The rent deposit is the only deposit an Ontario landlord is allowed to collect, and it is not really yours. Section 105 of the Residential Tenancies Act, 2006 says the only security deposit a landlord may take is a rent deposit under section 106. That deposit is capped at one month of rent, it can only ever pay the last rent period of the tenancy, and it earns interest that you owe the tenant every year you hold it.
Most deposit problems we see are quiet ones. A landlord collects the deposit at lease signing, files it away, and forgets the interest. Years pass. The tenant moves out, does the math, and files at the Landlord and Tenant Board for the interest, or for a deposit that was collected over the cap or applied to damage. The amounts are small per year. They are also entirely avoidable, because every rule in this area sits in about three sections of the Act.
In Ontario, the rent deposit is the tenant’s last month of rent paid early. Hold it on those terms and the rules take care of themselves.
How much can an Ontario landlord collect as a rent deposit?
The cap is the lesser of one rent period and one month of rent (section 106(2) of the Act). For a monthly tenancy those two numbers are the same, so the deposit everyone calls “last month’s rent” is exactly one month. For a weekly tenancy, one rent period is smaller, so the cap is one week.
| How the rent is paid | Rent per period | Maximum rent deposit |
|---|---|---|
| Monthly | $2,000 per month | $2,000 (one month) |
| Every two weeks | $1,000 per period | $1,000 (one rent period, which is less than one month) |
| Weekly | $500 per week | $500 (one week) |
Timing matters as much as the amount. Section 106(1) lets you require the deposit on or before the day you enter into the tenancy agreement. If you forget to ask at signing, you cannot come back six months into the tenancy and ask then. The Landlord and Tenant Board’s Guide to the Residential Tenancies Act puts the same point in plainer words: the deposit is collected on or before the start of a new tenancy.
Two things the deposit is not. First, it is not the first month’s rent. First month is rent for the first period, collected because the tenant is about to live in the unit. The deposit is a separate payment held against the last period, which is why “first and last” adds up to two months of cash at signing and only one of them is a deposit. Second, the deposit is not a fee. It stays the tenant’s money in substance, and section 109 of the Act requires you to give a receipt for it, free of charge, whenever the tenant asks, including a former tenant who asks within 12 months after the tenancy ends. Our first-time landlord guide walks through the rest of the signing-day paperwork in order.
What can the rent deposit be used for?
One thing only. Section 106(10) requires the landlord to apply the deposit to the rent for the last rent period before the tenancy terminates. The Board’s Guide says it directly: the deposit cannot be used for anything else, such as repairing damage to the rental unit.
That single sentence decides most deposit disputes. The deposit cannot cover damage, cleaning, a broken lease, or arrears from earlier in the tenancy. While the tenancy runs, it sits untouched. When the tenant gives proper notice and leaves, their final period is already paid, and that is the deposit’s whole job. If the tenant leaves owing money for damage, the route is an application to the Landlord and Tenant Board for compensation, supported by photos, invoices and the inspection record. It is slower than reaching for the deposit. It is also the only route the Act gives you. Where the amount owing is unpaid rent rather than damage, our guide to the N4 to LTB timeline sets out that process step by step.
What interest do you owe on the rent deposit?
Interest, every year, at the rent increase guideline rate. Section 106(6) requires the landlord to pay interest on the deposit annually, at a rate equal to the guideline determined under section 120 that is in effect when the payment becomes due. The guideline is 2.1% for 2026 and 1.9% for 2027. On a $2,000 deposit, the interest that comes due in 2026 is $42.
Note what the section does not say. It does not set a separate, lower rate for units that are exempt from the guideline, such as units first occupied after November 15, 2018. The interest rate is the guideline rate either way, even where the guideline does not cap your increases. Landlords with newer units miss this most often, because nothing else about the guideline touches their rent.
If you do not pay the interest when it comes due, section 106(9) gives the tenant a self-help remedy: they may deduct the amount from a subsequent rent payment. A tenant who deducts without explanation looks, on a ledger, exactly like a tenant who short-paid the rent. Pay or credit the interest on each anniversary, record it, and tell the tenant what you did. A one-line email each year is the whole system. Our rent increase guide covers the guideline itself, including the 2.5% cap in section 120 and which units are exempt.
What happens to the deposit when the rent goes up?
You may top it up. Under section 106(3), when the lawful rent increases, the landlord may require the tenant to pay an additional amount that brings the deposit up to the new cap. A deposit collected at $2,000 can rise to $2,042 when the rent rises to $2,042.
