How do I fill out the T2125 for a sole proprietor?
Form T2125 is what a sole proprietor or partner files for 2025, one per business, due June 15, 2026. Report gross income in Part 3, expenses in Part 4 (net of input tax credits, except on the quick method), CCA in Area A and home costs in Part 7. Line 9946 flows to line 13500 for business income.
What goes in each part of the 2025 T2125
The 2025 T2125 is nine pages: nine Parts, CCA Areas A to G and three motor vehicle charts. Your client fills in a separate form for each business, and a separate one again if they earn both business and professional income canada.ca.
| Part or area | What goes there | Lands on |
|---|---|---|
| Part 1: Identification | Fiscal period, industry code, partnership share, "last year of business" box | n/a |
| Part 2: Internet business activities | Number of income earning websites, up to five addresses, percentage of income from the web | n/a |
| Part 3A or 3B: Business or professional income | Gross sales or fees including GST/HST, then GST/HST backed out | Line 8000 |
| Part 3C: Gross income | Line 8000 plus reserves (8290) and other income (8230) | Line 8299, then T1 line 13499, 13699 or 13899 |
| Part 3D: Cost of goods sold | Opening inventory, purchases, closing inventory | Line 8519 gross profit |
| Part 4: Expenses | Lines 8521 to 9270, including CCA on line 9936 | Line 9369 net income before adjustments |
| Part 5: Your net income | Partnership share, line 9943, home office on line 9945 | Line 9946, then T1 line 13500, 13700 or 13900 |
| Part 6: Partner expenses | Unreimbursed costs a partner paid personally | Line 9943 |
| Part 7: Business use of home | Heat, power, insurance, maintenance, mortgage interest, property tax, CCA | Line 9945 |
| Parts 8 and 9 | Other partners; liabilities, drawings and capital contributions | Lines 9931 to 9933 |
| Areas A to G | CCA schedule, additions, dispositions, land, the immediate expensing agreement | Line 9936 |
| Charts A to C | Vehicle expenses, passenger vehicle interest and lease limits | Line 9281 |
Commission income is reported as business income, but the T1 wants the gross commission on line 13899 and the net on line 13900 canada.ca. Commission agents (with farmers and fishers) may use the cash method; every other business must use accrual
canada.ca.
Gross income and GST/HST: the rule printed on the form
Amount 3A (or 3H for professionals) is gross sales including GST/HST collected or collectible. Amount 3B (or 3I) backs the GST/HST, provincial sales tax, returns and discounts out again, so a registrant on the regular method lands on line 8000 with sales net of tax canada.ca.
Expenses follow the same logic. The form says that if GST/HST was remitted or an input tax credit was claimed, leave the GST/HST out of cost of goods sold, expenses and net income. On the quick method, include the GST/HST paid in those figures canada.ca. The guide puts it plainly: reduce the expense by the credit and enter the net figure
canada.ca.
The quick method adds a step. Your client enters GST/HST collected on eligible sales at 3D, the amount actually remitted at 3E (eligible sales plus tax, times the remittance rate), and the difference at 3F is added to income through 3G. The 1% credit claimed on line 107 of the GST/HST return goes on line 8230 canada.ca. That credit is 1% of the first $30,000 of eligible supplies including tax, so $300 at most
canada.ca. Rates and eligibility are on the quick method page.
Professionals include the value of work in progress at year end in fees, less the work in progress included last year. The 2025 form notes that the transitional rules for phasing in work in progress after an election to exclude it can no longer be used canada.ca.
Worked example: an Ontario consultant on the quick method
Your client invoices $80,000 of consulting fees in Ontario and collects 13% HST of $10,400. They use the quick method, where an Ontario service provider remits 8.8% of tax included sales canada.ca. Expenses cost $11,300 including $1,300 of HST, and the home office claim at 7M is $2,400.
