# Tax on rental deposit



## AirPro (Mar 31, 2014)

I know that the deposit will turn into income in the tenants last month but do I have to pay tax on this deposit in the year that it is received (start of tenancy) or can it be deferred until the tenants last month?


----------



## Just a Guy (Mar 27, 2012)

You should not consider the damage deposit as the last months rent...unless you're collecting first and last months rent plus a damage deposit.


----------



## AirPro (Mar 31, 2014)

To clarify, this is in Ontario.

Rent deposit = last months rent.

No damage deposit allowed.

Should it be filed as income when it's received or at the last month of the tenancy?


----------



## domelight (Oct 12, 2012)

AirPro said:


> I know that the deposit will turn into income in the tenants last month but do I have to pay tax on this deposit in the year that it is received (start of tenancy) or can it be deferred until the tenants last month?


Taxed when the income is realized. Meaning report the income when the tenants move out and consume the last months rent. Don't forget you are required to pay interest on the rent deposit to the tenant.


----------



## carverman (Nov 8, 2010)

domelight said:


> Taxed when the income is realized. Meaning report the income when the tenants move out and consume the last months rent. Don't forget you are required to pay interest on the rent deposit to the tenant.


I would think that by the time you pay tax on the last months rent (declared as income on next years taxes) and thr interest on it as part of the last months rent,
there may not be much left of that last months rent.


----------



## Eclectic12 (Oct 20, 2010)

Hmmm ... income is income, whether it's current rent coming in or last month's rent plus interest being consumed. Unless there's something temporarily pushing one into a different tax range where the last month's rent is being taxed more heavily - I would think it would be a wash.

After all, there's current rent bumping things up ... sure the interest is going to add a bit but likely won't push one into the next bracket (or amount to much at current rates).


Cheers


----------



## domelight (Oct 12, 2012)

Eclectic12 said:


> Hmmm ... income is income, whether it's current rent coming in or last month's rent plus interest being consumed. Unless there's something temporarily pushing one into a different tax range where the last month's rent is being taxed more heavily - I would think it would be a wash.
> 
> After all, there's current rent bumping things up ... sure the interest is going to add a bit but likely won't push one into the next bracket (or amount to much at current rates).
> 
> ...


 Last month rent is a customer deposit, which is a liability on the balance sheet. Interest paid on the customer deposit is what the province of Ontario laws state is required in this situation. You also need to remember that the interest paid is for the landlords use of the tenant's money, even if you did report the last month rent on the current year income tax this would not change the fact that interest would need to be paid to the tenant until the last month rent was actually consumed. Although I thoroughly enjoy twisting tax law to benefit the taxpayer. The accounting principals, ITA and provincial rental laws are quite clear on this one. and yes the interest paid to the tenant is also a tax deduction.


----------



## AirPro (Mar 31, 2014)

domelight said:


> Last month rent is a customer deposit, which is a liability on the balance sheet. Interest paid on the customer deposit is what the province of Ontario laws state is required in this situation. You also need to remember that the interest paid is for the landlords use of the tenant's money, even if you did report the last month rent on the current year income tax this would not change the fact that interest would need to be paid to the tenant until the last month rent was actually consumed.


Thanks , this is a great explanation. It should really be viewed like a loan then?


----------



## Silverbird (Mar 5, 2013)

basically they have prepaid the last month to you. 

So it is like a loan or A/P amount on your books and a PPD on the tenant's books (if they were a business). For both of you it's only income/expense when the last month eventually occurs.


----------

