First and Last Month's Rent in Ontario: A Landlord Guide to Deposits and Interest

Collecting first and last month's rent is legal in Ontario, but only the last month's rent counts as a deposit, and it comes with rules. You can hold no more than one month's rent, you must pay your tenant interest on it every year, and you can only use it for the final month of the tenancy.

Short Answer: Ontario landlords can collect only a last month's rent deposit, of up to one month's rent, and a refundable key deposit. Interest on the rent deposit is due every year at the guideline rate: 2.1% in 2026 and 1.9% in 2027. Neobanc helps landlords keep those records straight by showing whether each tenant has paid.

With Neobanc, landlords can easily see whether each tenant has paid in a clear payment dashboard, for free, while rent keeps arriving by Interac e-Transfer.

Which Deposits Ontario Landlords Can Collect

The Residential Tenancies Act, 2006 limits what you can take from a new tenant. According to CLEO, a landlord is only allowed to ask for a rent deposit and a key deposit.

The first month's rent you collect at signing is not a deposit. It's simply rent paid in advance for the first rental period.

How to Collect First and Last Month's Rent

You can only require a rent deposit on or before the day you enter into the tenancy agreement. You can't add one partway through a tenancy.

• Cap the amount. The deposit can't be more than one month's rent for a monthly tenancy, or one period's rent if rent is paid more often.
• Put it in the lease. The Ontario Standard Lease has a section for the rent deposit and another for any key deposit.
• Give a receipt. A tenant can ask for a free receipt for the deposit, like any other payment. Our rent receipt guide for landlords has a template.
• Return it if the tenancy never starts. If a prospective tenant pays a deposit and then doesn't move in, the deposit generally has to be repaid.

Paying Interest on the Last Month's Rent Deposit

Every year, you owe your tenant interest on the rent deposit. The Landlord and Tenant Board sets the rate as the rent increase guideline in effect when the interest is due.

The 2026 and 2027 rates match Ontario's rent increase guideline. The 2027 guideline of 1.9% applies to interest that comes due on or after January 1, 2027.

Mark each tenant's anniversary date and pay or apply the interest then. If a landlord doesn't pay it, the tenant can deduct the interest owed from a rent payment, which can lead to confusion over whether rent was paid in full.

Topping Up the Deposit After a Rent Increase

When the rent goes up lawfully, the deposit no longer covers a full month. You can ask the tenant to top it up to the new rent, and you can keep the year's interest and apply it toward that top-up instead of paying it out.

Because the interest rate and the guideline are the same number, a guideline increase and the interest often cancel out. Here's how it works for a unit renting at $2,000 a month with a $2,000 deposit:

1. In 2027, you raise the rent by the 1.9% guideline, with at least 90 days' written notice on an N1 form. The new rent is $2,038.
2. The deposit needs to grow by $38 to match one month's rent.
3. The interest you owe for 2027 is also $38 (1.9% of $2,000).
4. You keep the $38 interest and add it to the deposit. The deposit is now $2,038, and nothing changes hands.

If the increase is smaller than the guideline, pay the tenant the difference between the interest and the top-up. Our landlord guide to 2027 rent increases covers the notice rules and exemptions.

Using the Deposit at the End of the Tenancy

The rent deposit can only be applied to the rent for the last rental period before the tenancy ends. Once a tenant gives notice, for example on an N9 form, the deposit covers their final month and they pay rent up to the month before.

You can't use it for anything else. Repairs, cleaning, damage beyond normal wear and tear and unpaid utilities all have to be pursued separately, through the Landlord and Tenant Board or Small Claims Court.

A refundable key deposit works differently. Return it when the tenant hands back every key and fob, or keep only what it costs to replace the ones that are missing.

Charges You Can't Ask For

Some requests are common but not allowed under the Act. Avoid them, because a tenant can apply to the Landlord and Tenant Board to get the money back:

• A damage, security or pet deposit, under any name
• A deposit larger than one month's rent
• Post-dated cheques or automatic payments as a condition of renting. A tenant can choose them, but you can't require them
• A key deposit that's higher than the cost of replacement keys or isn't refundable

Keeping Track of Rent and Deposits With Neobanc

Deposits, interest dates and top-ups all depend on clean payment records. Neobanc's Landlord Partner Program helps with that part:

• See who has paid. You can easily see whether each tenant has paid in a clear payment dashboard.
• Rent still arrives one way. Tenants can pay by free Interac e-Transfer or by credit card, and you still receive a single Interac e-Transfer.
• Free to join. There are no setup or monthly fees, no lease changes and no paperwork.
• Earn a referral reward. You get a unique link to share with tenants and earn a percentage of rent payments every month, for as long as referred tenants keep paying through Neobanc. Your tenants earn their own cashback on eligible rent payments.

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Bottom Line

In Ontario, first and last month's rent is legal, but the last month's rent is the only deposit you can hold besides a refundable key deposit. It's capped at one month's rent, earns interest at the guideline every year (1.9% for 2027) and can only cover the tenant's final month.

Keep the deposit, the interest dates and every top-up on record. Neobanc makes the payment side simple: you can easily see whether each tenant has paid, rent still arrives by Interac e-Transfer, and joining is free. Learn more on the Neobanc landlord page.