Ontario Landlord Guide › Last month's rent deposit in Ontario: the rules and the yearly interest

Last month's rent deposit in Ontario: the rules and the yearly interest

Last updated October 22, 2026 · Written for small Ontario landlords

In Ontario the only deposit a landlord can take to secure a tenancy is a rent deposit, usually called last month's rent. It can't be used for damage, it's capped at one month, and you owe the tenant interest every year. Here's how to handle it cleanly for a basement unit or room.

This is general information, not legal advice. Check the official sources linked below before you act.

The rules in one box (RTA ss. 105 to 107)

A rent deposit is the only security deposit allowed. No damage deposit, pet deposit or "cleaning deposit".
You must ask for it on or before entering into the tenancy agreement.
Maximum: one month's rent (or one week's, for weekly rent), whichever is less.
It can only be used for the last rent period before the tenancy ends.
You pay the tenant interest every year at the rent increase guideline in effect when the payment is due: 2.1% for 2026, 1.9% for 2027.

Does this apply to your room?

These rules come from the Residential Tenancies Act. If your renter shares a kitchen or bathroom with you as the owner (or your spouse, child or parent living there), the RTA usually doesn't apply, so these deposit rules don't either; your written room agreement does. Many room landlords follow the RTA approach anyway because it's clear and fair. A self-contained basement suite is covered by the RTA. See renting rooms in your home.

What you can and can't collect

Charge	Allowed under the RTA?
Last month's rent deposit, up to one month	Yes, if you ask on or before signing.
First month's rent	Yes. That's rent, not a deposit.
Damage or security deposit	No. The rent deposit is the only security deposit allowed (s. 105), and ontario.ca says a lease term requiring a damage or pet deposit is void.
Pet deposit	No.
Key deposit	Only a refundable one, limited in amount. See our move-in checklist.
Fees, premiums or "holding fees"	Generally no (RTA s. 134).

If the unit isn't handed over to the prospective tenant, you must return the deposit (s. 107), unless they agree to rent a different unit from you instead.

Interest: how much, and when

RTA s. 106(6) says you pay interest annually on the deposit at the guideline rate in effect at the time the payment becomes due. Recent guidelines from ontario.ca:

Interest payment due in	Rate	On a $1,000 deposit	On a $1,450 deposit
2026	2.1%	$21.00	$30.45
2027	1.9%	$19.00	$27.55

You can pay it in cash or e-transfer, or credit it against rent. If you don't pay it when it's due, the tenant can deduct it from a later rent payment (s. 106(9)).

Topping up the deposit when rent goes up

When the lawful rent goes up, you can ask the tenant to top up the deposit so it again equals one month's rent (s. 106(3)). You can also keep the interest you owe as the top-up; the kept amount becomes part of the deposit (s. 106(7)).

Worked example (2027): rent $1,200, deposit $1,200. On the anniversary in 2027 you raise the rent by the 1.9% guideline to $1,222.80, with a proper N1 given at least 90 days earlier. Interest owed on the deposit at 1.9% = $22.80. The top-up you're allowed to ask for is also $22.80 ($1,222.80 − $1,200). Keep the $22.80 interest as the top-up: the deposit is now $1,222.80, and nobody pays anyone. Write it down and give the tenant a receipt showing the new deposit balance.

If you don't raise the rent that year, there's no top-up to offset, so you pay the interest to the tenant.

At the end of the tenancy

The deposit pays the rent for the last rent period (s. 106(10)). The tenant doesn't pay rent for that month; the deposit covers it.
You can't keep it for damage, cleaning or unpaid utilities. For those, use your move-in and move-out evidence and, if needed, an LTB application (for example an L10 for a former tenant).
A rent deposit is not "rent" for an N4. Don't include it in N4 arrears. See the N4 guide.
Before sending the last month's receipt, check you've paid or credited every year's interest.

Receipts

You must give a receipt for a rent deposit if the tenant asks, and for free (RTA s. 109). It's simplest to give one every time: when you collect the deposit, each year when you credit interest or a top-up, and when it's applied to the last month. See Ontario rent receipt rules.

Keep deposit talk fair

Ask every applicant for the same deposit on the same terms. Asking for a bigger deposit, or a deposit at all, only from some applicants because of things like family status, age, place of origin or receipt of public assistance can breach the Human Rights Code. A larger "security deposit" isn't allowed under the RTA anyway.

The toolkit's Rent & Expense Tracker has a guideline lookup (2.1% 2026 / 1.9% 2027) and a rent ledger with a running balance, so you can log each year's deposit interest and top-up next to the rent.

Official sources

Not legal advice. This site is general information written by a small Ontario landlord, based on official Ontario and Tribunals Ontario sources as of October 22, 2026. Laws and LTB forms change; check the linked official source before you act, and talk to a lawyer or licensed paralegal (or call the LTB at 1-888-332-3234) about your situation. Not affiliated with the Government of Ontario, Tribunals Ontario or the Landlord and Tenant Board. Full disclaimer.