Expenses section of Form T2125
Part 4 – Net income (loss) before adjustments
The following discusses the more common expenses you incur to earn income from your business (including self-employed commission sales) or professional activities. Incur means that you paid or will have to pay the expense.
Generally, you can deduct any reasonable current expense you incur to earn business income. The expenses you can deduct include any GST/HST you incur on these expenses, minus the amount of any input tax credit claimed. However, since you cannot deduct personal expenses, enter only the business part of expenses on the form T2125, Statement of Business or Professional Activities.
In addition, you cannot claim expenses you incur to buy capital property.
When you claim the GST/HST you paid or owe on your business expenses as an input tax credit, reduce the amounts of the business expenses you show on form T2125 by the amount of the input tax credit. Do this when the GST/HST for which you are claiming the input tax credit was paid or became payable, whichever is earlier. Similarly, subtract any other rebate, grant, or assistance from the expense to which it applies. Enter the net figure on the proper line. Any such assistance you claim for the purchase of depreciable property used in your business will affect your claim for capital cost allowance (CCA). If you cannot apply the rebate, grant, or assistance you received to reduce a particular expense, or to reduce an asset's capital cost, include the total on line 8230, Other income, in Part 3C of Form T2125.
This is a list of deductible expenses under Part 4 of form T2125:
- Line 8521 – Advertising
- Line 8523 – Meals and entertainment
- Line 8590 – Bad debts
- Line 8690 – Insurance
- Line 8710 – Interest and bank charges
- Line 8760 – Business taxes, licences, and memberships
- Line 8810 – Office expenses
- Line 8811 – Office stationery and supplies
- Line 8860 – Professional fees (includes legal and accounting fees)
- Line 8871 – Management and administration fees
- Line 8910 – Rent
- Line 8960 – Repairs and maintenance
- Line 9060 – Salaries, wages, and benefits (including employer's contributions)
- Line 9180 – Property taxes
- Line 9200 – Travel expenses
- Line 9220 – Utilities
- Line 9224 – Fuel costs (except motor vehicles)
- Line 9275 – Delivery, freight, and express
- Line 9281 – Motor vehicle expenses (not including CCA)
- Line 9936 – Capital cost allowance (CCA)
- Line 9270 – Other expenses
- Line 9369 – Net income (loss) before adjustments
"Enter only the business part" means that you do not include any of the following in your expenses:
- salary or wages (including drawings) paid to self, partners, or both
- cost of saleable goods or services that you, your family, or your partners and their families used or consumed (including items such as food, home maintenance, and business properties)
- charitable donations and political contributions
- interest and penalties you paid on your income tax
- most life insurance premiums
- the part of expenses that can be attributed to the non-business use of business property
- most fines and penalties imposed after March 22, 2004, under the law of Canada, a province, or a foreign country
A prepaid expense is an expense you pay for ahead of time. Under the accrual method of accounting, claim any expense you prepay in the year or years in which you get the related benefit.
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