--- oa_review_kit: v1 guide_slug: ca-fed-t2125 guide_version: ca-fed-t2125@2026-05-23T15:33:34.129Z archetype: personal_income --- # Review kit: CA Fed T2125 Thank you for reviewing this Guide. This kit is one file with three parts: how to use it, an interview prompt for your AI, and the Guide itself. ## How to use this kit (3 steps, about 15 minutes) 1. Open the AI you already use (ChatGPT, Claude, Gemini, anything that reads markdown) and paste in everything from "INTERVIEW PROMPT" below, including the Guide at the end. 2. Your AI interviews you like a colleague, one question at a time. Just talk: war stories, walk-throughs, the mistakes you catch. No writing required. 3. Your AI writes your answers up as a single markdown file. Hand it back at openaccountants.com/skills/ca-fed-t2125/handback (also linked from the Guide page: "Hand back your file"). What you added is published under your name and credential. If your AI cannot produce the exact output format, hand back whatever you have: a revised Guide file, a worksheet, or plain notes. We take those too, and a person reviews them by hand. The format below is the one we can apply straight away. --- # INTERVIEW PROMPT (paste from here down into your AI) You are interviewing a practising accountant about how they actually do the work covered by the attached Guide ("CA Fed T2125", slug `ca-fed-t2125`). Interview them like a colleague doing a handover. Do not lecture. Ask ONE question at a time and wait for the answer. Chase war stories and specifics: what kind of client, which portal step, how big the penalty was. The rates, thresholds, and citations are our job; we refresh those from primary sources. Capture ONLY what is NOT derivable from law: - order of operations, and what a wrong order corrupts - what to ask a client before computing anything - what to assume when a fact is unknown, and how it gets flagged - the most-missed traps, with penalty size and who falls in - how the portal or filing channel actually behaves - what has to reconcile before anyone signs - when to refuse the work and hand it to a human specialist If the accountant corrects a rate, threshold, or deadline in the Guide along the way, record it in the FACT CORRECTIONS table, but do not steer the interview toward numbers. ## Questions to work through Ask these in order, one at a time. Skip any the accountant has already covered; follow up where a story has specifics worth pinning down. Each question is tagged with the method slot(s) it feeds. 1. [intake_questions] A new personal-tax client sits down. What are your first five questions before you touch a number? 2. [intake_questions] [conservative_default] Which of those answers, if missing, makes you stop rather than estimate? 3. [evidence] Which documents do you insist on seeing, and which do you take the client's word for? 4. [sequence] In what order do you build the return, and what goes wrong when someone does it backwards? 5. [trap] What deduction or relief do clients most often believe they're entitled to but aren't? 6. [trap] What computation does software or AI most often get wrong on returns you've reviewed? 7. [judgment_rule] When the law gives two routes (regime choice, standard vs itemized, allowance vs actuals), how do you actually pick, and what do you write down about the choice? 8. [cross_check] What triggers the tax authority's mismatch letters in your experience, and what do you reconcile up front to prevent them? 9. [edge_case] Tell me about a client whose side income (platform, rental, foreign) changed the whole shape of the return. What did you do differently? 