Durocher – Federal Court of Appeal suggests obiter that it is proper for the Tax Court to pass on the alleged nullity of a contract in the context of passing on the correctness of an assessment

A financial institution, which was controlled by a non-resident, acquired an option to subscribe at a future date for the majority of the equity of a holding company for an Opco which, if actually exercised by it, would have violated a prohibition in the Act respecting financial services (Quebec) against it acquiring greater than a 20% stake in the company. Noël CJ affirmed the finding of Rip J below that a mere option did not violate such Act. The effect of finding the option to be valid is that the Opco did not qualify as a Canadian-controlled private corporation, so that capital gains deductions claimed at a higher level in the structure were properly denied.

Before so concluding, he stated obiter, respecting a Crown argument that it would have been beyond the competence of the Tax Court to (instead) declare that the options were invalid under Quebec law:

[T]he role of the TCC, when confronted with an argument based on nullity in the context of an appeal under the ITA, cannot be assimilated to that of a Superior Court which has the power to “declare” a contract to be a nullity for all purposes pursuant to section 33, 35 and 142 of the Code of Civil Procedure… (see in comparison Markou v. The Queen, 2016 TCC 137, paras. 7-21 where the TCC was confronted with a similar problem in the context of litigation arising in a common law province… .)

Neal Armstrong. Summaries of Durocher v. The Queen, 2016 CAF 299 under s. 251(5)(b) and Statutory Interpretation - Interpretation Act, s. 8.1.