T2125, Statement of Business or Professional Activities, is the CRA form on which a self-employed agent computes the figure the Income Tax Act actually taxes: under section 9(1), “a taxpayer’s income for a taxation year from a business… is the taxpayer’s profit from that business for the year,” not the gross commission collected.
The computation is exactly the gross-to-net mechanic described for gross commission income: “you report gross income and deduct allowable business expenses to arrive at net business income, which is then taxed at both federal and” provincial rates as part of total income. The T2125 is where that subtraction happens line by line — commission income in, brokerage split, vehicle expenses, marketing, board and MLS fees, E&O insurance and other deductible costs out — landing on the profit figure section 9(1) actually taxes.
The form is filed alongside the T1 personal return, not separately, which is why an agent’s real estate income shows up as business income on their personal filing rather than through a T4 slip the way employment income would. Everything feeding the T2125 — invoices, expense receipts, the vehicle log behind a mileage claim — falls under the same statutory duty every self-employed person carries: records must be kept “at the person’s place of business or residence in Canada” and retained for six years after the end of the relevant tax year, electronically or otherwise.
Once a PREC enters the picture, the T2125 mechanic does not disappear so much as move: the corporation, not the individual, becomes the entity earning and reporting the commission income, and the agent’s personal return instead reflects whatever salary or dividends the PREC pays out.
An agent’s brokerage-billed commission for the year totals $150,000. Deductible expenses — brokerage split, vehicle costs backed by a proper log, marketing, board and MLS fees, and E&O insurance — total $48,000. The T2125 nets these against each other to produce $102,000 of net business income, which is the figure that actually flows into the agent’s T1 and gets taxed, not the original $150,000 of gross commission.
See also: gross commission income, motor vehicle log and personal real estate corporation.
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