10. [filing_mechanics] Walk me through the e-filing itself: the verification step, the deadline nobody knows, what happens if the client doesn't do their part. 11. [scope_gate] What kind of personal-tax client do you turn away or send to a specialist? 12. [handback_protocol] What exactly do you hand the client before anything is filed? What's in your working paper? ## Method slots (for tagging the write-up) - `scope_gate` (Scope gate and refusals): when to stop and send the client to a human - `sequence` (Order of operations): what order to do things in, and what a wrong order corrupts - `intake_questions` (Client intake questions): what to ask a client before computing - `evidence` (Documents and evidence): which documents to insist on, and what is draft-grade vs file-grade - `judgment_rule` (Judgment rules): how a practitioner actually picks when the law allows two routes - `conservative_default` (Conservative defaults): what to assume when a fact is unknowable at draft time - `trap` (Traps and most-missed items): the mistakes everyone makes, what they cost, and who falls in - `filing_mechanics` (Portal and filing mechanics): how submission actually works: channel, order, what locks - `cross_check` (Cross-checks before signing): what has to reconcile with what before delivery, and how close is close enough - `pattern_library` (Pattern library): how messy real-world data (bank lines, payout platforms) maps to tax categories - `edge_case` (Edge-case playbook): the client situations that change the method, not just the numbers - `unsettled_law` (Unsettled-law flags): what not to finalise right now, and why - `handback_protocol` (Hand-back protocol): what the finished working paper contains and who reviews it ## Output format: oa-handback v1 When the interview is done, write the answers up as ONE markdown file in exactly this shape. Fill in the reviewer's real name, credential, and email (ask for them at the end if they have not come up). Every method block gets a `### [method:]` heading where `` is one of the 13 slot ids above. Keep `guide_slug` and `guide_version` exactly as given. Omit any section the interview produced nothing for, but keep the headings that remain exactly as shown. The `fact_key` column may be left blank when unknown. ```markdown --- oa_handback: v1 guide_slug: ca-fed-t2125 guide_version: ca-fed-t2125@2026-05-23T15:33:34.129Z reviewer_name: reviewer_credential: # free text: CPA, EA, ACCA, Steuerberater... reviewer_email: verdict: --- ## METHOD ### [method:filing_mechanics] ### [method:intake_questions] - - ... ## FACT CORRECTIONS | fact_key | current | correct | source | |---|---|---|---| | | | | | ## FLAGS - [unsettled] - [refer] ## NOTES ``` If for any reason you cannot produce this exact format, output the accountant's corrections and methods as clear plain notes instead. The hand-back page accepts plain notes and revised Guide files too; this format is an optimization, never a gate. --- # THE GUIDE UNDER REVIEW --- name: ca-fed-t2125 description: Use this skill whenever asked about Canadian self-employment business income reported on Form T2125 (Statement of Business or Professional Activities). Trigger on phrases like "T2125", "business income Canada", "self-employed expenses", "CCA", "capital cost allowance", "home office Canada", "motor vehicle expenses CRA", "business-use-of-home", "sole proprietor Canada", "net business income", "business number BN", "fiscal year end", "GST ITC", or any question about computing, classifying, or reporting business income and expenses for a Canadian sole proprietor. Covers Parts 1-8 of T2125, allowable expenses, CCA classes and rates, AccII, business-use-of-home, motor vehicle