Eva van Emden, Freelance Editor

Certified Copy Editor and Proofreader

eva@vancouvereditor.com

October 27, 2011

Income tax for Canadian freelancers: T2125 Declaration of business or professional activities

Updated for the 2016 tax year

How do you declare freelance income?

I covered allowable deductions for freelancers and small business owners in part 1. Here’s some help with filling in the T2125: Declaration of business or professional activities.

Do you run a business? Are you self-employed?

If you are carrying on an activity that you intend to make a profit with, then you have a business. The simplest form of business is a sole proprietorship. This means you are not incorporated or in a partnership with anyone. You can run a sole proprietorship business without registering the business, registering a business name, or getting a business license.

The T2125 form: Statement of business or professional activities

If you’re earning money as a sole proprietorship, you simply fill in the T2125 form in addition to your basic personal income tax form. Whatever electronic income tax filing system you use can probably handle this just fine. The T2125 is available electronically; if you do your taxes on paper, you can print out a copy and deliver it along with your general income tax package.

Sections of the form

Identification

  • Was 2016 your last year of business? If you closed down the business during this tax year, say “yes” here. This lets the CRA know that they shouldn’t expect any more tax reports for this business.
  • Main product or service and Industry code: The industry code lets the CRA know what kinds of deductions they can expect to see on the rest of the form. Editors should use the NAICS code or industry code 561410: Document Preparation Services. This code includes “editing service,” “proofreading service,” and “desktop publishing service.”

Parts 1 and 2: Business Income or Professional Income?

Freelance editors should choose “professional income.” (In general, “business income” applies to selling physical goods and “professional income” applies to selling your expertise.)

Part 4

Fill this in only if you filled in Part 1 (business income).

Part 5

Fill this in if you filled in Part 2 (professional income). Now plug in all the deductions that you’ve been tracking throughout the year.
  • Rent: this refers to the rent on a purely commercial property. The rent for your living space should go into the “Calculation of business-use-of-home expenses” section in part 8.
  • Property taxes: same thing here. Put your home property taxes under business use of home.
  • Other expenses: this is where many of your deductions will go: professional development, subcontractors, etc.

Other tax information

See also:

6 comments:

  1. That's a very informative post there. I haven't read your previous post but the information provided here seems really useful to the Canadian freelancers. I am going to share this with my friends in Canada. Thanks.

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  2. This is so helpful - I've been referring to your blog post and sharing it w/ other freelancers for several years now. Thanks for updating things. Well done - thank you!

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  3. This is great! Would a freelance graphic designer still be under professional and not business? I ask because under business I would owe $4000, and under professional i would only owe 90 bucks.

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    1. Hi Kelly, I would expect that as a graphic designer, you would choose "Professional income" since you are selling your expertise and not physical items. You skip part 1 and go to part 2, and that takes you to parts 5 and 8, where you fill in your expenses like business use of home, office expenses, software, etc.

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    2. Ah thanks, professional it is. Turns out my SimpleTax just wasnt updating the total, and I owe the same either way. Next year i need more expenses!

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  4. What if one company sells product and the other sells my expertise? If one (business) is under $30K yearly and the other (professional) is over, can I not charge HST on the business sales?

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