Business and Professional Income (T2125)

Updated: 2023-02-27

This topic covers completing the T2125 Statement of Business and Professional Income. Many of the concepts used to complete this form also apply to other T1 income statements and expense claims. We suggest starting with this topic to familiarize yourself with these tasks.

Start a T2125

1. At the top right of the form, choose the Type of business activity: general business, professional or commission to activate the review messages for the related section on the form.
2. Enter the Business name.
3. Enter the Business number.
4. Enter the address. If it is the same as the taxpayer’s address, you can select it from the drop-down or autocomplete it by typing.
5. Enter the Fiscal period. First, select the type. TaxCycle changes the start and end dates based on this selection. For example, for a December 31 year end, the start date field remains editable while the end date becomes a calculated field. See also Alternate Year Ends, below.
6. Enter the main product or service.
7. In the Industry code field, type the NAICS industry code or enter a keyword to search for code, then use the down arrow and press Enter select the best match. To see a full list of industry codes and detailed descriptions, click in the field and press F6 to open the NAICS Industry Code Selection Tool.
8. Choose the Accounting method.

Alternate Year Ends (T1139)

The general requirement is to report self-employment income on a calendar year basis. However, it is possible to elect to use an alternate year end. When the individual elects for an alternate year end, the calculation of net income occurs on form T1139 Reconciliation of Business Income for Tax Purposes.

To claim an alternate year end and complete the T1139, first choose an option in the Fiscal Period Type drop-down:

1. December 31 year end—Standard calendar year or a new business started in the year with a year that ends on December 31. Nothing calculates on the T1139 as it does not apply.
2. First year Alternative method election—Both start and end date fields become editable so you can enter the exact dates. On the T1139, the election check box is checked, and Part 2 adds the additional prorated income.
3. Alternative method (previously so elected)—The end date calculates to a year after the start date. T1139 Part 2 includes the prior year additional income amount that appears just under the identification section on the T2125.
4. Converting to December 31 year end—Creates a second statement for the “stub” period from the end of the first fiscal period to December 31. It also completes Part 1 of the T1139 with the income from both periods and deducts the additional income from last year.
5. Closing business—Sets the last year of business check box to the right of the dates to Yes. Nothing calculates on the T1139 as it no longer applies.

Income Reported on a T4 Slip

In some cases—for taxi drivers, barbers, or hairdressers—business income is reported on a T4 slip. You can set up TaxCycle to transfer the income automatically from the T4 slip to the related T2125.

1. Enter the income in the appropriate box on the T4 slip:
   • Box 82 for taxi drivers
   • Box 83 for barbers or hairdressers
2. If you complete the T4 slip before creating the statement, type the business name in the field to create a new T2125. Otherwise, select the related statement from the list.
   
3. Remember to select the applicable Employment code in box 29.
   
4. The process is similar to transferring fishing income reported on a T4 slip on a T2121. Enter the income in box 78 and then select or enter the related T2121 statement.
5. You can also transfer income reported on a T5018 slip from the ContractPayments worksheet to a T2125.

Business-Use-of-Home Expenses

1. Go to the Part 7—Calculation of business-use-of-home expenses section.
2. Enter the area of your home used for business along with the total area. This creates the ratio used to calculate the eligible expenses.
3. If the business is a daycare, enter the hours per day, days per week and weeks per year that the home is used for the daycare.
4. Enter the full-home expenses on the appropriate lines.
5. If applicable, answer Yes to share the expenses with the spouse according to their share in the business.
6. Scroll to the Details of other partners section, check the box to include the spouse as a partner, and indicate the percentage share.
7. TaxCycle factors the spouse’s share into the business-use-of-home expenses ratio calculation.
8. TaxCycle calculates business and personal use portions of the expenses and inserts the business portion into the calculation of net income in Part 6 of the T2125.

Allocate Income to a Spouse or Partner

You can share income with a spouse or with a partner. TaxCycle will automatically calculate the portion of net income each partner.

1. Scroll to the Part 8—Details of other partners section near the bottom of the statement.
2. Check the box to include the spouse as a partner in the business. This automatically adds the spouse’s information to the table.
3. To also automatically calculate the spouse’s share of motor vehicle expenses, based on the percentage of partnership, check the box to share motor vehicle expenses with the spouse.
4. Enter the Percentage of partnership for the spouse to automatically calculate the spouse’s share of net income. This also adds the business statement set to the spouse’s list of forms.
5. For business partners who are not spouses, complete one row for each partner, assigning an ownership percentage. This excludes the partner’s percentage share from the taxpayer and spouse’s net income calculation. If you are also preparing the return for a business partner who is not a spouse, you can use Smart Copy/Paste to copy the income statement to that return and automatically allocate their portion of the net income or loss.