How to Track T2125 Expenses as a Canadian Sole Proprietor

The T2125 Problem Every Sole Proprietor Faces

Every Canadian sole proprietor has to file a T2125 — the Statement of Business or Professional Activities — with their T1 return each year. It lists your business income and every deductible expense, organized by category.

The problem: most people don't track their expenses by T2125 category throughout the year. They scramble at tax time, digging through bank statements, trying to remember which purchases were business-related.

This guide explains how to track expenses properly, all year long, so your T2125 practically fills itself out.

The 19 T2125 Expense Categories

The CRA T2125 form has 19 standard expense lines. Every business expense you want to deduct must fall into one of these categories:

The Right Way to Track: Log As You Go

The biggest mistake is waiting until tax season. Instead, log each expense the day it happens:

1. Note the date — needed for the rolling period and CRA audit trail

2. Pick the CRA category — choose from the 19 T2125 lines

3. Write a brief description — “Client lunch with Sarah re: contract”

4. Record the amount — in CAD

5. Keep the receipt — digital photo is fine

Do this consistently and your year-end T2125 becomes a simple exercise of reading off totals.

The Meals Rule Most People Get Wrong

Meals and entertainment (Line 8523) is a special case. You can claim the full amount as a business expense, but the CRA only allows you to deduct 50% on your T2125.

So if you spent $800 on client lunches: enter $800 in your records, but only $400 goes on the T2125 as a deduction.

Home Office: One of the Most Missed Deductions

If you work from home as a sole proprietor, you can deduct a portion of your housing costs. Calculate the percentage of your home used exclusively for business (square footage of office ÷ total square footage), then apply that percentage to rent, mortgage interest, utilities, and maintenance.

Track these separately under Line 9945 (Home office expenses).

Make Tax Time Easy with ClaimHero

ClaimHero is a free tool built specifically for this. You log each expense, pick the T2125 category, and ClaimHero shows you running totals by category all year. At tax time, export a clean PDF summary — organized exactly the way your T2125 expects it.

Free for up to 50 expenses per tax year. No accountant required for the organizing part.