You did the work. You crawled under houses, wired panels in the cold, fixed furnaces at 2 a.m. Now the CRA wants its cut, and the difference between a $2,000 refund and a $4,000 bill often comes down to whether you filed your T2125 properly.
If you’re a plumber, electrician, HVAC tech, or any tradesperson doing side jobs or full-time contracting, this guide walks you through exactly what to claim, what to track, and what deadlines matter.
The document checklist you need before you start
Sit down with a box (or a grocery bag, no judgment) and pull together these documents before you touch your return:
- T4 slips from any employer or union hall that paid you as an employee during the year
- Invoices and payment records for every contracting or side job you did on your own
- Tool receipts. Every drill, pipe wrench, multimeter, and set of bits. Separate them into under $500 and over $500 (more on why below)
- Vehicle records: mileage log, gas receipts, insurance, repairs, and your lease or loan docs
- Union dues statement. Your local should send this, but check your pay stubs if they don’t
- Licence and certification renewal receipts: Red Seal exam fees, ESA or TSSA renewals, safety certifications
- Training and course receipts: continuing education, code update courses, first aid recertification
Missing receipts is where money gets left on the table. If you spent $3,000 on tools and can only prove $1,200, you just lost $1,800 in deductions.
The T4 + T2125 combo most tradespeople deal with
This catches a lot of trades workers off guard: you might need to file both a T4 and a T2125.
If you worked for a company or through a union hall as an employee, that income shows up on your T4. Your employer already deducted CPP, EI, and income tax.
But if you also did contracting on the side (weekend jobs, after-hours calls, subcontracting for a buddy’s company), that’s self-employment income. It goes on your T2125 (Statement of Business or Professional Activities), and none of it has tax withheld.
A lot of tradespeople only report the T4 and skip the T2125 entirely. That’s how you end up with a CRA reassessment and a penalty. Report both.
T2125 for trades: the math from gross to net
Your T2125 is where you report your self-employed contracting income and subtract your business expenses. The basic flow:
Gross income (everything clients paid you)
Minus your deductions:
- Tools and equipment
- Vehicle expenses (business portion)
- Union dues
- Trade licences and certifications
- Liability and tool insurance
- Materials and supplies (pipe, wire, fittings, solder, anything you supplied on a job)
- Subcontractor payments (if you hired someone to help on a job, that’s deductible)
= Net self-employment income (this is what you owe tax on)
The more legitimate expenses you track, the lower your net income, and the less tax you pay. It’s not about being aggressive. It’s about not leaving money behind. For a deeper walkthrough of the T2125 itself, see our freelance taxes guide.
The $500 tool threshold that changes everything
This is the one most tradespeople get wrong, and it costs them.
Tools under $500 are treated as fully deductible supplies. You buy a $180 impact driver? Deduct the full $180 this year. A $90 set of hole saws? Full deduction. These go on your T2125 as supplies or small tools.
Tools over $500 are treated as capital assets. You bought a $2,400 threading machine or a $1,800 laser level? You can’t deduct the full amount in one year. Instead, you claim it through CCA (Capital Cost Allowance), the CRA’s version of depreciation. Most tools fall into CCA Class 8, which lets you deduct 20% of the declining balance each year.
Go through your tool receipts and sort them into two piles. Under $500 and over $500. Your tax software (or your accountant) needs them separated.
| Tool cost | How to deduct | Where it goes |
|---|---|---|
| Under $500 | Full deduction in the year purchased | T2125 Line 8811 (Supplies) |
| Over $500 | CCA depreciation over multiple years | T2125 CCA schedule (Class 8, 20%) |
Your truck is a tax deduction (but there are limits)
Your work truck or van is probably your biggest asset and your biggest potential deduction. But the CRA has rules.
CCA on vehicles is capped at approximately $30,000 (plus tax) for passenger vehicles. If you bought a $65,000 truck, you can only depreciate based on $30,000. Work vans classified as motor vehicles (not passenger vehicles) may have different limits. Check with your accountant if your van is primarily a rolling toolbox, not a commuter vehicle.
Business-use percentage is critical. If you drive your truck 40,000 km in a year and 28,000 km are for work, your business-use percentage is 70%. You can only claim 70% of your vehicle expenses.
