Form T2125 Explained: Canadian Business Income
Reporting Canadian self-employment income, expenses, CCA, and how it lines up with Schedule C
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Form T2125 is the Canadian statement of business or professional activities — where self-employed individuals and partners report revenue, expenses, capital cost allowance, and net income on their T1 return. It's Canada's counterpart to the U.S. Schedule C. A U.S. citizen self-employed in Canada files both, translating the same business into two sets of rules.
On this page
What it covers
| Section | Contents |
|---|---|
| Identification | Business name, fiscal period, industry code, partnership share if any |
| Income | Gross sales, commissions, fees; GST/HST collected excluded if registered |
| Expenses | Advertising, meals (50 percent), insurance, interest, office, supplies, professional fees, rent, wages, travel |
| Capital cost allowance | Depreciation by class (Area A); the accelerated investment incentive, reinstated by Bill C-15 (Royal Assent March 26, 2026), gives an enhanced first-year claim on property acquired after 2024 and available for use before 2034, phasing out from 2030 to 2033 |
| Home office | Business-use-of-home: the space's share of rent or mortgage interest, utilities, insurance, property tax — limited to business income |
| Vehicle | Business share of vehicle costs by kilometres; class 10.1 limits for passenger vehicles |
T2125 versus Schedule C
| T2125 (Canada) | Schedule C (U.S.) | |
|---|---|---|
| Depreciation | CCA classes; half-year rule suspended for accelerated investment incentive property | MACRS, section 179, bonus |
| Payroll taxes | CPP on self-employment (both halves — 11.9 percent of 2026 earnings from C$3,500 to C$74,600, maximum C$8,460.90, plus CPP2 above that) | Self-employment tax — unless the totalization agreement assigns coverage to Canada (the totalization guide) |
| Currency | Canadian dollars | U.S. dollars |
| Fiscal year | Calendar year for most individuals | Calendar year |
Under the Canada–U.S. Social Security Agreement, a self-employed person is covered only by the country of residence, so a U.S. citizen self-employed in Canada pays CPP (QPP in Quebec), not U.S. self-employment tax — proven with a CRA certificate of coverage (Form CPT56) attached to the U.S. return each year. Canadian income tax is credited on Form 1116.
Deadlines
The return is due June 15 for self-employed individuals (and their spouses or common-law partners), but any balance owing is due April 30 — for 2026 returns, June 15, 2027 and April 30, 2027.
Frequently asked questions
What is Form T2125?
The Canadian form for reporting business or professional income and expenses on a personal return.
Is T2125 the same as Schedule C?
They serve the same purpose but follow different depreciation, payroll tax, and currency rules.
Do U.S. citizens in Canada pay U.S. self-employment tax?
Generally not — the totalization agreement assigns coverage to the country of residence, so they pay CPP.
When is the T2125 due?
With the return — June 15 for the self-employed, with tax owing due April 30.
Official sources
The Canada Revenue Agency explains: “Use the T2125 form to report either business or professional income and expenses.” — Canada Revenue Agency, T2125 Statement of Business or Professional Activities, https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2125.html
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle T2125 and Schedule C preparation for self-employed cross-border filers. See pricing or book a call.
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U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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