# Rent/security deposit reported in year of receipt?



## digitalatlas (Jun 6, 2015)

Hi,

Regarding rental income, when I sign a new tenant, my property manager has taken first and last (security deposit) month's rent. Now, is all of this reported in the year that it's received?

Let's say rent is 1500, so I receive 3000 and report that in the year it's received? Technically 1500 is intended for the last month, which may be in a different year (when they stay at least 1 year). But it's still reported in the year that it's received, right?

Thanks


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## Jimmy (May 19, 2017)

Hi,

I believe last month's is a damage deposit. From the CRA website you record revenue in the year it is earned so you would not record last month's rent until that time



> In most cases, you calculate your rental income using the accrual method. For this method:
> 
> include rents in income for the year in which they are due, whether or not you receive them in that year; and
> deduct your expenses in the year you incur them, no matter when you pay them.


https://www.canada.ca/en/revenue-ag...tal-income/rental-income-2016.html#P263_22444


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## digitalatlas (Jun 6, 2015)

Thanks, Jimmy.

I went in with the intention of using the cash method because it's just one unit, pretty basic in and outflows...everything gets paid right away. But technically, I guess this has so far been equivalent to the accrual method, again, because it's pretty simple accounting so far. I guess they prefer the accrual method, so maybe I need to "switch" to the accrual method.

The reason this is causing some confusion for me now is because I have a property manager who receives rent and then takes their fees and distributes the remainder to me. They receive rent at the beginning of the month, and I get paid mid month. They also charge a commission for finding me a tenant.

So when a new tenant signs, they provide first and last (security deposit) to the PM. The PM deducts their lease commission (in this region it's 1 month's rent + HST), but I ended up with just under 1 month's rent (remainder of first/last after lease commission). In that case, they basically collected 2 month's rent, and gave me the remainder after expenses, so I should be counting 2 month's rent because I actually received the net balance of 2 month's rent (even though one of those months is the last month's rent).

It seems to me that even though they've collected their lease commission from the first/last months' rent, and they physically received first/last month, according to the accrual method, I should only be counting first and last month's income during the actual first and last months, since the security deposit should have been held there (on paper) until the actual last month. So even if the PM receives 2 month's rent, even if they deduct the lease commission, as long as it's not distributed to me as 2 months, I should only count 1 month for the first month, and then later count the last month during the actual last month, even though the last month's rent was actually given to the PM during the initial move in....

Is that right?


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## Jimmy (May 19, 2017)

Hi,

Yes believe that is right. I am not an expert in rental tax unfortunately but someone else should chime in soon. I just don't know the conditions specifically for using 'cash or 'accrual ' method. Just read teh accrual method was used most commonly. 

Under the accrual method though it seems you would record a total for the months of rent as income for each unit for the year (regardless of when cash was paid) and record a total of all the commissions as a yearly expense.

In the last month of their occupancy you then record that month as revenue (though you have had the deposit from your PM from the start).


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