Author Topic: What to do with "Last Month's Rent"  (Read 1298 times)

Le Poisson

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What to do with "Last Month's Rent"
« on: May 29, 2017, 08:42:16 AM »
According to Ontario's Landlord-Tenant act, a landlord (me) must pay their tenant back the interest earned on the "last Month's rent" taken as a deposit at the time the tenant signed a rent agreement. To illustrate how this is calculated, I include th ebelow from a tenant's right website:


Interest owed to the tenant on the Last Month's Rent Deposit

The landlord must pay tenants interest on the rent deposit every 12 months. The amount a landlord must pay is the same as the rent increase guideline that is in effect when the interest payment is due under section 106, Interest owed on rent deposits. Click here for the annual rent increase guideline amount.

For the transition year, the first year of the new Act, the amount is instead calculated, based upon simple interest for each of the following months:
January 2007 - 0.5% (6% annual amount divided by 12 months);
February through December 2007 - 0.2167% each month (2.6% guideline divided by 12 months).

Landlords are now permitted to deduct from the interest payment any amount needed to legally raise the rent deposit to the amount permitted under the Act.

If the landlord does not pay the interest owed on the last month's rental deposit to the tenant when it is due, the tenant can deduct the interest from a future rent payment or file an application for a rebate with the Landlord and Tenant Board.


Where do folks hold this cash? I am thinking I'll take out a GIC at a measly 1.3% I am not sure where I would find an investment guaranteed not to lose cash that would compete at 2.6% without a penalty for an annual withdrawal. Also, is there a way to shelter this in, say, a TFSA so I don't have to claim the money in taxes. We aren't talking about much cash... 2.6% on $1750 as the number to work from for this first unit.

MrFrugalChicago

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Re: What to do with "Last Month's Rent"
« Reply #1 on: May 29, 2017, 09:39:34 AM »
Open up a new savings account.  One per property.

Keeps it tidy and the paper trail clear. Don't get fancy and invest it. The risk to reward is not good. This is your renters money,  not yours. It is your duty to be a good steward of it.

Proud Foot

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Re: What to do with "Last Month's Rent"
« Reply #2 on: June 02, 2017, 09:11:42 AM »
I would second what MrFrugalChicago said.  When you pay interest is it actual interest earned on the deposit or is it based upon a calculation like what you laid out below for the transition year?

As far as taxes on the income, reading your post it sounds like the interest needs to be given back to the tenant every year.  Could you not count this as an expense which would then net to 0 against the income?