expenses, GST/HST interaction, and net income computation. ALWAYS read this skill before touching any T2125 work. jurisdiction: CA domain: income-tax tax_year: 2025 --- # ca-fed-t2125 ## Canada Self-Employment (T2125) -- Sole Proprietor Skill v2.0 ## Verified rates & thresholds (accountant-reviewed) Reviewed against the cited tax authorities by Nathan Wiebe on 2026-06-21. Items flagged for further clarification are tracked separately and excluded here. This block is generated from verified `skill_facts` — edit the facts, not the prose. ### T2125 (Business) - **GST/HST registration threshold** — $30,000 in 4 consecutive quarters _(ETA s.148; CRA — Small supplier — canada.ca)_ - **CCA deduction** — Optional — any amount up to maximum _(ITA s.20(1)(a); ITR Schedule II)_ - **Business-use-of-home** — Principal place of business OR exclusively income-earning + clients _(ITA s.18(12))_ - **Meals deduction** — 50% deductible only _(ITA s.67.1)_ - **Vehicle expense — business-use %** — Must maintain log; default 0% if unknown _(ITA s.18(1)(r); ITR 7307; CRA — Motor vehicle expenses — canada.ca)_ - **Fiscal year-end (sole props)** — Must be December 31 _(ITA s.249.1)_ - **Line 8299** — Gross business revenue _(CRA — T2125 guide (T4002) — canada.ca)_ - **Stripe/PayPal fees** — Line 8710 (bank charges) — report gross revenue on 8299 _(CRA — T4002 guide; ITA s.9)_ - **Line 8910** — Rent (business premises) _(CRA — T4002 guide — canada.ca)_ - **Line 8220** — Telephone/utilities _(CRA — T4002 guide — canada.ca)_ - **Line 8860** — Professional fees (accounting, legal) _(CRA — T4002 guide — canada.ca)_ - **Line 8710** — Interest and bank charges _(CRA — T4002 guide — canada.ca)_ - **Line 8523** — Meals and entertainment (50%) _(CRA — T4002 guide; ITA s.67.1)_ - **Line 8690** — Insurance _(CRA — T4002 guide — canada.ca)_ - **Line 8810** — Office expenses _(CRA — T4002 guide — canada.ca)_ - **Line 9281** — Motor vehicle — total of expenses × business % _(CRA Form T2125 — canada.ca; CRA T4002 guide)_ ## Section 1 -- Quick Reference **Quick Reference** | Field | Value | | --- | --- | | Country | Canada -- Federal | | Tax | Federal income tax on business income + CPP self-employed contributions | | Currency | CAD only | | Tax year | Calendar year (sole proprietors must use December 31 fiscal year-end) | | Primary legislation | Income Tax Act (ITA), R.S.C. 1985, c. 1 (5th Supp.) | | Supporting legislation | Income Tax Regulations (ITR); Excise Tax Act (ETA) for GST/HST; CRA Guide T4002 | | Tax authority | Canada Revenue Agency (CRA) | | Filing portal | CRA My Account / NETFILE / EFILE | | Filing deadline | 15 June (self-employed), but tax owing due 30 April | | Form | T2125 -- Statement of Business or Professional Activities | | Contributor | Open Accountants Community | | Validated by | Verified by Nathan Wiebe on 2026-06-21 | | Skill version | 2.0 | ### Federal Tax Brackets (2025) [T1] **Federal Tax Brackets (2025)** | Taxable Income (CAD) | Rate | | --- | --- | | 0 -- 57,375 | 15% | | 57,376 -- 114,750 | 20.5% | | 114,751 -- 158,468 | 26% | | 158,469 -- 220,000 | 29% | | 220,001+ | 33% | Provincial tax is additional. Each province has its own brackets. This skill covers federal only. Combined marginal rates range from ~20% to ~54% depending on province. ### Basic Personal Amount (2025) [T1] **Basic Personal Amount (2025)** | Item | Amount (CAD) | | --- | --- | | Basic personal amount (income under ~$177,882) | $16,129 | | Basic personal amount (income over ~$253,414) | $14,538 | | BPA clawback zone | Linear reduction between thresholds | ### CPP Self-Employed Contributions (2025) [T1] **CPP Self-Employed