The Complete T2125 Deductions Checklist for 2026

If you earn self-employed income in Canada—whether you are a freelancer, sole proprietor, gig worker, or contractor—the Canada Revenue Agency (CRA) requires you to file a Form T2125 (Statement of Business or Professional Activities) as part of your personal tax return. Filing this form can feel overwhelming, but it is also your single best opportunity to lower your tax bill. By writing off legitimate business expenses, you reduce your net taxable income, leaving more money in your pocket.

The secret to keeping more of your hard-earned cash is knowing exactly what you can claim. Most self-employed Canadians are leaving thousands of dollars on the table because they miss eligible write-offs. To help, we have put together the ultimate T2125 deductions checklist for 2026, complete with real-world dollar examples and calculation details.

What Is the T2125 and Who Needs to File It?

Form T2125 is the tax form used to report both business and professional income, as well as the expenses you incurred to earn that income. You are required to file this form if you operate a business as a sole proprietor, if you work as an independent contractor, if you run a side hustle, or if you are part of the gig economy (such as driving for rideshares or delivering food).

Unlike corporate tax returns, which are filed separately, the T2125 is integrated directly into your T1 Personal Income Tax Return. This means your net business income is added to your other personal income sources, and you are taxed on the combined total at your marginal tax rate.

Business Expenses You Can Deduct (The Full List)

To be deductible, the CRA states that an expense must be directly related to earning your business income and must be reasonable. Here is a breakdown of the key categories on Form T2125 and how they apply in practice.

1. Advertising & Marketing

Any money you spend to promote your business and attract clients is fully deductible. This includes digital marketing and traditional promotional materials.

• Real Example: If you spend $100 per month on Facebook and Google Ads to promote your freelance consulting services, plus $300 to print flyers, you can deduct the entire $1,500 on Line 8520.

2. Home Office Expenses

If you use a portion of your home regularly and exclusively to work, you can claim a proportional share of your household running costs. For 2025 and 2026 tax returns, the detailed method is the only option available, as the temporary flat-rate method ($2/day) ended after 2022. You must calculate the exact square footage of your office relative to your home to find your deduction percentage.

• Real Example: Your home office occupies 150 square feet of a 1,500 square foot apartment (10%). If your rent is $1,500/month ($18,000/year), and utilities plus internet cost $3,000/year, your total household expenses are $21,000. Your home office deduction is 10% of that total, which equals $2,100. Learn more in our Detailed Home Office Deductions Guide.

3. Vehicle and Travel Expenses

If you use your personal vehicle for business purposes, you can claim a proportional deduction of its operating costs. The business-use percentage is determined by dividing your business mileage by your total mileage for the year. Keeping a detailed mileage log is mandatory to support this deduction.

• Real Example: You drive 10,000 km in 2026, and 6,000 km is for client meetings and picking up inventory (60% business use). If your total vehicle operating costs (gas, insurance, maintenance, registration, and lease payments) sum to $8,000, you can claim 60% of that total, which is $4,800. Read our detailed Vehicle Expenses Guide to set up your mileage log correctly.

4. Office Supplies & Equipment

You can deduct the cost of consumable office supplies used in your daily business activities, such as paper, pens, printer ink, and envelopes (Line 8810). For larger assets like computers, desks, or smartphones, you must claim them as Capital Cost Allowance (CCA) and depreciate them over time rather than writing them off immediately.

• Real Example: Spending $250 on stationery, printer toner, and notebooks is fully deductible on Line 8810. If you buy a new laptop for $1,200, you will claim depreciation (CCA) on Line 9936 over several years based on the asset class.

5. Phone, Internet & Software Subscriptions

The tools and communications systems you use to run your business are deductible. Since these are often shared between business and personal life, you must claim the business-use percentage.

• Real Example: Your phone plan costs $80/month ($960/year) and you use it roughly 70% of the time for business calls and client messaging. You also pay $30/month ($360/year) for accounting software used 100% for business. Your deduction is $672 for the phone plus $360 for the software, totaling $1,032.

6. Professional Fees

Fees you pay to professionals to help run your business are 100% deductible on Line 8760. This includes fees paid to accountants, lawyers, bookkeepers, and tax preparation software services.

• Real Example: If you pay a bookkeeper $1,200 to organize your receipts and pay MyTaxBuddy to help prepare and check your T2125, you can deduct the entire cost.

7. Insurance Premiums

Any commercial insurance you carry specifically for your business is deductible on Line 8710. This includes professional liability insurance, errors & omissions (E&O) insurance, and commercial general liability.

• Real Example: A freelance developer pays $600/year for E&O insurance to protect against code errors. The full $600 is deductible.

8. Travel & Meals

You can deduct travel expenses incurred to attend business meetings, trade shows, or industry conferences. However, the CRA applies a strict 50% limit to most meal and entertainment expenses.

• Real Example: You travel to a conference in Montreal, spending $400 on flights and $500 on hotel accommodation (both 100% deductible). During the trip, you spend $200 on meals. Your total travel write-off is $400 + $500 + 50% of $200 = $1,000.

9. Professional Development & Training

Courses, training sessions, and workshops that help you maintain or improve your skills in your current business are fully deductible.

• Real Example: Taking an online course to master advanced digital marketing for $450 to attract more business is fully deductible on Line 8910. Note that courses designed to train you for an entirely new profession are not deductible business expenses, though they might qualify for the personal Tuition Tax Credit.

10. Bank Fees & Loan Interest

Any fees charged on your business bank account, credit card fees (proportionate to business use), and interest on loans or lines of credit used to fund business activities are fully deductible.

• Real Example: You pay $15/month in monthly business account fees, plus $120 in interest on a business line of credit you used to buy initial inventory. You can claim a deduction of $300 on Line 8790.

Deductions Self-Employed Canadians Often Miss

Beyond the primary categories, several easily overlooked deductions can quickly add up:

• CRA My Business Account Fees: Software or assistance required to maintain compliance is claimable.
• Professional Association Dues: Annual memberships required to maintain your professional standing or trade licenses are claimable on Line 8760.
• Bad Debts: If a client refuses to pay an invoice and you have tried everything to collect, you can write it off on Line 8590 (provided you previously included it as income).
• Startup Costs: Expenses incurred before your business officially launched can often be deducted, though some must be capitalized as assets.

How to Calculate Your Home Office Deduction

The Ultimate T2125 Deductions Checklist for 2026

Use this convenient checklist to make sure you have gathered all your receipts and documents before you file your return:

Frequently Asked Questions

Can I deduct expenses if I only work from home part-time?

Yes, but you must calculate the claim carefully. If your home office is a shared space (like a dining table) rather than a dedicated room, you must prorate the business-use percentage by the number of hours per day or week that you actually use it for business purposes.

What receipts do I need to keep for the CRA?

The CRA requires you to keep digital or physical receipts for every expense you claim. Bank statements or credit card summaries are generally not sufficient on their own—they do not show the exact items purchased. Keep all itemized invoices and receipts for at least 6 years after you file your tax return.

What's the difference between T2125 Part 4 and Part 5?

Part 4 of Form T2125 is where you calculate your cost of goods sold (COGS) if you sell physical inventory or products. Part 5 is where you list all of your general business operating expenses (the deductions outlined in this guide).

Let MyTaxBuddy Help You Maximize Your Deductions

Going through your business transactions and sorting out what you can claim doesn't have to be a multi-day headache. Our smart AI tax assistant helps you quickly categorize your expenses, calculate complex home office and vehicle percentages, and check your return for errors before you file. We ensure you stay compliant with CRA guidelines while writing off every dollar you are entitled to claim.

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