Self-Employment Income (T2125)

Updated: 2021-11-17

  1. The Prepare sidebar has a group for income statements. It includes statements for:
    • T776 Rental income
    • T1163/T1273 AgriStability
    • T2042 Farming income
    • T2121 Fishing income
    • T2125 Business and professional income
  2. Income statements are multi-copy forms. If a taxpayer has two businesses, create a separate form for each one. (Learn more in Slips and multi-copy forms help topic.)
  3. Double-click on a form with a green plus icon (+) to start a new copy of the form. Or, type the form name in the F4 Fast Find search box and press Ctrl+Enter.
  4. Once you enter the business or farm name, rental address, or fishing boat, a new copy of the form appears in the list. You can now search for the form by that name.
  5. Income statements are form sets. For example, once you enter the business name on the T2125, the related CCA worksheets appear in the forms list: T2125Asset, T2125AssetSummary, T2125CCA and T2125CEC, etc. Likewise, if you delete the T2125, the related forms are also deleted.
  6. Income statement form sets include a 5-year summary. For example, the T2125Summary compares key current-year amounts with those from the prior year. If necessary, you can enter prior year amounts on this form.
self employment

Start a T2125

  1. Enter a Business name.
  2. Enter the Business number.
  3. Enter the address. If it is the same as the taxpayer’s address, you can select it from the drop-down or auto-complete by typing.
  4. Enter the Fiscal period. Select the type. If it is other than a calendar year end, see "Alternate year ends," below.
  5. Enter the main product or service.
  6. In the Industry code field, type a keyword to search for an industry code on the income statement form.
  7. Use the Down Arrow key to select the best match.
  8. Press Enter to enter the code in the field. Or, click with your mouse.
  9. At the top right of the form, choose the type of business activity: general business, professional or commission.

Statement of Business

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 the T1139.

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.

Alternate year ends

Income Reported on a T4 Slip

Generally, you enter business income in Part 1 of the T2125. (Professional income goes in Part 2—remember to only complete one of these two sections.)

However, in some cases—for taxi drivers, barbers, or hairdressers—business income can be 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 are completing the T4 slip before creating the statement, type the business name in the same box to create a new T2125. Otherwise, select the related statement from the drop-down list.
    Income reported on t4
  3. Remember to select the appropriate Employment code in box 29.
    Employment code
  4. The process is similar to transfer 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.

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 income for each shareholder.

  1. Scroll to the 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, learn how to copy the business statement to the partner's return in the Smart Copy/Paste help topic. If you copy and paste an income statement, the partnership share is adjusted so that the net income is correctly allocated.

Allocate income to spouse or partner

Business-Use-of-Home Expenses

  1. Go to Part 7—Calculation of business-use-of-home expenses.
  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 down 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.

Home expenses

Income Statement Summaries

Five-year income statement summaries-T776Summary, T2121Summary, T2042Summary, and T2125Summary—appear in the forms list as part of the set of forms for each income statement you create. For example, for each T2125 form you create, you will see a T2125Summary.

  1. The information in the prior-year columns on this summary is populated when you carry forward a tax return to the current year. However, you can also manually enter amounts in these fields if you did not carry forward the return.
  2. The current-year column (farthest to the left) contains amounts flowing from the related income statement. These fields have links to jump to the form where the amount flows from (the blue arrow in the top left of the field indicates a link). Click or Tab into the field and press the F6 key. Or, double-click on the field to jump to the source.
  3. If you add review marks and memos to any of the fields on this summary, they also appear in the linked field on the income statement.