Section 106(7) then gives you a tidier option than collecting $42 in cash. Instead of paying the annual interest out, the landlord may deduct from the interest payable the amount needed to bring the deposit to its permitted maximum, and the deducted amount is deemed to form part of the deposit. Run the common case through it:
| Item | Amount |
|---|---|
| Monthly rent, increased by the 2026 guideline of 2.1% | $2,000 to $2,042 |
| Deposit held | $2,000 |
| Interest owed for the year at 2.1% | $42 |
| Top-up needed to reach the new cap | $42 |
| Cash that changes hands if the interest is applied to the top-up | $0, and the deposit now stands at $2,042 |
Because the guideline percentage drives both the increase and the interest, the two numbers cancel in a guideline year, which is plainly what the offset in section 106(7) was designed for. The Board reads it the same way: in a 2026 order, a member treated a landlord’s unpaid annual interest as applied against the top-up shortfall after a rent increase and found no interest outstanding. Whichever route you take, interest paid in cash, interest applied to a top-up, or a top-up collected from the tenant, write it down. The disputes happen when nobody can show which one occurred.
What about key deposits and other move-in charges?
Start from the prohibition. Section 134(1) of the Act bars a landlord from collecting or requiring a fee, premium, commission, bonus, penalty, key deposit or other like amount from a tenant or prospective tenant, whether or not the money is refundable, unless a regulation provides otherwise. That one clause kills most of the charges landlords copy from other provinces or from commercial leasing: no damage deposit, no pet deposit, no cleaning deposit, no application fee, no holding fee.
A key deposit survives only because a regulation provides otherwise, and only in a narrow form. Ontario Regulation 516/06, section 17, permits a refundable deposit for keys, remote entry devices and access cards, in an amount no more than the reasonable cost of replacing them. Three limits follow. The amount tracks replacement cost, so a deposit sized like a damage deposit fails even if it is labelled “keys.” The money comes back when the keys and devices are returned. And it can only be kept for the replacement cost it was collected for, never held against damage or other money owing. The Board has ordered a key deposit returned in exactly that situation, where a landlord kept it against alleged damage; the damage claim had to travel on its own.
Two habits round out the signing-day rules. You cannot require post-dated cheques or automatic debit payments as a condition of the tenancy (section 108), although a tenant can offer them voluntarily. And if you have already collected something the Act does not allow, the tenant can apply to the Board under section 135 for an order repaying it. That application must be filed within one year after the money was collected, which means an old illegal charge fades, but a recent one comes back with a filing fee attached. Checking an applicant lawfully is a separate subject, covered in our guide to how to screen tenants in Ottawa.
What happens if the tenancy never starts, or the property sells?
If the tenant pays a deposit and vacant possession of the unit is never given to them, section 107(1) requires the landlord to repay it. The deposit is not a booking fee and cannot be kept as one. Section 107(2) covers the softer case: if the prospective tenant agrees instead to rent a different unit from the same landlord, the deposit moves to that unit, and any amount above what section 106 allows for the new unit is repaid.
A sale of the property changes the landlord, not the deposit. Under section 106(4), a new landlord cannot require the tenant to pay a rent deposit if the tenant already paid one to the previous landlord, and section 106(10) speaks of a deposit paid to the landlord “or to a former landlord,” so the money you inherit still has to land on the tenant’s last rent period. If you are buying a tenanted property, the deposit balance and the interest history belong in the closing adjustments, confirmed in writing: amount held, date collected, interest paid or credited to date. Inherited deposit records are the gap we most often have to reconstruct, and the reconstruction is guesswork nobody enjoys at a hearing.
Can you handle the deposit yourself?
Usually, yes. The deposit asks three things of a landlord: collect no more than the cap at signing, deal with the interest once a year, and resist spending the deposit on anything but the last rent period. A calendar entry on each tenancy anniversary and a one-line ledger note covers the first two. The third is discipline, and it is the same discipline the rest of Ontario’s system runs on, as our legal compliance guide sets out.
The case for handing it over is arithmetic, not fear. Every tenancy carries its own anniversary date, its own rate year, and its own top-up history after each increase. At one unit, that is a sticky note. At several doors, or where you live outside Ontario and someone else is signing tenants, anniversaries start getting missed, and missed interest is the kind of small, provable claim that shows up bundled into a larger dispute. RentSetGo’s full service property management tracks deposits alongside rent collection and increases, so the deposit record and the rent record never drift apart.
What this guide can’t tell you
It cannot tell you how a deposit moves on an assignment. Sections 105 to 107 speak to the start of a tenancy, to rent increases, and to a change of landlord. They do not set out how the deposit passes between an outgoing tenant and the person taking over their tenancy. In practice the two tenants settle the amount between themselves and the landlord keeps holding it against the same last rent period, but get the transfer written into the assignment consent, because the paper is what settles the argument later.
