T2125 Expense Categories: Line by Line
A line-by-line guide to every T2125 expense category for Canadian sole proprietors, the CCA and home-office traps, GST/HST, and what you cannot deduct.
By Rashad Bayram | Published: 7/9/2026
The short answer: Form T2125 is where a Canadian sole proprietor reports business income and expenses, and Part 4 holds around twenty expense lines, each with its own CRA line number. Below is what every category covers, the rules that cause most of the mistakes (capital cost allowance instead of expensing, the business-use-of-home loss limit, and how GST/HST registration changes the math), and the costs you cannot deduct at all. If you also prepare US returns, this is the Canadian counterpart to the Schedule C categories . The T2125, Statement of Business or Professional Activities, is filed with a Canadian individual's T1 return. The income part is usually straightforward. The expense part, Part 4, is where accuracy matters, because every cost has to go on the correct CRA line, and a few categories, especially capital assets and the home office, follow rules that are easy to get wrong. This is a working reference for all of them. Every T2125 expense line, explained Here is each Part 4 expense line with its CRA number and what belongs on it. The CRA T2125 form and the T4002 guide are the authority; this is the plain-language version. Line Category What goes here 8521 Advertising Online and print ads, business cards, promotional costs 8523 Meals and entertainment Business meals and entertainment, generally 50% deductible 8590 Bad debts Amounts previously included in income that became uncollectible 8690 Insurance Commercial insurance on business property and liability 8710 Interest and bank charges Interest on business loans, plus bank and financing fees 8760 Business taxes, licences, memberships Licences, permits, and business or professional dues 8810 Office expenses Small items to run the office (not capital equipment) 8811 Office stationery and supplies Stationery, postage, and consumable office supplies 8860 Professional fees Legal, accounting, and other professional fees 8871 Management and administration fees Outsourced management or administrative costs 8910 Rent Rent for business premises, land, or equipment 8960 Repairs and maintenance Repairs to business property and equipment 9060 Salaries, wages, and benefits Employee pay and the employer's contributions 9180 Property taxes Property tax on business real estate 9200 Travel Business travel: transportation, lodging, and related costs 9220 Utilities Electricity, heat, water, and phone for the business 9224 Fuel costs Fuel other than for a motor vehicle (for example, heating a shop) 9275 Delivery, freight, and express Shipping and courier costs 9281 Motor vehicle expenses Vehicle running costs by business-use percentage (CCA claimed separately) 9270 Other expenses Ordinary business costs with no line above; label each one 9936 Capital cost allowance Depreciation of capital assets over time, by CCA class 9945 Business-use-of-home Prorated home costs, entered here, subject to the loss limit Most transactions map cleanly. The rules worth studying are concentrated in a few lines, below. The rules that trip people up Capital cost allowance instead of expensing. Equipment, furniture, and vehicles are capital assets. You do not deduct them in full the year of purchase; you claim CCA (line 9936) over several years by class, usually with a half-year rule in year one. CCA is also optional in a given year, which is a planning lever, not an oversight. Business-use-of-home loss limit. Home-office costs (line 9945) are prorated by business-use percentage, and they cannot create or deepen a business loss. Any amount you cannot use this year carries forward. GST/HST changes the expense math. If the business is registered for GST/HST, the tax paid on purchases is generally recovered as input tax credits on the GST/HST return, so the T2125 expenses are recorded net of that recoverable tax. If the business is not registered, the GST/HST paid stays inside the expense. Motor vehicle versus CCA. Running costs (fuel, insurance, repairs) go on line 9281 by business-use percentage, supported by a logbook. The vehicle's depreciation is claimed separately through CCA. Meals and entertainment at 50%. Line 8523, generally half, with receipts and the business purpose kept. Office expenses versus supplies. The T2125 splits office expenses (8810), office stationery and supplies (8811), and general supplies, so pick a consistent home for each recurring cost. These are where a fast categorizer should slow down, because they carry the real tax consequences. What is not a T2125 expense at all Some costs never belong on the T2125, no matter how they look on a bank statement: Personal expenses and the owner's drawings. Money the owner takes out is not a deduction; it reduces equity. The personal portion of home or vehicle costs. Only the business-use share is deductible. Most club dues and recreational facilities. Generally not deductible. Fines, penalties, and