How do I report my self-employment income on a T2125?
While the tax concepts in this post apply to all years, this post relates to the 2018 version of SimpleTax. Because of this, some items may not be exactly as described in this post.
This short guide covers the basics of filling out your T2125 for small business and self-employment income. If you need more information, the CRA has an in-depth guide that covers these topics in greater detail.
Enter the identifying information for your business (if relevant) in this tab.
- Business name: If you haven’t registered a business name, leave this field blank.
- GST/HST number: Enter your CRA business number, if you have one. Otherwise, leave this field blank.
- What kind of income did you earn?
- Select Commission if you earn self-employed commissions.
- Otherwise, select Business or Professional.
- Does this business have its own address? Answer “No” if you run your business from home, or you only work at client sites.
- Is this a partnership?: Answer “Yes” if you have a partner or other owners operating the business with you.
- Fiscal year: Most peoples' fiscal period is the calendar year. If this is your first year in business, enter the day you started your business in the first field, and December 31 as the end date.
- What’s your main product or service: this field is optional (except for residents of Québec).
- Industry code: Type in the box to search for something related to your work (e.g., barber, engineer, photograph, music). Industry codes are mostly used for statistical purposes.
This tab only appears if you indicated this was a partnership. A partnership is “two or more people carrying on a business in common with a view to profit.” The CRA has detailed information about whether you are in a partnership. If you are in a partnership with someone whom you share a SimpleTax account, you can share your T2125 with that person so you only need to complete most of the information once.
If you received a T5013 for this partnership, do not use a T2125. Only use the T5013 section.
If one of your partners uses the same SimpleTax account, use the drop-down box to share this T2125 with them. Most information will be shared across your returns; however, each person will need to enter:
- their share of the partnership (in the Partnership Information tab)
- the Details of other partners table
- any personal motor-vehicle information
Income and expenses
Use this tab to report your income and expenses. You are required to keep records for your income and expenses, but you might not have these if you didn’t realize you were running a business. If you don’t have good records, you should be conservative in your estimates for income and only claim expenses that you can back up with receipts (credit card statements aren’t enough).
Report your gross revenues (all the amounts you received in the year)—including product returns and any sales tax you collected—on the row for “Gross sales, commissions or fees” (or “Gross professional fees”, if you are a member of a profession).
If you collected GST/HST or PST, enter that on the next row. If your gross sales are over $30,000, you should have registered for GST/HST. If you have questions, contact the CRA.
If you’ve elected to use the Quick Method and aren’t sure what to do, refer to this help post.
Next, enter the amount of returns, allowances and discounts that were included in your gross sales amount.
If you need to report reserves deducted in the prior year, or other business income, answer “Yes” where we ask you “Do you have any other business income?”
If you sell a product, answer “Yes” to the question “Do you sell physical goods?” . This allows you to report your cost of goods sold . For example, if you knit scarves:
- opening inventory is the value of the yarn you have on hand at the beginning of the year,
- direct wage costs would cover the wages you paid to employees who work at manufacturing your goods. (Don’t include salary paid to yourself, or withdrawals made from the business.)
- purchases during the year is all the yarn you bought during the year, and
- closing inventory is the value of the yarn you have on hand at the end of the year. SimpleTax will automatically calculate your cost of goods for you.
Expenses are expenses you incurred to earn income from your business. If you bought something for both business and personal use, you should only include the business portion of your expenses on your return.
Expenses are things like advertising or business lunches. Don’t include any motor vehicle expenses, use-of-home expenses (like your rent or your internet connection) or capital expenses (like a computer or camera) on this tab; you’ll enter these elsewhere.
Capital Cost Allowance (CCA)
Use this tab to report your capital expenses. Capital expenses are expenditures for things that have a lasting benefit (like office furniture, a computer, or camera). If you have a personal motor vehicle, don’t include it on the CCA tab; use the Motor Vehicle Expenses (your own vehicle) tab to claim both motor vehicle expenses and CCA for your vehicle.
Additions and dispositions table
Most capital property is depreciable property.
For each capital asset you bought, you’ll need to figure out what class it is. Here’s a list of common classes. If you can’t find a class, it’s probably class 8. Computers bought in are class 50. When you enter the property into the additions or dispositions table, select the relevant CCA class. SimpleTax will automatically add these additions and dispositions to the CCA calculation table.
Most Class 12 assets are not subject to the half-year rule. However, computer software generally is subject to that rule, which means that in the year you purchase the software you’ll only be able to write off half of the cost. Be sure to select the correct option in the drop-down if you acquired Class 12 software.
If your personal use rate for the property won’t change from year to year, enter your personal use rate in the PUR column. If your personal use rate may change from year to year, leave this column blank.
CCA calculation table
If you have any CCA classes with closing UCC balances from last year, add the information to the CCA calculation table (if you used SimpleTax last year, we’ll carry these forward for you automatically). Because CCA is a class-based system you should generally only have one row per class. If you are subject to an exception, please review the limitations listed below—you may need to use the “I’ll report totals only” option.
If you have a personal use rate for the class for the year, enter that in the PUR column. Your maximum CCA claim will be decreased accordingly.
If you want to claim a different amount than the maximum allowable CCA, enter that amount in the CCA Claimed column. You might want to do this if you are already in a loss position this year, or you think you might be in a higher tax bracket next year.
If you have a recapture we’ll include this in your income for you.
SimpleTax CCA tables don’t support:
- Assets (other than Class 10.1 vehicles) that are able to be allocated to their own class (rather than grouped with items of the same class).
- Assets that are eligible for straight line depreciation.
- Classes in which you have a terminal loss.
If any of these situations apply to you, or if you have already done the CCA calculations as part of your annual accounting, you should use the “report totals only” option and track your CCA manually.
Reporting totals only sends the same information as using the SimpleTax CCA tables, so your audit risk will not increase.
To learn more about CCA, please visit the CRA’s website.
Business use-of-home expenses
Use this tab to claim expenses related to your home. You can deduct use-of-home expenses if your home: is your principal place of business; or, you use the space only to earn your business income and you use it on a regular and ongoing basis to meet your clients, customers, or patients.
Your use-of-home expenses are based on the size of your office within your home and the amount of time you use it for business use. Here’s more information from the CRA.
If you rent your home, report your rent in the “Other Expenses” row.
You can’t create a loss by claiming use-of-home expenses, so if you aren’t able to use all your use-of-home expenses this year we’ll automatically carry them forward.
Motor vehicle expenses:
Use this tab to claim the cost of your vehicle if you use it for your business. If you didn’t keep a detailed log book and receipts you might not want to claim this amount. The CRA is known to often request records for motor vehicle claims. Here’s more information from the CRA on how to complete this section.
If this is a partnership, there will be two separate Motor Vehicle Expenses tabs, one for your personal motor vehicle(s) and one for any motor vehicle(s) owned by the partnership.
Use this tab to report any other business information. This includes:
- tax shelter number, if applicable
- T1139 (non-calendar year-end) information
- balance sheet information (liabilities, capital contributions, etc.)
- website information (if this business earns income from website)