What Can You Claim on T2125? A Complete Guide for Canadian Freelancers

If you are self-employed in Canada, the T2125 (Statement of Business or Professional Activities) is where you report your business income and expenses. Every dollar you claim here reduces your taxable income and, by extension, your tax bill.

This guide walks through the major expense categories on the T2125, line by line, with practical examples for freelancers and sole proprietors.

Who Files a T2125?

You file a T2125 if you earn self-employment income. This includes:

• Freelancers (designers, developers, writers, consultants)
• Sole proprietors running a business
• Independent contractors
• Gig workers with business income

If you have a rental property, that goes on the T776 instead. If you are a salaried or commission employee with work expenses, that goes on the T777.

The Expense Lines

Line 8521: Motor Vehicle Expenses

If you use your personal vehicle for business, you can deduct a portion of your vehicle costs based on business-use percentage.

What counts:

• Gas and oil
• Insurance
• Repairs and maintenance
• License and registration
• Lease payments or capital cost allowance (CCA)
• Parking (for business trips, not commuting)

How to calculate: Track your total kilometres driven and your business kilometres for the year. Your deductible percentage is business km divided by total km.

Example: You drove 20,000 km total, 8,000 km for business. Your business-use percentage is 40%. If your total vehicle costs were $7,100, you can claim $2,840.

The CRA expects: A logbook with dates, destinations, purposes, and kilometres for each business trip. This is the most commonly audited deduction on the T2125.

Line 8690: Insurance

Business insurance premiums are fully deductible. This includes professional liability insurance (errors and omissions), general liability, and business property insurance.

What counts:

• Professional liability / E&O insurance
• General commercial liability
• Business property or equipment insurance
• Cyber liability insurance

What does not count: Personal insurance, life insurance, or the business portion of home insurance (that goes under business-use-of-home expenses).

Line 8811: Advertising

Marketing and advertising costs to promote your business.

What counts:

• Website hosting and domain registration
• Online advertising (Google Ads, social media ads)
• Business cards and printed materials
• Trade show booth fees
• Portfolio site costs

Note: Advertising in Canadian media is fully deductible. Advertising directed at the Canadian market but placed in non-Canadian media may be limited to 50% (see CRA IT-516R2 for details).

Line 8860: Professional Fees

Fees paid to other professionals for business services.

What counts:

• Accounting and bookkeeping fees
• Legal fees related to your business
• Consulting fees
• Tax preparation fees (the business portion)

Common mistake: Personal legal fees (e.g., for a real estate purchase or family matter) are not deductible here.

Line 8871: Office Expenses

Day-to-day supplies and small items used in your business.

What counts:

• Pens, paper, printer ink
• Postage and shipping
• Software subscriptions under $500 (larger amounts may need to be capitalized)
• Small equipment under the CCA threshold

Note: This is for consumable supplies. Larger purchases like a laptop or desk are capital assets and go through CCA (capital cost allowance) instead.

Line 8910: Travel Expenses

Costs for business travel away from your metropolitan area.

What counts:

• Flights and train tickets for business trips
• Hotel accommodations
• Meals while travelling (50% deductible)
• Taxi and rideshare for business travel
• Conference registration fees (if travel is involved)

What does not count: Commuting from home to a regular place of business. The CRA is strict about the distinction between travel and commuting.

Line 9270: Other Expenses

A catch-all for legitimate business expenses that do not fit the other categories.

What counts:

• Professional development and courses directly related to your business
• Industry membership dues
• Business bank account fees
• Phone and internet (business portion)

Tip: If you use your personal phone and internet for business, calculate a reasonable business-use percentage and claim that portion.

Business-Use-of-Home Expenses

If you work from home, you can deduct a portion of your home expenses based on the percentage of your home used for business.

Eligible expenses:

• Rent or mortgage interest (not the principal)
• Property taxes
• Utilities (heat, electricity, water)
• Home insurance
• Maintenance and minor repairs

How to calculate: Measure the square footage of your dedicated workspace and divide by the total square footage of your home. Apply that percentage to your eligible expenses.

Example: Your office is 150 sq ft in a 1,200 sq ft apartment. That is 12.5%. If your rent, utilities, and insurance total $24,000 per year, your home office deduction is $3,000.

Common Mistakes to Avoid

1. No receipts. The CRA can deny any deduction you cannot support with documentation. Keep every receipt.
2. Claiming 100% of mixed-use expenses. If your phone is 60% personal and 40% business, claim 40%.
3. Forgetting GST/HST input tax credits. If you are GST/HST registered, the tax you pay on business purchases can be claimed back as ITCs on your GST/HST return.
4. Capital vs. expense confusion. A $2,500 laptop is a capital asset (CCA), not an office expense.
5. Missing the home office deduction. Many freelancers forget this or underestimate it.

How Long to Keep Records

The CRA requires you to keep all business records and supporting documents for at least six years from the end of the tax year they relate to. In practice, keeping records for seven years is safer since an audit can be triggered after the filing deadline.

Keep originals of all receipts, invoices, bank statements, and contracts. Digital copies are acceptable as long as they are legible and unaltered.

Sources

1. CRA Guide T4002 - Self-employed Business, Professional, Commission, Farming, and Fishing Income
2. CRA Business Expenses
3. CRA Line 8521 - Motor Vehicle Expenses
4. CRA Capital Cost Allowance (CCA)
5. CRA Keeping Records
6. CRA Business-use-of-home Expenses