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GST/HST on Your T2125: Should You Include It in Income and Expenses?

2026-06-25 · 6 min read

The GST/HST Question That Trips Up Freelancers


A common Canadian freelancer tax question is: do I include GST/HST on my T2125 income and expenses, or only on my GST/HST return? The answer depends on whether you are registered for GST/HST and whether you claim input tax credits.


The key idea is simple: do not count the same tax twice. GST/HST you collect from clients is not really your income — it is money you hold for the CRA. GST/HST you recover as an input tax credit is not really your expense.


If You Are Not GST/HST Registered


If you are a small supplier and have not registered, you generally do not charge GST/HST to clients and you do not claim input tax credits. In that case, sales tax paid on business purchases is part of your business cost.


Example:


  • You buy a $100 software subscription plus $13 HST
  • You are not registered for GST/HST
  • Your deductible business expense is $113, assuming it is fully business-use

    • You still need receipts and a reasonable business purpose, but there is no separate GST/HST return to reconcile.


    If You Are GST/HST Registered


    Once registered, you usually charge GST/HST on taxable Canadian sales and file GST/HST returns. You may also claim input tax credits (ITCs) for GST/HST paid on eligible business expenses.


    For T2125 purposes, the CRA says deductible expenses include GST/HST paid minus any ITC claimed. That means a registered freelancer usually tracks expenses net of recoverable GST/HST.


    Example:


  • You buy a $100 business tool plus $13 HST
  • You claim the $13 as an ITC on your GST/HST return
  • Your T2125 expense is $100, not $113

    • Claiming $113 on the T2125 and also claiming the $13 ITC would double-count the tax benefit.


    What About GST/HST Collected from Clients?


    If your invoices include GST/HST, keep your revenue records clear. Many tax programs ask for gross sales and then separately subtract GST/HST, returns, allowances, and adjustments before arriving at adjusted gross sales for the T2125.


    The practical result should be that your business income reflects what you earned for your services, not the GST/HST you collected for the CRA. If you collected $10,000 in fees plus $1,300 HST, the $1,300 should not inflate your taxable business income.


    Watch the Quick Method


    If you use the GST/HST Quick Method, the bookkeeping can differ because you remit a simplified percentage and generally do not claim most ITCs separately. The Quick Method can create an income inclusion or different net treatment. If you use it, confirm the setup with your accountant or tax software rather than guessing.


    A Clean Tracking System


    Use one consistent approach all year:


  • Not registered: record business expenses including sales tax paid
  • Registered and claiming ITCs: record expenses net of recoverable GST/HST
  • Mixed-use purchases: apply the business-use percentage before claiming the T2125 portion
  • Meals: remember the separate 50% meals and entertainment limit still applies
  • Keep invoices: GST/HST claims need supporting documents, not just bank lines

    • Make GST/HST and T2125 Less Messy


    ClaimHero helps Canadian sole proprietors record expenses by T2125 category with notes for business purpose, tax treatment, and mixed-use calculations. Clean records make it easier to avoid double-counting GST/HST, prepare your T2125, and give your accountant a clear year-end summary. Free to start.


    Track your T2125 expenses year-round with ClaimHero — free to start.