HOW TO DECLARE A LONG-TERM RENTAL SECURITY DEPOSIT

by | Nov 27, 2023 | Fiscal, Owners, Rentals

Many owners are completely unaware of the correct way to register and return a security deposit for a long-term rental. Many simply accept the stipulated amount without issuing a receipt, and return the amount at the end of rental, again without declaring the payment properly.

The Tax Authorities in Portugal consider the amount received as a deposit as property income (rendimentos prediais) and therefore, when a deposit is paid, a rental receipt should be issued for the corresponding amount. An example of this rental receipt, issued on the Finanças portal, can be seen in the image above. It is basically the same as a normal rental receipt, but note that instead of “Renda“, the option for Caução“, or deposit, is chosen. This is then classified as earnings and should be declared in Annex F in the IRS income tax declaration the year following the one when the money was received. Or at least this was the understanding of Finanças until very recently.

On 30th October 2023, the Centro de Arbitragem Administrativa (Administrative Arbitration Centre) decided in favour of an owner who hadn’t declared the security deposit on his income tax declaration, in Annex F as indicated above. The ruling states that the security deposit can’t be considered as earnings, and thus determined that Finanças was incorrect when fining the tax payer for not declaring the security deposit as such.

This goes against an earlier binding note from the fiscal authorities (Processo: 2729/2018), with the following phrase (Item 3 in the note):

No caso de uma devolução da caução ao locatário, deverá ser emitido um documento comprovativo, pelo montante devolvido, o qual poderá ser inscrito como gasto suportado e pago, para o locador/senhorio, no anexo F da declaração modelo 3 do ano em que ocorreu a devolução.

Finanças therefore issued a further official note clarifying that the deposit is taxed as income.

All of this means that the security deposit has to be declared as rental income on Annex F of the IRS income tax declaration and then, when the deposit is returned, the tenant should sign and date a document saying that they have received the deposit correctly, and the owner may then use this document as for the following year’s IRS income tax declaration, to prove that there was a “gasto suportado e pago” (cost incurred and paid), which is then be deducted from the taxable amount for rental earnings.