| T2125 amount | Calculation | Result |
|---|---|---|
| 3A gross sales | $80,000 + $10,400 HST | $90,400 |
| 3B HST included in 3A | $10,400 | |
| 3C subtotal | $90,400 minus $10,400 | $80,000 |
| 3D HST collected on eligible sales | $10,400 | |
| 3E HST remitted | $90,400 x 8.8% | $7,955.20 |
| 3F quick method gain | $10,400 minus $7,955.20 | $2,444.80 |
| Line 8000 (3G) | $80,000 + $2,444.80 | $82,444.80 |
| Line 8230: 1% credit | 1% of the first $30,000 | $300 |
| Line 8299 gross income (T1 line 13499) | $82,744.80 | |
| Line 9368 expenses, HST included | $11,300 | |
| Line 9369 net before adjustments | $82,744.80 minus $11,300 | $71,444.80 |
| Line 9945 home office (7P) | lesser of 7M $2,400 and 7N $71,444.80 | $2,400 |
| Line 9946 net income (T1 line 13500) | $71,444.80 minus $2,400 | $69,044.80 |
On the regular method the same client reports $80,000 on line 8000, nothing on line 8230, and $10,000 of expenses after claiming the $1,300 as input tax credits. Net income before the home office would be $70,000, which is $1,444.80 less than the quick method figure. The quick method keeps more cash, and the T2125 taxes part of that gain.
CCA, vehicles and the home office
Area A is the CCA schedule. The total CCA claim (amount ii) goes on line 9936, less any personal part and less any CCA that belongs to the home office, which moves to amount 7K instead canada.ca. CCA is optional: your client can claim anything from zero to the maximum
canada.ca. A negative balance in column 7 is recapture on line 8230; a positive balance with no property left in the class is a terminal loss on line 9270
canada.ca.
On the 2025 form, the $1.5 million immediate expensing columns only cover designated property that became available for use before 2025. Additions in 2025 run through the half year rule or the accelerated investment columns canada.ca. Tools under $500 go in Class 12 and are mostly deductible in the year bought
canada.ca.
Vehicle running costs go through Chart A: business kilometres over total kilometres, times total costs, onto line 9281. Interest on a passenger vehicle bought after 2023 is capped at $350 per 30 days, and the vehicle's own CCA goes in Area A, not Chart A canada.ca. For the log your client needs, see vehicle logbook rules.
Home office costs qualify only if the space is the principal place of business, or is used only for the business and on a regular and ongoing basis to meet clients. They cannot create or increase a business loss, and the unused part carries forward to the next fiscal period canada.ca. Claiming CCA on the home can hurt the principal residence exemption later
canada.ca. The full calculation is on business use of home for sole proprietors.
Common T2125 errors and the fix
| Error | Fix |
|---|---|
| Two businesses on one T2125 | One form per business, and a separate form for professional income |
| Gross sales on line 8000 still include HST (regular method) | Back the tax out at 3B or 3I |
| Quick method user skips 3D to 3F and the 1% credit | Add the 3F gain through 3G and the credit on line 8230 |
| Expenses entered gross after claiming input tax credits | Enter the expense net of the credit |
| Home rent or utilities on line 8910 or 9220 | Home costs go only through Part 7 and line 9945 |
| Owner's draws deducted as wages on line 9060 | Drawings are not deductible; report them on line 9932 |
| Vehicle CCA entered in Chart A | CCA goes in Area A and line 9936 |
| Home office claim pushes the business into a loss | Cap at amount 7N and carry the rest forward at 7O |
Meals and entertainment on line 8523 are limited to 50% of the lesser of the amount paid and a reasonable amount canada.ca; the exceptions are on the meals and entertainment page. The flat $23 rate on CRA meal allowance rates is not available to most sole proprietors. A loss on the disposition of a flipped property is deemed to be zero: show the details on the T2125 but don't claim the loss on the return
canada.ca.
Fiscal period and deadlines
A sole proprietor's fiscal period generally cannot end after December 31 of the year it began (ITA 249.1(1)(b)). An individual carrying on the business alone, or in a partnership of individuals only, can elect out under 249.1(4) laws-lois.justice.gc.ca. Clients with a non December 31 year end use Form T1139 to reconcile their 2025 business income, and once they file one they generally keep filing it
canada.ca.
For 2025, a client with business income files by June 15, 2026, but any balance owing is due April 30, 2026. Instalments for 2026 fall on March 15, June 15, September 15 and December 15 canada.ca. The full calendar is on the self employed tax deadline page.
Sources
Does a partner fill in the whole T2125?
Is a GST/HST input tax credit income on the T2125?
Can my client deduct the money they paid themselves?
No. A sole proprietor's own drawings are not a deductible wage; they go on line 9932 in Part 9 as drawings canada.ca. Line 9060 is for wages paid to employees, plus the employer's CPP and EI on those wages.
Where is the current T2125 form?
The CRA posts the 2025 version (T2125 E (25)) as fillable and print PDFs, with older years back to 2008, and the companion guide is T4002 canada.ca. Most clients file it through certified tax software instead of on paper.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.