How to complete the T2125 form this coming tax season if you
are a Sole Proprietor
Slide 2
If you have business income, fill out part 1 of form 2125 In
the example above Jane has gross sales of $100,000 this year. She
also has returns and allowances of $1,000 which is deducted from
sales Janes adjusted gross sales end of year is $99,000 This amount
will be carried forward to part 3
Slide 3
Check this box if you have professional income Professional
income includes Work in Process(WIP) If you have both professional
and business income complete separate T2125 forms Cannot check both
boxes on the same return
Slide 4
Carry forwarded the amount from part 1 line C to be starting
amount Jane has no reserves deducted last year or other income
(recapture) Carry line 8299 forward to cost of goods sold
Slide 5
Start with carry forward amount from Part 3 line 8299 Basic
equation for costs of good sold is: Beginning Inventory + Purchases
Ending inventory = COGS If any other costs are not listed above,
add them as well Subtract COGS from the carry forward amount to get
gross profit This will be the new carry forward amount, Line
8519
Slide 6
Part 5 is where to deduct expenses for the year Most of the
expenses might be similar to the income statement amounts For motor
vehicle and CCA expenses, separate calculations are needed. Deduct
total expenses from gross income to get net income (loss) before
adjustments Carry Line 9369 forward to Part 6
Slide 7
Jane purchases a building for $100,000 on January 15, 2013
Building is Class 1 and has a rate of 4% under classes of
depreciable propertyclasses of depreciable property Since the
Building was purchased this year it has 0 UCC or tax value When
purchasing a depreciable property during the current year only half
its value can be deducted Area C is for Building Additions Area E
is for Building Dispositions
Slide 8
Say in that same year Jane had disposed of some equipment. The
equipment had a remaining UCC (tax value) of $10,000 and was sold
for $5,000. If total CCA is negative it is considered recapture and
must be added on Line 8230 as other income Recapture occurs when
selling depreciable property for more than its UCC or tax value
Since CCA is positive the $3,000 will be added to CCA expense
section line 9270 Area B is for equipment additions Area D is for
equipment dispositions
Slide 9
Enter business km Enter car expenses that CRA allows deductions
for business use km total km x Expenses claimed = Your allowable
motor vehicle expense for the year added to line 9281 in Part 5 CCA
can be claimed on your car See Class 10.1 for further details
Slide 10
Carry forward line 9369 from Part 5 to be starting point for
Part 6 If your business has any GST/HST rebates for partners
received during the year they must be added to net income under
line N If a vehicles is shared with your partner and they have not
paid you back for expenses it can be claimed. The business home
expense can be deducted in this section. The T2125 form is now
complete and net income for tax purposes has been calculated
Slide 11
If you are a sole proprietor and have active business or
professional income you must complete the T2125 form. Be Sure to
speak to your accountant if you have any questions concerning the
form or for other ways they might be able to save you tax