You need a mileage log. The CRA can (and does) deny vehicle claims without one. Record the date, destination, purpose, and kilometres for every work trip. Our vehicle expenses guide covers exactly how to set this up.
The expenses you can claim (at your business-use percentage):
- Gas and oil
- Insurance
- Repairs and maintenance
- Licence and registration
- Loan interest (not principal) or lease payments
- Car washes
- Parking (not fines)
Union dues, licences, and certifications
These are straightforward deductions that a surprising number of tradespeople forget to claim.
Union dues are deductible on Line 21200 of your personal return if you’re an employee, or as a business expense on your T2125 if you’re self-employed. If you’re both (T4 + T2125 situation), make sure you’re not double-claiming.
Trade licences (your ESA licence for electricians, TSSA registration for gas fitters, provincial plumbing licence) are deductible as business expenses.
Red Seal exam fees and certification renewals are deductible. So are mandatory safety courses like Working at Heights, WHMIS, and first aid.
Continuing education related to your trade is deductible too. Code update courses, new technology training, manufacturer certification programs. If it’s directly related to your trade, claim it.
CPP: the self-employment surprise
If all your income comes from a T4 employer, CPP is split: your employer pays half, you pay half, and you never think about it.
On your self-employed income, you pay both halves. That’s 9.9% of your net self-employment income (up to the yearly maximum). On $60,000 of net self-employment income, that’s roughly $5,940 in CPP alone, before income tax.
This is why setting aside 25-30% of your contracting income for taxes isn’t being paranoid. It’s being realistic. The CPP hit alone eats almost 10%, and then income tax stacks on top. If you’re also collecting GST/HST, make sure you’re setting that aside separately. It’s not your money.
Deadlines: June 15 to file, April 30 to pay
Self-employed Canadians get an extended filing deadline: June 15. But any tax you owe is still due April 30.
That means if you wait until June to file your return and you owe money, you’ll get hit with interest charges backdated to May 1. The filing extension doesn’t extend the payment deadline.
File early, or at least estimate what you owe and pay by April 30 even if your return isn’t done yet. You can always adjust later.
| Deadline | What’s due |
|---|---|
| April 30 | Tax balance owing (payment due) |
| June 15 | T1 return filing deadline (self-employed) |
Let Accountly handle the sorting
Accountly auto-sorts your tool purchases under and over $500, tracks your vehicle mileage and business-use percentage, and calculates CCA on your capital assets. Snap a photo of a receipt and it lands in the right category. When tax season hits, your T2125 numbers are already done.
Get started free. It takes about five minutes.
Frequently asked questions
Do I need to file a T2125 if I only did a few side jobs?
Yes. Any self-employment income, even $500 from a weekend plumbing call, needs to be reported on a T2125. There’s no minimum threshold. The good news is you can also deduct expenses against that income, which often brings the tax owed close to zero on small amounts.
Can I deduct tools I bought in previous years but never claimed?
You can file a T1 adjustment for up to 10 prior years. If you bought a $3,000 tool set three years ago and never claimed CCA on it, you can go back and add it. For tools under $500 that you expensed, you’d need to adjust the return for the year you bought them.
What if I use my personal truck for work but don’t have a mileage log?
The CRA can deny your entire vehicle claim without a log. If you don’t have one for this year, start now and reconstruct what you can from calendar entries, GPS history, and job records. Going forward, keep a log. Even a simple spreadsheet works.
Do I charge GST/HST on my contracting work?
If your revenue from self-employed contracting exceeds $30,000 in any 12-month period, you must register for and charge GST/HST. Below that threshold, registration is optional. See our GST/HST registration guide for the full breakdown.
Can I deduct steel-toed boots and work clothing?
Safety equipment required by regulation (steel-toed boots, hard hats, safety glasses, fire-resistant clothing) is deductible. Regular clothing, even if you only wear it to job sites, generally is not, unless it has a logo and qualifies as a uniform.
How much should I set aside from each contracting payment for taxes?
A safe rule is 25-30% of your gross self-employment income. That covers income tax plus both halves of CPP. If you’re also collecting GST/HST, set that aside separately on top of the 25-30%.
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