Taxable Security Deposit

A. The security deposit that you receive when a new tenant moves into your investment property should not be considered as taxable income. Likewise, when a tenant leaves and you repay the security deposit to them this is not considered to be a tax deductible expense.

If, for any reason, you decide to withhold all or part of the security deposit when the tenant leaves then whatever amount that you withhold becomes taxable income in that year. However, deposits are only usually withheld when there is damage to the property so any expenses associated with repairing this damage will be allowable as an expense against this income.

Date published 21 Jul 2017

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.