor area of the dedicated workspace.

The home office deduction is restricted to net business income. You can't use it to create or grow a loss. Unused amounts carry forward to future years indefinitely.

Part 8: Details of equity (for partnerships only)

Solo sole proprietors skip this entirely.

Motor vehicle expenses

The vehicle line is its own subform. Track:

• Total kilometres driven in the year (yes, all of them)
• Business kilometres driven (your log)
• Business-use percentage (business KM / total KM)

Then list:

• Fuel, maintenance, insurance, registration, leasing or interest payments
• CCA on the vehicle (Class 10 or 10.1 depending on cost)

Multiply totals by your business-use percentage and put the result on Line 9281.

CRA expects a contemporaneous mileage log, meaning you tracked each business trip when it happened, not reconstructed it in March. A simple spreadsheet with date, destination, purpose, and kilometres is enough. CRA does audit this.

Capital cost allowance (CCA)

If you bought a laptop, camera, vehicle, or any asset that costs more than ~$500 and lasts more than a year, you don't expense it all in the year you bought it. You capitalize it and claim depreciation over multiple years through CCA.

CCA classes:

• Class 8 (general furniture, equipment): 20% per year
• Class 10 (vehicles under $30K + tools under $500): 30% per year
• Class 10.1 (vehicles over $30K, capped at the prescribed limit): 30% per year, separate pool per vehicle
• Class 12 (small tools under $500, software with annual licence): 100% in year of purchase
• Class 50 (computer hardware + system software): 55% per year

CCA goes through Area A on T2125. The first year of an asset is half-year rule (you only claim half the normal rate).

CPP on self-employment income

Don't forget: as a sole proprietor, you pay both halves of CPP on your net business income, computed on Schedule 8 of your T1. For 2026 (estimated; CRA confirms in November):

• 11.9% on net self-employment income up to YMPE (~$71,300)
• Plus 8% on the YAMPE tier (~$71,300 – $81,200)

This is on top of regular income tax. Many first-year sole proprietors are surprised by the size of their CPP bill. A net business income of $60,000 means roughly $7,140 in CPP alone. Plan for this. Set aside the cash quarterly so April doesn't hurt.

What ledg does for T2125 prep

ledg is bookkeeping software for solo Canadian operators. When you sign up as a sole proprietor:

• Categories that make sense for T2125: Advertising & Marketing, Office Supplies, Meals & Entertainment (with the 50% reminder), Professional Fees, Telephone & Internet, Travel, Vehicle Expenses, Other Expense, plus Owner Draw / Owner Investment for the equity side.
• Receipts for every transaction, stored in your own Google Drive.
• An accountant handoff pack as a one-click zip: general ledger, trial balance, GST/PST summary, bank reconciliation. Send to your accountant or upload to TurboTax / SimpleTax when filing season arrives.
• A Connect-AI layer (MCP) so you can ask Claude or ChatGPT "what was my net business income this year so far?" or "any uncategorized transactions?" and pull real numbers from your books without opening the dashboard.

Try ledg free — 100 entries, no credit card.

Common mistakes to avoid

1. Skipping the home office deduction because "I work from a corner of my bedroom." A dedicated workspace doesn't have to be a whole room. The CRA accepts a defined area used regularly and exclusively (or substantially) for business.
2. Forgetting CPP. It's the line item people miss when estimating quarterly tax owing.
3. No mileage log. If you claim vehicle expenses without a contemporaneous log, an auditor will deny the entire deduction.
4. Mixing personal and business in one bank account. Open a dedicated business account from day one. CRA isn't fussy about the bank, but the audit trail matters.
5. Filing T2125 with the wrong fiscal year. Sole proprietors are required to use a calendar year (Dec 31) unless you file the rare T1139 election. Don't try to use a fiscal year just because your old corp had one.
6. Treating Owner Draw as an expense. Money you take out of the business for yourself isn't deductible. It's an equity withdrawal, not an expense.

What about GST/HST?

Separate from T2125 entirely. If your revenue crosses $30,000 in any four consecutive calendar quarters, you must register for GST/HST and file periodic GST34 returns. The GST you collect doesn't appear on T2125 income; the GST you paid on expenses (ITCs) doesn't appear on T2125 expenses. They flow through your GST/HST return separately.

TL;DR

• April 30 to pay; June 15 to file. Don't confuse them.
• T2125 = your business income on your personal T1.
• Track receipts, vehicle KM, home office sq ft. CRA wants the paper trail.
• Don't forget CPP self-employment contributions on Schedule 8.
• Sole proprietors must use a calendar year fiscal end.
• Open a dedicated business bank account on day one.
• Owner draws are equity, not expenses.

If you want bookkeeping that already understands all of this, start with ledg.