In our world, a single source of income is not enough. Many employees also work part-time as freelancers, and many corporate directors and shareholders have their own freelance work. Even self-employed individuals are involved in multiple businesses. Everyone is building more than one source of income. Hence, every employee and self-employee needs to know about the T2125 form: Statement of Business or Professional Activities.

Who Should File T2125 Form?

The T2125 tax form is mandatory for all sole proprietors who have not incorporated their businesses. If you run a business with up to five other people, all five partners must file the T2125 form. Businesses with over five partners must file a T5013 Partnership Information Return.

The T2125 tax form is also mandatory for people earning professional income. A profession has a governing body like doctors, lawyers, or accountants. A professional lawyer earning from his practice could also run a bottled water business. As he is earning both business and professional income, he will have to file two T2125 forms, one for each source of income.

How to File T2125 Form

Unlike your T1 form, the T2125 Form requires several details of your business since they do not generate T-slips like your employer. The form has several sections, of which the primary ones include:

• The Identification section asks for basic information about your business, such as your business name, address, industry code, the period of your business activities, and the accounting method you used. For a partnership, you must provide your business number and your share of income and expenses.
• The Income section includes all income earned from your business or professional activities, including sales, fees and commissions.
• The Expenses section includes the details of deductible business expenses, such as rent, advertising, office supplies, salaries, and utilities, but only to the level used for business income. Note that you must keep all the receipts of the claimed business expenses for at least six years from the filing year.
• Area A in the form T2125 can be used to calculate the vehicle expense used for business purposes and capital cost allowance that depreciates an asset used for business or professional activities. The calculations in Area A are added to the expense section.
• Net Income (or Loss) section deducts expenses from your income to calculate net income or loss for the year. This figure has to be reported to your T1 General personal tax return as part of your overall income.

Filing T2125 Tax Form

Once you have filed the T2125 form completely and accurately, attach it with the T1 form and submit it to the CRA. The last date to submit the form is June 15 to avoid late filing penalties. However, you have to pay the tax in advance on the 15th of every quarter and make the final tax payment by April 30 to avoid interest charges.

Suppose your business or professional income crosses $30,000 in revenue in a single calendar quarter or four consecutive quarters. In that case, you must register for Goods and Services Tax (GST) or Harmonized Sales Tax (HST). Once registered, you must collect GST from your customers, remit it to the CRA, and file GST returns alongside income tax returns (T1 + T2125).

Contact Edelkoort Smethurst CPAs LLP in Burlington to Help You File Your Taxes

The more income sources you have, the more complicated tax filing becomes. You have to report all forms of income to the CRA, and each type of income has a separate form. A professional tax advisor can help you file your taxes accurately. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best accounting and tax expertise, contact us online or by telephone at 905-517-2297.