Contributions (2025)** | Item | Value | | --- | --- | | CPP rate (self-employed pay both portions) | 11.9% (2 x 5.95%) | | CPP2 rate | 8% (2 x 4%) on earnings between first and second ceilings | | First earnings ceiling | $71,300 | | Second earnings ceiling | $81,200 | | Basic exemption | $3,500 | | Maximum CPP contribution | $8,068.20 | | Maximum CPP2 contribution | $792.00 | Half of CPP self-employed contributions is deductible on Line 22200. ### Key T2125 Thresholds [T1] **Key T2125 Thresholds** | Item | Value | | --- | --- | | GST/HST registration required | Over $30,000 in 4 consecutive quarters | | CCA deduction | Optional -- can claim any amount up to the maximum | | Instant asset write-off (CEBA) | See AccII rules -- enhanced first-year deduction | | Business-use-of-home | Only if principal place of business OR used exclusively for income-earning and meeting clients | ### Conservative Defaults [T1] **Conservative Defaults** | Ambiguity | Default | | --- | --- | | Unknown business-use % (vehicle, home, phone) | 0% deduction | | Unknown expense category | Not deductible | | Unknown CCA class | Do not depreciate -- ask | | Unknown GST/HST status | Not registered (gross amounts are the cost) | | Unknown whether expense is business or personal | Personal (not deductible) | | Unknown vehicle km split | 0% business | ## Section 2 -- Required Inputs and Refusal Catalogue ### Required Inputs Minimum viable -- bank statement for the full calendar year (January-December), confirmation of business activity and NAICS code. Recommended -- all invoices issued, purchase receipts, vehicle km log, home office measurements, GST/HST returns filed, prior year T2125. Ideal -- complete bookkeeping records, CCA schedule from prior year, motor vehicle log, T4 slips (if also employed), prior year Notice of Assessment. ### Refusal Catalogue - **R-CA-1 -- Corporations** — Corporations file T2 corporate tax returns. This skill covers sole proprietors filing T2125 only. - **R-CA-2 -- Partnerships** — Partnerships file T2125 at the partnership level with allocation to partners. Partnership-specific rules are out of scope. - **R-CA-3 -- Non-residents** — Non-resident business income has different rules. Out of scope. - **R-CA-4 -- SR&ED claims** — Scientific Research and Experimental Development tax credits require specialised review. Escalate. - **R-CA-5 -- Farming/fishing income** — Farming (T2042) and fishing (T2121) have their own forms and special rules. Out of scope. ## Section 3 -- Transaction Pattern Library ### 3.1 Income Patterns (Credits on Bank Statement) **Income Patterns (Credits on Bank Statement)** | Pattern | T2125 Line | Treatment | Notes | | --- | --- | --- | --- | | CLIENT DEPOSIT, CLIENT PAYMENT, [client name] | Line 8299 (Gross revenue) | Business income | Core revenue | | STRIPE PAYOUT, STRIPE TRANSFER | Line 8299 | Business income | Match to underlying invoices. Report gross (before Stripe fees). | | PAYPAL TRANSFER, PAYPAL PAYOUT | Line 8299 | Business income | Same -- report gross before fees | | ETRANSFER [client name], INTERAC | Line 8299 | Business income | Common Canadian payment method | | GST/HST REFUND, CRA GST REFUND | Check | May be income | GST/HST refund of ITCs: NOT income. Net income adjustment if previously expensed. | | INTEREST, SAVINGS INTEREST | NOT T2125 | Interest income | Report on Line 12100, not T2125 | | DIVIDEND | NOT T2125 | Dividend income | Report on Line 12000/12010 | | EMPLOYMENT INCOME, SALARY | NOT T2125 | Employment income | T4 slip income | | CRA REFUND, TAX REFUND | EXCLUDE | Not income | Tax refund | | RENTAL INCOME | NOT T2125 | Rental | Report on T776 | | OWN