What Can You Claim on the T2125? Line-by-Line Guide

If you are self-employed in Canada, the T2125 (Statement of Business or Professional Activities) is where you report your business income and expenses. Every dollar you claim here reduces your taxable income and, by extension, your tax bill.

This guide walks through the major expense categories on the T2125, line by line, with practical examples for freelancers and sole proprietors.

Who Files a T2125?

You file a T2125 if you earn self-employment income. This includes:

• Freelancers (designers, developers, writers, consultants)
• Sole proprietors running a business
• Independent contractors
• Gig workers with business income

If you have a rental property, that goes on the T776 instead. If you are a salaried or commission employee with work expenses, that goes on the T777.

The Expense Lines

Line 9281: Motor Vehicle Expenses

If you use your personal vehicle for business, you can deduct a portion of your vehicle costs based on business-use percentage.

What counts:

• Fuel and oil
• Insurance
• Maintenance and repairs
• Licence and registration
• Interest on a loan taken out to buy the vehicle, or leasing costs
• Electricity for a zero-emission vehicle

What does not count here: Capital cost allowance on the vehicle itself. The form calls this line "motor vehicle expenses (not including CCA)". Vehicle depreciation is worked out in Area A of the T2125 and entered on line 9936, not here.

How to calculate: Track your total kilometres driven and your business kilometres for the year. Your deductible percentage is business km divided by total km.

Example: You drove 20,000 km total, 8,000 km for business. Your business-use percentage is 40%. If your total vehicle costs were $7,100, you can claim $2,840.

Parking is the exception to the proration. Business parking fees and supplementary business insurance are added to line 9281 in full, after the kilometre split rather than scaled by it. Parking has to be related to your business activities; parking at your own regular place of business is a harder case that depends on the facts (see parking, tolls and tickets).

The CRA expects: A logbook with dates, destinations, purposes, and kilometres for each business trip.

Line 8690: Insurance

Business insurance premiums are fully deductible. This includes professional liability insurance (errors and omissions), general liability, and business property insurance.

What counts:

• Professional liability / E&O insurance
• General commercial liability
• Business property or equipment insurance
• Cyber liability insurance

What does not count: Personal insurance, life insurance, or the business portion of home insurance (that goes under business-use-of-home expenses).

Line 8521: Advertising

Marketing and advertising costs to promote your business.

What counts:

• Website hosting and domain registration
• Online advertising (Google Ads, social media ads)
• Business cards and printed materials
• Trade show booth fees
• Portfolio site costs

Note: Advertising in Canadian media is fully deductible, and so is online advertising. Print and broadcast carry statutory limits when the ad is aimed at a Canadian market. In a periodical, the ad is fully deductible only if original editorial content is 80% or more of the issue's non-advertising content, and 50% deductible otherwise (Income Tax Act, subsections 19.01(3) and 19.01(4)). An ad in a newspaper that is not a Canadian issue of a Canadian newspaper, or one broadcast by a foreign broadcasting undertaking, is not deductible at all (sections 19 and 19.1).

Line 8860: Professional Fees

Fees paid to other professionals for business services.

What counts:

• Accounting and bookkeeping fees
• Legal fees related to your business
• Consulting fees
• Tax preparation fees (the business portion)

Common mistake: Personal legal fees (e.g., for a real estate purchase or family matter) are not deductible here.

Line 8810: Office Expenses

Day-to-day supplies and small items used in your business.

What counts:

• Pens, pencils, paper clips, stationery
• Printer paper and ink
• Postage and stamps

What does not count: There is no dollar threshold that turns a capital purchase into an office expense. CRA excludes capital property from this line by its nature, not by its price, so a calculator, a filing cabinet, a chair, a desk, or a laptop goes through CCA on line 9936 whatever it cost. Two other costs have their own lines and are commonly misfiled here: courier and freight to get goods to a customer belong on line 9275 (delivery, freight, and express), and software subscriptions belong on line 9270.

Note: Items the business consumes to provide its goods or services, such as cleaning supplies for a trade or materials used up on a job, are a different line again: 8811, office stationery and supplies.

Line 9200: Travel Expenses

Costs for business travel away from your metropolitan area.

What counts:

• Flights and train tickets for business trips
• Hotel accommodations
• Meals while travelling (50% deductible)
• Taxi and rideshare for business travel
• Getting to a conference or convention, meaning the airfare, the train, and the hotel

What does not count: Commuting from home to a regular place of business. The CRA is strict about the distinction between travel and commuting. The conference registration fee itself is not travel either: convention fees go on line 9270, below.

Line 9220: Utilities

Telephone, internet, and utility service used to earn business income. This is the line telecom belongs on. It is not an "other expense" and, for internet, it is not part of your home office claim.

