Ontario Rent Deposit Rules: What You Can (and Can't) Collect

The Only Deposit You Can Legally Collect

Let's get this out of the way. Under the Residential Tenancies Act (RTA), Ontario landlords can collect exactly two things at move-in:

1. Last month's rent deposit (equal to one month's rent)
2. A refundable key deposit (equal to the actual cost of replacing the keys)

That's it. No security deposit. No damage deposit. No cleaning fee. No "move-in admin fee." No pet deposit. If you're collecting anything beyond these two items, you're breaking the law.

First month's rent is not a deposit. It's rent for the first month. You collect it because the tenant is about to live in your unit. The last month's rent deposit is the only actual deposit the RTA allows.

What's Legal vs Illegal

The most common scam new landlords fall for? Someone tells them to collect "first and last plus a security deposit." That third payment is illegal. The tenant can file a T1 application at the LTB to get it back. And the LTB will order you to return it.

Last Month's Rent: The Rules

The last month's rent deposit is the bread and butter of Ontario landlord deposits. But there are rules that catch people off guard.

It must equal exactly one month's rent.If rent is $2,000/month, the deposit is $2,000. Not $2,500. Not $3,000 "for safety." One month. Period.

It must be applied to the tenant's final month of rent. This is non-negotiable. When the tenant gives proper notice and their last month arrives, you apply the deposit. You don't get to keep it in a separate account and then also charge them for the last month. The deposit is the last month.

You cannot use it for damages, cleaning, or anything else.This is the rule that frustrates landlords the most. Your tenant trashed the place and you're sitting on a deposit that covers exactly one month of rent. You want to use it for repairs. You can't. Not without their written consent. More on that below.

You owe interest on it every year. Yes, really. The province sets the rate. You have to pay it. Most landlords forget this one.

The Interest You Owe on the Deposit

Every year, on the anniversary of the tenancy, you owe the tenant interest on the last month's rent deposit. The interest rate is the same as the annual rent increase guideline set by the province.

For 2026, that rate is 2.1%.

Here's what that looks like with real numbers:

If you don't pay the interest, your tenant has the legal right to deduct the owed interest from their rent. They don't need your permission. They don't need to file at the LTB. They just reduce their rent payment by the interest amount and they're within their rights.

If rent increases beyond what the interest covers, you can ask the tenant to top up the deposit to the new rent amount. Most landlords use the interest to partially close the gap and ask the tenant for the remainder.

Key Deposits

You can collect a key deposit, but it's not a profit centre. The rules are strict.

The deposit must equal the actual cost of replacing the key. If you use a standard key that costs $5 to cut at the hardware store, your key deposit is $5. Not $50. Not $200. If you have a fob system and replacement fobs cost $75 each from your supplier, then $75 is your deposit per fob.

It's fully refundable.When the tenant returns the keys at the end of the tenancy, you give the deposit back. In full. No deductions for "wear and tear" on a key.

Keep a receipt. If a tenant challenges your key deposit amount at the LTB, you need proof of what key replacement actually costs. An invoice from your locksmith or supplier is enough.

What About Damages?

This is the part that makes Ontario landlords want to throw things. You can't use the deposit for damages. You can't hold it back. You can't deduct repairs. The deposit is for rent and rent only.

So what do you do when a tenant leaves and the unit looks like a demolition site?

Option 1: Get the tenant's written consent.If the tenant agrees in writing to let you deduct damage costs from the last month's rent deposit, you can do it. Get this in writing. An email works. A text works. A signed letter works. Verbal agreement works legally but is impossible to prove later.

Option 2: File at the LTB.If the tenant won't consent (and most won't), you file a claim at the Landlord and Tenant Board. You'll need photos, repair estimates, and your move-in condition report. The LTB can order the tenant to pay. But you have to go through the process.

There is no Option 3. You cannot just keep the deposit. You cannot deduct without consent. Ontario law does not give landlords a self-help remedy for damage. This is why move-in condition reports with photosare critical. Without documentation, you're going into the LTB with nothing.

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