TRANSFER, SAVINGS TRANSFER | EXCLUDE | Internal | Between own accounts | ### 3.2 Expense Patterns (Debits on Bank Statement) **Expense Patterns (Debits on Bank Statement)** | Pattern | T2125 Line | Tier | Treatment | | --- | --- | --- | --- | | RENT, OFFICE RENT, COMMERCIAL LEASE | Line 8910 (Rent) | T1 | Fully deductible if business premises | | PROPERTY TAX (business premises) | Line 8810 (Property taxes) | T1 | Fully deductible for business property | | HYDRO, ELECTRICITY, GAS, ENBRIDGE, HYDRO ONE | Line 8945 (Utilities) | T2 | If home: business-use % only. If office: fully deductible. | | BELL, ROGERS, TELUS, SHAW | Line 8220 (Telephone/utilities) | T2 | Business portion only | | INTERNET, WIFI | Line 8220 | T2 | Business portion only | | INSURANCE, BUSINESS INSURANCE, LIABILITY | Line 8690 (Insurance) | T1 | Fully deductible if business insurance | | ACCOUNTING, BOOKKEEPER, CPA | Line 8860 (Professional fees) | T1 | Fully deductible | | LAWYER, LEGAL FEE | Line 8860 | T1 | Deductible if business-related | | OFFICE SUPPLIES, STAPLES, GRAND & TOY | Line 8810 (Office expenses) | T1 | Fully deductible | | BANK FEE, MONTHLY FEE, NSF | Line 8710 (Interest and bank charges) | T1 | Fully deductible for business account | | STRIPE FEE, PAYPAL FEE, SQUARE FEE | Line 8710 | T1 | Payment processing fees: fully deductible | | INTEREST (business loan) | Line 8710 | T1 | Fully deductible | | ADVERTISING, GOOGLE ADS, META ADS, FACEBOOK | Line 8520 (Advertising) | T1 | Fully deductible | | MEALS (client entertainment) | Line 8523 (Meals and entertainment) | T1 | 50% deductible only. The other 50% is permanently disallowed. | | MEALS (business travel, alone) | Line 8523 | T1 | 50% deductible | | SOFTWARE, SUBSCRIPTION, SAAS | Line 8810 or 8860 | T1 | Fully deductible | | TRAINING, COURSE, CONFERENCE | Line 9270 (Other expenses) | T1 | Fully deductible if business-related | | GAS, FUEL, PETRO-CANADA, SHELL, ESSO | Motor vehicle expenses | T2 | Business km / total km. Keep a log. | | CAR INSURANCE, AUTO INSURANCE | Motor vehicle expenses | T2 | Business km proportion only | | CAR REPAIR, SERVICE, OIL CHANGE | Motor vehicle expenses | T2 | Business km proportion only | | PARKING (business) | Motor vehicle or travel | T1 | Fully deductible if business purpose | | CRA INCOME TAX, TAX INSTALMENT | EXCLUDE | Not deductible | Income tax is not a business expense | | CRA GST PAYMENT, GST REMITTANCE | EXCLUDE from T2125 | T1 | GST is separate system. Net of GST on T2125 if registered. | | CPP CONTRIBUTION | EXCLUDE from T2125 | T1 | CPP is not a T2125 expense. Half deductible on Line 22200. | | PERSONAL, GROCERY, AMAZON (personal) | EXCLUDE | Not deductible | Personal expenses | | COMPUTER, LAPTOP, EQUIPMENT (over $500) | CCA (not current expense) | T1 | Capital -- claim CCA. See Section 5.4. | | MEMBERSHIP, DUES, PROFESSIONAL BODY | Line 8760 (Management fees) or 9270 | T1 | Fully deductible if business-related | | SUBCONTRACTOR, CONTRACTOR PAYMENT | Line 8340 (Subcontracts) | T1 | Fully deductible. Issue T4A if over $500. | ### 3.3 SaaS Subscriptions **SaaS Subscriptions** | Pattern | Treatment | Notes | | --- | --- | --- | | GOOGLE WORKSPACE, MICROSOFT 365, ADOBE | Line 8810/8860 -- fully deductible | Operating expense | | SLACK, ZOOM, NOTION, FIGMA, GITHUB | Line 8810/8860 -- fully deductible | Same | | AWS, HEROKU, DIGITAL OCEAN | Line 8810 -- fully deductible | Hosting costs | | QUICKBOOKS, XERO, FRESHBOOKS, WAVE | Line 8860 -- fully deductible | Accounting software | ### 3.4 Internal Transfers and Exclusions **Internal Transfers and Exclusions** | Pattern | Treatment | Notes | | --- | --- | --- | | OWN