Care homes, mobile home parks and land lease communities run under their own parts of the Act, with their own deposit wording. This guide is about the standard residential tenancy. And no guide can substitute for your own records: when a deposit is disputed, the Board works from receipts, ledgers and emails, not from either side’s memory of a signing that happened years earlier.
The Bottom Line
Collect one deposit only, at or before signing, capped at the lesser of one rent period and one month of rent. Pay or credit interest on it every year at the guideline rate, 2.1% for amounts due in 2026 and 1.9% for 2027, and when the rent rises, either collect the top-up or apply the interest against it under section 106(7) and note which one you did. Keep any key deposit refundable and no larger than real replacement cost. Spend the rent deposit on exactly one thing, the last rent period, and take damage claims to the Board instead. Do those five things and the deposit never becomes a story.
Frequently Asked Questions
How much can an Ontario landlord charge as a last month’s rent deposit?
No more than the lesser of the rent for one rent period and one month of rent, under section 106(2) of the Residential Tenancies Act, 2006. For a monthly tenancy that is one month of rent. For a weekly tenancy it is one week of rent, because one week is less than one month.
When can a landlord collect the rent deposit?
On or before the day the tenancy agreement is entered into, under section 106(1). A landlord who did not require the deposit at signing cannot require it partway through the tenancy.
Can the last month’s rent deposit be used for damage or cleaning?
No. Section 106(10) requires the deposit to be applied to the rent for the last rent period before the tenancy terminates, and the Landlord and Tenant Board’s Guide confirms it cannot be used for anything else, such as repairing damage. Damage is claimed through an application to the Board.
How much interest does a landlord owe on a rent deposit?
Interest is payable annually at the rent increase guideline rate in effect when the payment becomes due, under section 106(6). That is 2.1% for payments due in 2026 and 1.9% for 2027, so a $2,000 deposit earns $42 of interest in a 2026 year. If the landlord does not pay it, section 106(9) lets the tenant deduct the amount from a later rent payment.
Can a landlord make a tenant top up the deposit after a rent increase?
Yes. Section 106(3) allows the landlord to require an additional amount that brings the deposit up to the new maximum after a lawful rent increase. Section 106(7) also lets the landlord apply the annual interest against that top-up instead of paying the interest out, in which case the deducted amount forms part of the deposit.
Is a key deposit legal in Ontario?
Yes, in one narrow form. Ontario Regulation 516/06, section 17, permits a refundable deposit for keys, remote entry devices and access cards, no more than the reasonable cost of replacing them. It must be returned when the keys are returned, and it cannot be kept to cover damage or other money owing. Other deposits, including damage, pet and cleaning deposits, are prohibited by section 134 of the Act.
What happens to the deposit if the tenant never moves in?
The landlord must repay it. Section 107(1) requires repayment of a rent deposit where vacant possession of the unit is not given to the prospective tenant. If the person instead takes a different unit from the same landlord, section 107(2) lets the landlord apply the deposit to that unit and repay any excess above the permitted amount.
Signing a new tenant and want the deposit handled right the first time?
RentSetGo Property Management runs lease-up for Ottawa landlords on the rules in this article: the deposit collected at the section 106 cap and receipted, interest paid or credited on every tenancy anniversary, top-ups handled with each rent increase, and key deposits kept refundable and inside the regulation. The deposit record sits with the rent ledger, so a move-out never starts with an argument about money from three years ago.
Tell us the unit and the move-in date, and we will send back your signing-day checklist: what to collect, what to refuse, and what to calendar for the first anniversary.
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Related Reading
- First-time landlord guide for Ottawa
- How to screen tenants in Ottawa
- Tenant not paying rent in Ontario? The N4 to LTB timeline
- Ontario rent increases and the guideline
- Landlord legal compliance in Ontario
- Residential Tenancies Act, 2006 (e-Laws)
- Landlord and Tenant Board: A Guide to the Residential Tenancies Act
This article is general information about Ontario’s rent deposit rules, not legal advice. It was prepared on October 21, 2026, from the Residential Tenancies Act, 2006 (e-Laws consolidation current from September 21, 2026), Ontario Regulation 516/06, and the Landlord and Tenant Board’s Guide to the Residential Tenancies Act. Interest figures use the Ontario rent increase guideline of 2.1% for 2026 and 1.9% for 2027; the worked examples use a hypothetical $2,000 monthly rent and are illustrations, not any tenant’s records. Dollar amounts, guideline rates and forms change; confirm the current versions before you collect, top up or refund a deposit, and consult a licensed paralegal or lawyer for advice about a specific tenancy.
