When a Canadian taxpayer earns business income or income from a profession, then in addition to having to report and pay tax on their profits, they also need to fill out a FORM T2125 CRA – STATEMENT OF BUSINESS OR PROFESSIONAL ACTIVITIES for each of their business or professional activities.

Form T2125 is part of your reporting requirements, though you can also use other types of financial statements. It provides important information to the tax man that allows them to determine whether you are likely reporting your income correctly (and to determine whether you should be audited). The form also helps you report your income and expenses for tax purposes. The information you have to provide is relatively lengthy. The first section is used to identify you and your business or professional activities. Part 1 of the form deals with business income (if you have professional income, you have to till out Part 2). Part 3 requires you to set out your gross business or professional income, which includes the inclusion of any reserves taken the in preceding tax year. Parts 4, 5, 6, 7, and 8 allow you to deduct the cost of goods, expenses, and make certain other adjustments to determine your net income (there are a total of 19 parts, some or all of which may also apply to your circumstances). Most of your deduction will be expenses that are reported in Part 5. Expenses include such items as office expenses, supplies, legal fees, accounting fees, interest payments, insurance costs, and meals and entertainment expenses (this is not a complete list of allowable expenses).

Make sure to either fill out this form or to provide consistent and accurate financial statements as part of your return to avoid the headache of having to deal with the tax man. It is always best to have a tax professional help you prepare your financial statements to avoid unintended mistakes that trigger an expensive audit.

Let Abdullah CPA Help you fill Form T2125 CRA