TRANSFER, SAVINGS, TFSA, RRSP | EXCLUDE | Not business transaction | | MORTGAGE, RENT (personal) | EXCLUDE (or home office %) | Personal. Home office portion in business-use-of-home. | | ATM, CASH WITHDRAWAL | T2 -- ask | Default exclude | | DONATION, CHARITY | EXCLUDE from T2125 | Personal tax credit, not business expense | ## Section 4 -- Worked Examples ### Example 1 -- Standard Sole Proprietor (Web Developer) Input: Gross revenue CAD 95,000. Not GST registered (under $30K threshold last year, now over -- must register). Expenses: home office (see below), software CAD 2,400, accounting CAD 1,500, subcontractor CAD 8,000, travel CAD 3,000, meals (50%) CAD 1,200 (deductible: CAD 600). Home office: 1,200 sq ft house, 150 sq ft office (12.5%). Mortgage interest CAD 8,000, property tax CAD 4,000, utilities CAD 3,600, insurance CAD 1,800. Total: CAD 17,400 x 12.5% = CAD 2,175. Computation: - Revenue: CAD 95,000 - Expenses: 2,400 + 1,500 + 8,000 + 3,000 + 600 + 2,175 = CAD 17,675 - Net business income: CAD 77,325 - CPP: (77,325 - 3,500) x 11.9% = CAD 8,068.20 (hits maximum) - Half CPP deductible: CAD 4,034.10 ### Example 2 -- Vehicle (Km-Based Apportionment) Input: Total km driven: 25,000. Business km: 15,000 (60%). Vehicle costs: gas CAD 3,600, insurance CAD 2,400, repairs CAD 800, licence CAD 120. Car cost CAD 36,000 (Class 10). Computation: - Operating costs: (3,600 + 2,400 + 800 + 120) x 60% = CAD 4,152 - CCA: CAD 36,000 x 30% (Class 10 rate) x 60% = CAD 6,480 (first year: AccII provides 1.5x = CAD 9,720 if eligible) - Total vehicle deduction: CAD 4,152 + CCA amount ### Example 3 -- Meals (50% Rule) Input: CAD 2,500 in restaurant receipts for client meetings. Classification: Only 50% deductible = CAD 1,250. This is a permanent restriction under ITA s67.1. The full CAD 2,500 is reported on Line 8523, then 50% is added back. ### Example 4 -- CCA on Computer Equipment Input: Laptop purchased for CAD 2,800. Class 50 (55% rate). First year. Classification: CCA Class 50 at 55%. With AccII (Accelerated Investment Incentive), first-year deduction enhanced: 1.5 x 55% x CAD 2,800 = CAD 2,310 (but cannot exceed cost, so CAD 2,310). UCC year-end: CAD 490. ## Section 5 -- Tier 1 Rules (When Data Is Clear) ### 5.1 Business Income [T1] - **Business income** — All revenue from business activities. Report gross on Line 8299. If GST/HST registered, report net of GST/HST. _(ITA s9)_ ### 5.2 Deductible Expenses [T1] - **Deductible expenses** — Must be incurred to earn business income. Must be reasonable (s67). Personal or living expenses are not deductible (s18(1)(h)). _(ITA s18)_ ### 5.3 Meals and Entertainment [T1] - **Meals and entertainment** — 50% limitation on meals and entertainment. Applies to all business meals, client entertainment, and food/drink. Long-haul truck drivers: 80%. _(ITA s67.1)_ ### 5.4 Capital Cost Allowance (CCA) [T1] **CCA Classes** _(ITA s20(1)(a); ITR Schedule II)_ | Class | Rate | Assets | | --- | --- | --- | | 1 | 4% | Buildings (non-residential after March 2007) | | 8 | 20% | Furniture, fixtures, equipment, photocopiers | | 10 | 30% | Motor vehicles (passenger, cost < $37,000 limit) | | 10.1 | 30% | Passenger vehicles over $37,000 (cost capped at limit) | | 12 | 100% | Small tools, computer software, cutlery | | 43 | 30% | Manufacturing equipment | | 50 | 55% | Computer hardware, data network equipment | | 54 | 30% | Zero-emission passenger vehicles (cost cap $61,000) | | 55 | 40% | Zero-emission vehicles not in class 54 | - **Passenger vehicle cost limit (2025)** — CAD 37,000 (excluding GST/HST). Luxury vehicles capped at this amount for CCA purposes (Class 10.1). - **AccII (Accelerated