You agreed to rent to a couple with a dog and you collected a half month’s rent as a pet damage deposit, as permitted by the Residential Tenancy Act. Yesterday, your renters told you their dog died; they aren’t going to have any more pets, therefore they want their pet damage deposit returned. You can agree to return it, but you are permitted to keep it until the end of the tenancy along with the security deposit. The latter makes sense because it is only when the unit is empty that you will know for sure whether Fluffy did any damage to the carpet or walls.
-- LandlordMentor