income tax. Not business expenses. Life insurance premiums. Not deductible in most cases. The non-deductible half of meals , and the full cost of capital assets in one year (use CCA instead). Getting these out before you total anything is the biggest single driver of an accurate return, which I cover in how to turn a bank statement into tax-ready categories . From bank statement to the right line Knowing the lines is the easy half. Assigning a few hundred real transactions to them, catching the personal charges, the CCA items, and the GST/HST treatment along the way, is the actual work. That is the step I built Taxformify to speed up. You drag and drop a bank statement, a CSV, Excel file, or PDF, into an AI chat, and it categorizes each transaction to the right T2125 line and flags the ones that need your judgment in a "Needs Review" list. Because it is built for both Canada and the US, the same tool maps to US Schedule C categories too, which matters if your practice handles both sides of the border. I am not a CPA, and neither is my co-founder, but he runs a tax practice with over 1,500 clients, and turning statements into clean CRA-line totals was exactly the grind he wanted to automate. It fits inside the wider tax workflow , and works alongside whatever ledger the client already keeps. To see it categorize a real statement, book a short demo . The line numbers rarely change. The work is in the mapping, and the mapping is what is worth automating. Frequently Asked Questions What are the expense categories on the T2125? Part 4 of the T2125 lists expense lines including advertising (8521), meals and entertainment (8523), bad debts (8590), insurance (8690), interest and bank charges (8710), business taxes and licences (8760), office expenses (8810), office stationery and supplies (8811), professional fees (8860), management and administration fees (8871), rent (8910), repairs and maintenance (8960), salaries and wages (9060), property taxes (9180), travel (9200), utilities (9220), fuel (9224), delivery and freight (9275), motor vehicle expenses (9281), other expenses (9270), capital cost allowance (9936), and business-use-of-home (9945). How does capital cost allowance work on the T2125? Capital assets like equipment, furniture, and vehicles are not deducted in full the year you buy them. Instead you claim capital cost allowance (CCA, line 9936), which spreads the cost over several years based on the asset's CCA class and rate. A half-year rule usually limits the claim in the year of purchase, and CCA is optional in any given year, so you can choose not to claim it to preserve deductions for later. Can I deduct business use of my home on the T2125? Yes, if you use part of your home as your principal place of business or regularly to meet clients. You prorate home costs (utilities, insurance, property tax, mortgage interest, rent) by the business-use percentage and enter the result on line 9945. A key limit: business-use-of-home expenses cannot create or increase a business loss, so any excess carries forward to a future year. Do I deduct the GST/HST I pay on business expenses? It depends on whether you are registered for GST/HST. If you are registered, you generally recover the GST/HST you pay as input tax credits on your GST/HST return, so your income-tax expenses are recorded net of that recoverable tax, you do not also deduct it on the T2125. If you are not registered, the GST/HST you pay is simply part of the expense. How much of meals and entertainment can I deduct in Canada? Generally 50 percent, on line 8523. The same 50 percent limit applies to most business meals and entertainment. Keep the receipts and the business purpose. There are limited exceptions (for example certain all-staff events), but the default for client and business meals is half. What cannot be deducted on the T2125? Personal expenses, the owner's own drawings (money taken out of the business is not an expense), the personal portion of home or vehicle costs, most club and recreational dues, the non-deductible half of meals, fines and penalties, life insurance premiums in most cases, and income tax itself. Capital assets are not deducted in full either; they are claimed over time through CCA. Disclaimer This article is for general informational purposes and is not tax advice. Tax laws change frequently and individual situations vary. TaxFormify does not provide tax advice. Consult a chartered professional accountant for guidance on your specific circumstances. Further reading Schedule C Expense Categories: Every Line Explained : the US counterpart to this guide. How to Turn a Bank Statement Into Tax-Ready Expense Categories : the workflow that uses this reference. T183 Electronic Signature: the CRA Rules : how to collect the CRA signature that authorizes filing. Tax Workflow Automation: A Day in the Life : where categorization fits in the season. Sources CRA, Form T2125 (Statement of Business or Professional Activities) CRA, Guide T4002 (Self-employed Business, Professional, Commission, Farming, and Fishing Income) CRA, Business expenses