Investment Incentive)** — For eligible property acquired after November 20, 2018, the first-year CCA is enhanced by a 1.5x multiplier on the half-year rule. Effectively, you get 1.5 times the normal first-year CCA. ### 5.5 Business-Use-of-Home [T1/T2] **Business-Use-of-Home Conditions** _(ITA s18(12))_ | Condition | Eligibility | | --- | --- | | Principal place of business | YES -- deduction allowed | | Exclusive use for business + regular meetings | YES -- deduction allowed | | Neither condition met | NO deduction | - **Deductible home expenses** — Deductible expenses: proportion of rent/mortgage interest, property tax, utilities, insurance, maintenance. Proportion = business area / total area. - **Loss restriction** — Cannot create or increase a business loss. Excess carried forward to the next year. ### 5.6 Filing Deadlines [T1] **Filing Deadlines** | Item | Deadline | | --- | --- | | T1 filing (self-employed) | 15 June | | Tax payment due | 30 April (even though filing deadline is 15 June) | | Quarterly instalments | 15 March, 15 June, 15 September, 15 December | | T4A issuance (subcontractors) | Last day of February | | GST/HST annual return | 15 June (if annual filer) | ### 5.7 Penalties [T1] **Penalties** | Offence | Penalty | | --- | --- | | Late filing | 5% of balance owing + 1% per month late (max 12 months) | | Repeated late filing (2nd+ time in 3 years) | 10% + 2% per month (max 20 months) | | Late instalment | Instalment interest at prescribed rate | | Gross negligence | 50% of understated tax or overstated credits | ## Section 6 -- Tier 2 Catalogue (Reviewer Judgement Required) ### 6.1 Home Office [T2] - **Home office review** — Confirm: (1) principal place of business OR exclusive use + client meetings, (2) area measurements, (3) expense amounts. Cannot create or increase a loss. Excess carried forward. Flag for reviewer: Confirm eligibility conditions and area calculation. ### 6.2 Motor Vehicle [T2] - **Motor vehicle review** — Must keep a contemporaneous km log. CRA audits vehicle claims frequently. If no log exists, default to 0% business use. Flag for reviewer: Confirm km log exists and business percentage is reasonable. ### 6.3 Reasonableness (s67) [T2] - **Reasonableness review** — All expenses must be "reasonable in the circumstances." CRA can deny excessive expenses even if legitimately incurred. Flag any single expense that appears disproportionate. _(s67)_ ### 6.4 CCA vs Expense [T2] - **CCA vs expense determination** — Items with lasting value beyond one year: CCA. Items consumed in the year: current expense. Software subscriptions: current expense. Software perpetual licences: CCA Class 12 (100%). Hardware: CCA Class 50. ## Section 7 -- Excel Working Paper Template T2125 WORKING PAPER -- Tax Year 2025 A. GROSS INCOME A1. Gross sales/revenue (Line 8299) ___________ A2. GST/HST collected (if registered) ___________ A3. Net sales (A1 - A2 if applicable) ___________ B. EXPENSES B1. Advertising (8520) ___________ B2. Meals and entertainment (8523) -- 50% ___________ B3. Subcontracts (8340) ___________ B4. Insurance (8690) ___________ B5. Interest and bank charges (8710) ___________ B6. Management and admin (8760) ___________ B7. Office expenses (8810) ___________ B8. Professional fees (8860) ___________ B9. Rent (8910) ___________ B10. Telephone and utilities (8220) ___________ B11. Travel (8520) ___________ B12. Other expenses (9270) ___________ B13. Total expenses ___________ C. NET INCOME BEFORE CCA AND HOME OFFICE C1. A3 - B13 ___________ D. CCA D1. Class 8 (20%) ___________ D2. Class 10/10.1 (30%) ___________ D3. Class 50 (55%) ___________ D4. Other classes ___________ D5. Total CCA ___________ E. BUSINESS-USE-OF-HOME E1. Business area % ___________ E2. Total home costs ___________ E3. Deductible portion (E1 x E2) ___________ F. NET BUSINESS INCOME (C1 - D5 - E3) ___________ REVIEWER FLAGS: [ ] Vehicle km log available? [ ] Home office eligibility confirmed? [ ] CCA schedule reconciled from prior year? [ ] Meals at 50% applied? [ ] All T2 items flagged? ## Section 8 -- Bank Statement Reading Guide ### Canadian Bank Statement Formats **Canadian Bank Statement Formats** | Bank | Format | Key Fields | | --- | --- | --- | | RBC, TD, BMO, Scotiabank, CIBC | CSV, PDF | Date, Description, Debit, Credit, Balance | | Desjardins | CSV | Date, Description, Withdrawal, Deposit | | Tangerine, Simplii, EQ Bank | CSV | Date, Transaction, Amount | | Wise, Revolut | CSV | Date, Description, Amount, Currency | ### Key Canadian Banking Terms **Key Canadian Banking Terms** | Term | Classification Hint | | --- | --- | | e-Transfer / Interac | Very common -- check direction and counterparty | | PAD (Pre-Authorized Debit) | Regular expense | | POS | Point-of-sale purchase | | Direct Deposit | Could be income or employment | | NSF | Non-sufficient funds fee -- bank charge | | Service Charge | Monthly bank fee | ## Section 9 -- Onboarding Fallback ONBOARDING QUESTIONS -- CANADA T2125 1. What is your business name and NAICS code? 2. Do you have a Business Number (BN)? 3. Are you GST/HST registered? 4. Do you work from home? Is it your principal place of business? 5. Do you use a vehicle for business? Do you have a km log? 6. Any capital purchases this year? (computers, equipment, vehicles) 7. Do you have subcontractors you paid over $500? 8. Are you also employed (T4 income)? 9. Province of residence? 10. Prior year T2125 / CCA schedule available? ## Section 10 -- Reference Material ### Key Legislation **Key Legislation** | Topic | Reference | | --- | --- | | Business income | ITA s9 | | Deductible expenses | ITA s18 | | Reasonableness | ITA s67 | | Meals 50% limit | ITA s67.1 | | CCA | ITA s20(1)(a); ITR Schedule II | | Motor vehicle limits | ITA s67.2, s67.3; ITR 7307 | | Business-use-of-home | ITA s18(12) | | CPP self-employed | CPP Act s10, s12 | | Filing deadlines | ITA s150(1) | | Penalties | ITA s162, s163 | | GST/HST | ETA Part IX | ### Interaction with GST/HST [T1] **Interaction with GST/HST** | Scenario | Income Tax Treatment | | --- | --- | | GST/HST collected on sales (registrant) | NOT income. Report net of GST/HST on T2125. | | ITC (Input Tax Credit) recovered | NOT an expense. Report net of recoverable GST/HST. | | Non-registrant (under $30K threshold) | GST/HST paid on purchases IS part of the cost. Report gross. | | ITCs denied (personal use portion) | Non-recoverable GST/HST is part of the expense cost. | ## PROHIBITIONS - NEVER allow personal or living expenses as business deductions - NEVER allow more than 50% of meals and entertainment - NEVER claim CCA without a prior-year UCC reconciliation - NEVER claim home office if neither principal-place-of-business nor exclusive-use test is met - NEVER allow home office to create or increase a business loss - NEVER claim vehicle expenses without a km log - NEVER exceed the passenger vehicle cost limit for CCA - NEVER include income tax payments as business expenses - NEVER include CPP contributions as T2125 expenses (half goes to Line 22200) - NEVER report GST/HST-inclusive amounts on T2125 if the business is a registrant - NEVER present tax calculations as definitive -- always label as estimated ## Disclaimer This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. 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