NSW Rental Bond Interest: Who Keeps It and Where the Money Goes

Prescribed Interest Is Payable on Rental Bonds

Section 173 of the Residential Tenancies Act 2010 requires the Secretary to pay interest on an amount of rental bond paid. Section 173(3) says no other interest is payable. Under clause 41 of the Residential Tenancies Regulation 2019, the rate is the Commonwealth Bank of Australia's Everyday Access rate for a $1,000 balance at the end of the month being calculated; interest compounds on 30 June and 31 December.

The Rental Bond Board holds lodged rental bonds in trust and invests the pooled principal. Prescribed interest is paid with the bond amount to the party entitled to receive that amount under the bond claim or refund.

How the System Works

When a rental bond is lodged through Rental Bonds Online (RBO) or by paper form, the funds are transferred to the Rental Bond Board's trust account. The Board pools the principal and invests it according to its statutory mandate.

The individual bond amount stays recorded against the property's Rental Bond Number. When the tenancy ends and the bond is refunded by agreement or Tribunal order, the recipient receives the original amount plus the prescribed interest payable on it.

Investment earnings paid into the Rental Bond Interest Account are separate from interest paid on individual bonds. The account helps fund rental-bond administration, tenancy adjudication costs, and approved tenancy support programs.

Tax Implications

If a landlord receives prescribed bond interest, it is interest income for tax purposes. The bond principal has its own tax treatment:

• While held in trust: Bond funds are not assessable income for the landlord. You don't declare the bond as rental income when you receive it.
• If retained at end of tenancy: Any portion of the bond kept by the landlord (for unpaid rent, damage, cleaning, or water charges) must be declared as assessable rental income in the financial year the landlord becomes entitled to keep it. The matching repair expenses are deductible.

The ATO's rule for rental bond money retained by a landlord is separate from the treatment of any prescribed interest paid to the landlord.

Why Landlords Ask

The question often comes from landlords comparing NSW with places where bond interest is handled differently. In NSW, the Board invests pooled bond principal, pays prescribed interest on individual bonds, and directs separate investment earnings to the Rental Bond Interest Account.

For a self-managing landlord, the practical takeaway is that the amount paid out can include prescribed interest as well as the bond principal. The bond claim or refund determines who receives the payment.

Our NSW Rental Bond guide covers every step from lodgement through to end-of-tenancy claims and NCAT disputes.

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