How Ontario’s Last Month’s Rent Deposit Really Works: One Month Max, Interest Owed, Not a Damage Deposit
Your landlord owes you interest each year at the rent-increase guideline — 2.1% in 2026. Both tenants and landlords routinely get these rules wrong.
What are Ontario’s last month’s rent deposit rules, and how much can a landlord collect?
In Ontario, the only deposit a landlord may collect is a last month’s rent deposit — at most one month’s rent for a monthly tenancy — and it can be applied only to the final month’s rent. It cannot be used for damage, cleaning, or arrears; damage, security, and pet deposits are all illegal in Ontario. In addition, the landlord must pay the tenant interest on the deposit each year, at a rate equal to that year’s rent-increase guideline — per Ontario, the 2026 guideline is 2.1%. If a landlord collects an illegal deposit, the tenant can apply to the LTB (Landlord and Tenant Board) to recover it.
Sources: Ontario Residential Tenancies Act and Ontario.ca on deposits and interest; 2026 rent-increase guideline of 2.1% (ontario.ca).
Deposits are the most misunderstood — and most often mishandled — part of renting, especially for tenants and landlords arriving from other provinces or countries who bring “damage deposit” and “security deposit” habits that simply don’t apply in Ontario. Ontario’s rules are actually clear and quite tenant-protective: there’s only one kind of deposit (last month’s rent), with hard rules on amount, use, and interest. Here’s how much can be collected, how to handle the interest, what can’t be collected, and what to do if an illegal deposit was taken — useful for tenants and landlords alike.
→
→
→
Ontario recognizes one deposit: last month’s rent
This is the core point: in Ontario, the only deposit a landlord may lawfully collect is a last month’s rent deposit, usually taken at or before the start of the tenancy. Its cap is one rent period’s rent — at most one month for a monthly tenancy, or one week for a weekly tenancy. The familiar “first and last” is the actual first month’s rent plus this last-month deposit, two months in total. Beyond that, a landlord cannot collect any other “deposit” under any label.
⚠️In Ontario, damage, security, and pet deposits are all illegal. A landlord may collect only a last month’s rent deposit of up to one month, usable only for the final month’s rent. Asked for a damage deposit, a tenant can decline — and can apply to the LTB to recover any illegal deposit already paid.
Step 1: It can only be applied to the last month’s rent
ℹ️Don’t forget deposit interest: the landlord must pay it each year at that year’s rent-increase guideline (2.1% in 2026) on the last-month deposit. A common practice is to offset it against the top-up owed when rent rises. It’s the tenant’s legal right — don’t leave it on the table.
Step 2: The landlord owes interest each year — 2.1% in 2026
Step 3: These deposits are all illegal in Ontario
What to do if an illegal deposit was collected
If a landlord has already collected an illegal deposit such as a damage deposit, the tenant can apply to the LTB (Landlord and Tenant Board) — typically with a T1 application — to recover the money, along with any unpaid deposit interest. Practical tip: keep receipts, e-transfer records, the lease, and communications as evidence. For landlords, rather than being ordered to repay later plus interest, it’s simpler to collect only the last month’s deposit from the start — compliant, and free of disputes.
💡 Ontario’s three deposit rules: only one kind (last month’s rent), only one use (the final month’s rent), and interest owed every year (2.1% in 2026). Damage, security, and pet deposits are all illegal. Tenants: claim your deposit interest and refuse improper deposits. Landlords: collect only by the rules and pay interest on time. Get this right and one of the most common sources of friction in a tenancy largely disappears.
Frequently Asked Questions
How much deposit can an Ontario landlord collect?
Only a last month’s rent deposit — at most one month’s rent for a monthly tenancy (one week for a weekly tenancy) — usable only for the final month’s rent. The familiar “first and last” is the actual first month’s rent plus this last-month deposit. No other deposit, under any label, may be collected.
Can the last month’s deposit be used for damage?
No. In Ontario the last month’s deposit can legally be applied only to the final month’s rent — not to damage, cleaning, or arrears. If a landlord suffers a loss from damage, they must pursue it through the LTB process rather than deducting from this deposit.
Does the landlord owe interest on the deposit, and at what rate?
Yes. The landlord must pay annual interest on the held last-month deposit at a rate equal to that year’s rent-increase guideline; per Ontario, that’s 2.1% in 2026. In practice it’s often credited against the top-up a tenant owes when rent is lawfully increased. Tenants are entitled to claim it.
The landlord took a damage deposit — can I get it back?
Yes. Damage deposits are illegal in Ontario, and a tenant can apply to the LTB (Landlord and Tenant Board) — usually with a T1 — to recover the money, along with any unpaid deposit interest. Keep receipts, transfer records, and the lease as evidence.
Arthur Zhao
Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
Get expert answers on buying, selling, and renting in the GTA
Discover more from GTA Real Estate Broker | Arthur Zhao
Subscribe to get the latest posts sent to your email.
