Under this method, the tax paid (under Part XIII) is equal to 25% of the gross rents. For this purpose, based upon a famous Supreme Court of Canada decision in 1968, it would appear that gross rents must include property taxes paid directly by the tenant to the municipality.

No Canadian tax return need be filed under this method, and tax should be withheld and remitted by the tenant or agent.

It should be understood that, in the absence of a timely filing of a Canadian tax return (as discussed below) the non-resident will be required to pay tax using the gross rents method. This will be the case even if there is no net income after expenses are deducted.

In lieu of paying Canadian tax on gross rents under Part XIII, a non-resident may elect, instead, to pay tax under Part I, on the net income, at graduated tax rates.

As a general rule, a Canadian tax return must be filed within 2 years from the end of the relevant year to use this method.

However, if a form NR6 (undertaking to file a Canadian tax return) is filed in order to reduce tax withheld at source, the return must be filed within 6 months from the end of the relevant year to use this method.

Rental losses may not be carried over to other years on a section 216 return.

All of Canada's tax treaties allow Canada to tax income derived by a non-resident from the rental of Canadian real estate.

Furthermore, in cases where the gross rents method is used, only Canada's tax treaty with Ireland provides for a rate lower than the statutory 25% (15%).