What counts:

• Cellphone air time, at the business-use share of the service
• Home internet, at the business-use share of the service
• The basic monthly rate of a separate telephone line kept for business calls only, deductible in full with nothing to prorate
• Business long distance calls made on your home telephone
• Heat, electricity, water, gas, and cable for business premises that are not part of your home

What does not count: The basic monthly rate of your home telephone. CRA denies it outright, so there is no reasonable share of it to claim, and only the business long distance calls made on that line are deductible. Utilities for a work space inside your home are not claimed here either; they belong in the business-use-of-home calculation described below.

How to calculate: For a cellphone and for internet, what you are estimating is the share of the service that earns income, worked out from how the connection is used. Your workspace percentage is not a method here. Income tax folio S4-F2-C2, paragraph 2.32, says the cost of telephone and internet service may relate to the business but does not relate to the work space, and paragraph 2.33 sets the amount as a reasonable proration of the service itself. Floor area measures the room, and says nothing about how much of a connection carries work.

Example: A $1,200 internet bill at 60% business use claims $720 on line 9220. Folded into a 10% work space instead, the same bill would have claimed $120. That gap is the cost of filing it on the wrong line. More on splitting these correctly in phone, internet, and utility deductions.

Line 9270: Other Expenses

A catch-all for legitimate business expenses that do not fit the other categories. The form asks you to specify them, so itemize rather than entering one unexplained total.

What counts:

• Professional development and courses directly related to your business
• Software subscriptions and other SaaS tools
• Leasing costs for computers, cellphones, and similar equipment, at the business-use portion
• Convention fees, for up to two conventions a year held by an organization within the geographic area where it normally does business
• Private health services plan premiums, if you meet the conditions

What does not count: Anything that already has a line of its own. Industry and professional association dues go on line 8760 (business taxes, licences, and memberships). Business bank charges go on line 8710 (interest and bank charges). Phone and internet go on line 9220, covered above.

Business-Use-of-Home Expenses (Line 9945)

If your home is your principal place of business, or a space used only for the business where you regularly meet clients, you can deduct a portion of your home expenses based on the percentage of your home used for business.

Eligible expenses:

• Rent or mortgage interest (not the principal)
• Property taxes
• Utilities (heat, electricity, water)
• Home insurance
• Maintenance and minor repairs

How to calculate: Measure the square footage of your dedicated workspace and divide by the total square footage of your home. Apply that percentage to your eligible expenses.

Example: Your office is 150 sq ft in a 1,200 sq ft apartment. That is 12.5%. If your rent, utilities, and insurance total $24,000 per year, your home office deduction is $3,000.

What is not in this calculation: Telephone and internet service. Folio S4-F2-C2, paragraph 2.32, puts them outside the work-space rules, so they never enter the line 9945 grid and are never scaled by your workspace percentage. They stay whole on line 9220 at their own business-use share. The traffic runs the other way for heat, electricity, and water: once a home utility is inside this calculation, it cannot be claimed a second time on line 9220.

Common Mistakes to Avoid

1. No receipts. The CRA can deny any deduction you cannot support with documentation. Keep every receipt.
2. Claiming 100% of mixed-use expenses. If your cellphone is 60% personal and 40% business, claim 40%. One telephone rule runs the other way: the basic monthly rate of a home telephone is not deductible at any percentage, and only the business long distance calls on that line are.
3. Forgetting GST/HST input tax credits. If you are GST/HST registered, the tax you pay on business purchases can be claimed back as ITCs on your GST/HST return.
4. Capital vs. expense confusion. A laptop is a capital asset, claimed through CCA on line 9936 rather than as an office expense, and that is true whatever it cost.
5. Missing the home office deduction. Many freelancers forget this or underestimate it.

How Long to Keep Records

The CRA requires you to keep all business records and supporting documents for at least six years from the end of the tax year they relate to. In practice, hold on to them a little longer, since an audit can be triggered after the filing deadline.

Keep originals of all receipts, invoices, bank statements, and contracts. Digital copies are acceptable as long as they are legible and unaltered.

Sources

1. CRA Guide T4002 - Self-employed Business, Professional, Commission, Farming, and Fishing Income
2. CRA Business Expenses
3. CRA Line 9281 - Motor Vehicle Expenses
4. CRA Capital Cost Allowance (CCA)
5. CRA Keeping Records
6. CRA Business-use-of-home Expenses
7. CRA Line 9220 - Utilities
8. CRA Income Tax Folio S4-F2-C2, Business Use of Home Expenses
9. CRA Line 8810 - Office expenses
10. CRA Other business expenses (line 9270)
11. Income Tax Act, section 19.01 (advertising in periodicals)