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Self-employed clients and Form T2125: the rules a bookkeeper needs

A sole proprietor reports business or professional income on Form T2125 with their personal return. This page gathers what CRA Guide T4002 says about the parts a bookkeeper prepares: the fiscal period, the reporting method, the expense lines, the home workspace, records and due dates.

Who uses T2125

T4002 is for sole proprietors — unincorporated, self-employed individuals earning business, professional or commission income (and farmers and fishers, who use T2042 and T2121) — and for members of partnerships. A corporation does not use T2125; it files its own return.

Income has to be reported, and expenses can be deducted, from the day the business starts: when some significant activity begins that is a regular part of the business or necessary to get it going. Researching whether to start a business is not yet that point; buying stock or equipment to start usually is.

Fiscal period and reporting method

  • A fiscal period cannot be longer than 12 months; it can be shorter when a business starts or stops.
  • Self-employed individuals generally use a December 31 year-end. An eligible individual with another year-end reconciles with Form T1139.
  • Business and professional income is reported with the accrual method. Only farmers, fishers and self-employed commission agents may use the cash method.
  • With the accrual method, expenses are deducted in the year they are incurred, whether or not they are paid yet.

The expense lines bookkeepers use most

Part 4 of T2125 lists expenses by line number. Each line is a standardized financial statement item (Guide RC4088, GIFI). The ones that come up most:

LineExpenseWhat to watch
8521Advertising
8523Meals and entertainmentGenerally 50% of the lesser of the amount incurred and a reasonable amount
8690InsuranceCommercial insurance on buildings, machinery and equipment. Vehicle insurance goes on 9281, home workspace insurance on 9945; life insurance generally not
8710Interest and bank chargesNot principal; not interest on money borrowed for personal use or to pay overdue income tax
8760Business taxes, licences and memberships
8810 / 8811Office expenses / office stationery and supplies
8860Professional fees (legal and accounting)
8910Rent
9060Salaries, wages and benefitsIncluding the employer's CPP and EI contributions. Never the owner's own salary or drawings
9200Travel
9281Motor vehicle expenses (not CCA)Business part only, supported by a record of kilometres
9936Capital cost allowance (CCA)Depreciable property is deducted over several years, not at once
9945Business-use-of-home expensesSee below: conditions and a limit

Business use of home (line 9945)

A workspace in the home qualifies if it is the principal place of business, or if it is used only to earn business income and on a regular and ongoing basis to meet clients, customers or patients.

  • Deduct a reasonable part of heating, electricity, home insurance, cleaning, property taxes, mortgage interest and CCA — for example, the workspace area over the home's total area. A tenant deducts the matching part of rent.
  • For a room also used for living, multiply by the hours of business use over 24, and reduce further for days the business does not operate.
  • The claim cannot create or increase a business loss. The unused part carries forward to the next year.
  • Claiming CCA on the home brings in the capital gain and recapture rules when the home is sold.

From T4002: a home daycare open weekdays 7 am to 5 pm

(10 ÷ 24 hours) × (35 ÷ 100 m²) × $5,800 = $845.83$845.83 × 5 ÷ 7 days = $604.16 deductible

Vehicles: the 2025 limits

  • Class 10.1 passenger vehicles acquired on or after January 1, 2025: the prescribed amount rises from $37,000 to $38,000, before tax.
  • Maximum deductible leasing cost for new leases from January 1, 2025: from $1,050 to $1,100 a month, before tax.
  • Interest on money borrowed to buy a passenger vehicle is limited too: Chart B of the form calculates it.

Records

Keep records of every transaction that supports income and expenses — invoices, receipts, deposit slips, bank statements, cancelled cheques — generally for six years from the end of the last tax year they relate to, separately for each business. Records are not sent with the return, but the CRA can ask for them.

Dates in 2026 (2025 returns)

From "Dates to remember" in T4002. A date that falls on a weekend or public holiday moves to the next business day.
DateWhat
February 28, 2026T4 and T4A slips and summaries, for clients with employees
March 15, 2026First 2026 instalment (business, professional or commission income)
April 30, 2026Balance owing for 2025 is due
June 15, 20262025 return for self-employed individuals (and their spouse or common-law partner); second instalment
September 15, 2026Third instalment
December 15, 2026Fourth instalment

June 15 is a filing deadline only. Interest on a balance owing runs from April 30.

Questions

Can a self-employed consultant report on the cash basis?
No. T4002 allows the cash method only for farmers, fishers and self-employed commission agents; all other self-employment income uses the accrual method.
My client works from a home office but meets clients elsewhere. Can they claim line 9945?
Yes, if the home workspace is their principal place of business. The other route — meeting clients there regularly — applies only when the space is used for nothing but the business.
Can business-use-of-home create a loss?
No. It is limited to net business income before these expenses; the rest carries forward.

Official sources

This page explains official publications in plain words. It is informational, not professional advice, and it is not a substitute for the documents it cites: open the source before you rely on it.

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