T2125 expense lines, explained
Form T2125 asks for business expenses by line number. This is the list, in form order, with what belongs on each line and where people put things by mistake. The categories are the ones Loonie Logs uses, so a receipt filed in the app lands on the line shown here.
| Line | Category | What goes here |
|---|---|---|
| 8521 | Advertising | Ads, website hosting and domain, business cards, directory listings, sponsored posts. Ads in foreign media aimed at Canadians are limited; Canadian outlets are fully deductible. |
| 8523 | Meals and entertainment | Client meals, coffee meetings, event tickets with a business purpose. Only 50% is deductible. Enter the full receipt; the form applies the 50%. |
| 8590 | Bad debts | Invoices you included in income and can no longer collect. Only if the income was already reported. |
| 8690 | Insurance | Commercial liability, professional liability (E&O), business property insurance. Vehicle insurance goes to Chart A (9281); home insurance to business-use-of-home (9945). |
| 8710 | Interest and bank charges | Business account fees, payment processor fees, interest on money borrowed for the business. Vehicle loan interest goes to Chart A; mortgage interest to 9945. |
| 8760 | Business taxes, licences and memberships | Business licence, trade or professional association dues, chamber membership, permits. Not GST/HST and not income tax. Dues to a club for dining or recreation are not deductible. |
| 8810 | Office expenses | Software subscriptions, phone and internet (business share), small items, postage. Equipment that lasts more than a year (computer, desk) is capital, not an office expense. |
| 8811 | Office stationery and supplies | Paper, toner, pens, shipping supplies, small consumables. |
| 8860 | Professional fees | Accountant, bookkeeper, lawyer, consultant fees for the business. Fees for preparing your personal return are not a business expense unless tied to the business. |
| 8871 | Management and administration fees | Fees paid to a management company or administrator to run parts of the business. Rare for sole proprietors; most people have nothing here. |
| 8910 | Rent | Office, coworking desk, studio, storage unit, equipment rental. Rent for a home office goes to 9945, not here. |
| 8960 | Repairs and maintenance | Fixing or servicing business equipment and premises. Improvements that add value or extend life are capital, not repairs. |
| 9060 | Salaries, wages and benefits | Wages paid to employees, employer CPP/EI, benefits. Do not pay yourself a salary as a sole proprietor; your draw is not an expense. Contractors go to the line that fits the work, or 9270. |
| 9180 | Property taxes | Property tax on business premises you own. Home property tax goes to 9945. |
| 9200 | Travel expenses | Flights, trains, hotels, taxis and transit while travelling for business. Meals while travelling still follow the 50% rule on 8523. Local driving is vehicle, not travel. |
| 9220 | Utilities | Electricity, heat, water for business premises. For a home office these go to 9945, not here. The form's own label for 9220 is utilities. |
| 9224 | Fuel costs (except motor vehicles) | Fuel for generators, equipment, machinery. Gas for your car or truck is a vehicle expense (9281). |
| 9270 | Other expenses | Anything legitimately business that fits no other line: subcontractors, training, bank penalties, small tools under the capital threshold. Describe it. Preparers get asked about this line more than any other. |
| 9275 | Delivery, freight and express | Courier, shipping to customers, freight on goods. |
| 9281 | Motor vehicle expenses | Fuel, insurance, licence, maintenance, loan interest or lease on the vehicle, prorated by business kilometres (Chart A). Needs a logbook. See the vehicle expense calculator for the arithmetic. |
| ↳ 9281 | Parking and tolls (business) | Parking and tolls while on business trips. Deductible at 100%, not prorated. Reported with motor vehicle expenses. |
| 9936 | Capital cost allowance | Depreciation on equipment, computers, vehicles, furniture you bought for the business (Area A on the form). Record the purchase; your preparer computes the yearly CCA by class. Never expense the whole cost in one year. |
Lines that are not expense categories
- 8299, gross business income: everything you billed, before expenses. GST/HST you collected is not income.
- 9945, business-use-of-home expenses: the business share of rent or mortgage interest, utilities, home insurance and property tax, from the worksheet on page 3. Cannot create or increase a loss.
- 9936, capital cost allowance: this year's depreciation from Area A, by class. Computers are class 50, most equipment class 8, passenger vehicles class 10 or 10.1.
- 9369, net income before adjustments: income minus the expenses above. What flows to your T1 after the home-office and CCA lines.
Three rules that cover most questions
Deduct the business share only. A phone used half for business is 50% deductible. The CRA accepts a reasonable, consistent method; write it down.
Anything that lasts more than a year and costs more than a few hundred dollars is capital, not an expense. It is depreciated through CCA over several years, whatever line it looks like it belongs on.
Keep the receipt, not just the bank line. The CRA can ask for support six years back, and a card statement does not show what was bought or the GST/HST paid.
Questions
Where do subcontractors go?
Usually line 9270, other expenses, described as subcontractor costs. If you paid subcontractors in construction, you also file a T5018 summary.
Where does my phone plan go?
Office expenses (8810) for the business share. Some preparers use utilities or telephone under 9270; the amount matters more than the line, but be consistent year to year.
Is the GST/HST I paid part of the expense?
If you are registered for GST/HST and claim input tax credits, no: enter expenses net of the tax. If you are not registered, the tax is part of your cost and goes on the line with the expense.
My expense fits nowhere. What do I do?
Line 9270 with a description. The line number is less important than being able to show the receipt and explain the business purpose.
Loonie Logs files each receipt on its T2125 line
Scan a receipt, the app suggests the category, and the year-end export groups everything by these line numbers with totals your preparer can type straight in.
Get the appThis is general information, not tax advice. Your situation may differ; confirm with your tax preparer or the CRA. Source: CRA form T2125, Statement of Business or Professional Activities.