Last Month's Rent Deposit in Ontario: Collection, Interest, and Top-Up Rules

For an Ontario residential tenancy covered by the RTA, a rent deposit is reserved for the final rent period. The landlord owes annual interest at the applicable rent-increase guideline rate, and a lawful rent increase can create a permitted deposit top-up.

The collection limit

RTA section 106 allows a landlord to require a rent deposit on or before entering into the tenancy agreement. The maximum is the lesser of one rental period's rent and one month's rent. For a weekly tenancy, that means no more than one week's rent.

The first rent payment and a last-period deposit serve different purposes. The deposit is not a pool for damage, cleaning or pet-related costs. A separately permitted refundable key deposit has its own replacement-cost limit.

Which interest rate applies?

Interest on the rent deposit is payable annually. The statutory rate is the rent-increase guideline in effect when the interest payment becomes due. It is not the Bank of Canada policy rate or the interest earned by a particular bank account.

The LTB's T1 instructions illustrate the calculation as deposit amount multiplied by the applicable guideline percentage for a full year. If the amount or relevant period changes, the calculation needs to reflect the actual account rather than copying a generic annual example.

Interest and a top-up must be reconciled

If lawful rent increases, the landlord may require an additional amount to bring the deposit up to the permitted maximum. Section 106(7) allows interest owed to be applied toward that shortfall.

The credit is not automatically equal to every requested top-up. The statement should show the deposit already held, the new permitted amount, interest owed and the amount of interest applied. Any remaining interest obligation or lawful shortfall should remain visible.

A simple illustration

Suppose a deposit is $2,000, the relevant full-year interest rate is a hypothetical 2%, and lawful monthly rent rises to $2,040. The interest is $40 and the deposit shortfall is $40, so applying that interest can bring the deposit to $2,040 without another $40 payment.

This is an arithmetic illustration, not a statement of the current guideline or the rate for a particular tenancy. Different timing, rent or deposit amounts can produce a different result.

At the end of the tenancy

The rent deposit must be applied to rent for the last rent period before the tenancy terminates. It does not become a damage deposit at move-out. Disputed termination dates, arrears or compensation can require a separate calculation; an inspection alone does not authorise deductions.

The account should show where the deposit was applied and how any outstanding interest was handled. That is more informative than a single unexplained final balance.

Keep the deposit history available

Receipts, changes in lawful rent, annual interest calculations and credits help explain the balance throughout a tenancy. The RTA requires a free receipt when one is requested; the LTB guide also explains the rules for requests from former tenants.

Unpaid deposit interest is one of the specified reasons for a T1 application. Current LTB instructions should be consulted for a dispute, rather than assuming that every shortfall can simply be offset against an unrelated charge.

Devon Moore, Operations Lead Co-Founder & Operations Lead — D&D Property Management

Devon Moore is the co-founder and Operations Lead at D&D Property Management, managing rental properties across Kitchener-Waterloo, Cambridge, Guelph and Waterloo Region.