Commissioner of Inland Revenue v Vela Fishing Ltd [2001] NZCA 215; [2002] 1 NZLR 49; (2001) 20 NZTC 17,242 (3 July 2001)

Last Updated: 13 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 270/00

	BETWEEN	THE COMMISSIONER OF INLAND REVENUE
		Appellant

	AND	VELA FISHING LIMITED
		Respondent

Hearing:	25 June 2001
Coram:	Richardson P Blanchard J McGrath J
Appearances:	A C Beck and M T Lennard for Appellant P R Heath QC and G A Muir for Respondent
Judgment:	3 July 2001

JUDGMENT OF THE COURT DELIVERED BY RICHARDSON P

Background and crucial issue

[1] This appeal against the judgment of Penlington J, reported at [2001] 1 NZLR 437 and (2000) 19 NZTC 15,885, raises a short point of statutory construction of the transitional and savings provisions of the income tax legislation relating to the time bar for making assessments and the waiver of the time bar.
[2] The underlying question is whether, when in 1996 the legislature introduced a provision permitting taxpayers to waive the four year time bar on assessments for up to six months, it intended that power to be available where the original assessment was made in an earlier year, here in the income year ended 31 March 1994. Numerous points were canvassed in argument which were dealt with comprehensively by Penlington J. However, in the argument of the appeal it became clear that the crucial issue is whether or not by virtue of the transitional provisions of s227(4) of the Tax Administration Act 1994 the reference to "corresponding provision in the repealed enactments", as applying in 1996 on the enactment of a new s108 and the linked provision, s108B, must be construed as a reference to s25 of the Income Tax Act 1976.
[3] There is no dispute as to the relevant facts. On 19 July 1993 the company filed its tax return for the income year ended 31 March 1991. On 28 August 1993 the Commissioner made an assessment pursuant to s19 of the Income Tax Act 1976. On 24 March 1998 the company signed a waiver to extend by six months the time bar which would otherwise have applied after 31 March 1998. On 30 September 1998 the Commissioner reassessed the company in respect of the 1991 income year. At the time both the company and the Commissioner believed that the time bar could be waived and was properly waived.
[4] On 16 November 1998 the company applied for judicial review of the decision to reassess on the ground that the waiver lacked a statutory basis. On 4 September 2000 Penlington J upheld the application and granted the relief sought, in essence a declaration that any assessment made after 31 March 1998 in respect of the income for the 1991 income year was unlawful and unenforceable and certiorari quashing any such assessment.

The statutory provisions

[5] There are four relevant sets of statutory provisions affecting the period between the original assessment and the reassessment in this case: the Income Tax Act 1976, which applied to the return filed for the 1991 year and the original assessment that was then made; the Income Tax Act 1994 and the Tax Administration Act 1994, which replaced the 1976 Act with the administration provisions, which had previously been contained in successive income tax Acts, being set out in the separate Tax Administration Act; the Tax Administration Amendment Act (No 2) 1996, which introduced the time bar waiver provision; and the Taxation (Remedial Provisions) Act 1997, which applied the time bar and waiver provisions to returns filed in the period between 1 October 1996 and 31 March 1997. Subsequently Parliament, aware of challenges to the validity of waivers and evidently concerned not to affect the situation in respect to waivers already granted, enacted the Taxation (Accrual Rules and Other Remedial Matters) Act 1999.
[6] It is convenient to consider the steps in the development of the legislation in their statutory sequence.

(1) Under the 1976 Act

[7] In 1993, when the 1991 return was filed and the original assessment was made, s19 of the 1976 Act imposed a duty on the Commissioner to make assessments in respect of every taxpayer, s 23 empowered the making of amended assessments, and s25(1) provided that, when any person had made returns and been assessed for income tax for any year, "it shall not be lawful for the Commissioner to alter the assessment so as to increase the amount thereof after the expiration of 4 years from the end of the year in which the notice of original assessment was issued".
[8] Thus, when the 1991 income year was assessed in August 1993, the time bar on altering that original assessment was to apply from 31 March 1998. In the meantime the 1994, 1996 and 1997 statutes were enacted.

(2) Under the 1994 Acts

[9] As earlier noted, the 1976 Act was split into a tax Act and an administration Act. Both 1994 Acts came into force on 1 April 1995 and applied with respect to the tax on income derived in the 1995-1996 and subsequent income years. Both contained relevant savings provisions.
[10] The transitional provisions of sYB 5 of the Income Tax Act 1994 provided in subs (1) that "the continuity of the operation of the law relating to income tax and every other tax imposed under the enactments repealed by s YB 3 shall not be affected by the substitution of this Act, the Tax Administration Act 1994, and the Taxation Review Authorities Act 1994 for the repealed enactments". Subs (2) provided for the repealed enactments to remain in force in respect of any tax already assessed or still assessable for the 1994-1995 year or any earlier income year; and sYB 5(4) provided:

Any express or implied reference in any enactment, instrument, or document (including this Act) to any provision of this Act, or to things done or to be done or failing to be done under or for the purpose of any provision of this Act, shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, circumstances, or purposes in relation to which the corresponding provision in the enactments repealed by section YB 3 has or had effect, a reference to, or to things done or to be done or failing to be done under or for the purposes of, that corresponding provision.

[11] The transitional provisions of s227 of the Tax Administration Act 1994 parallelled sYB 5. Section 227(1) was in essentially the same terms as sYB 5(1) and the employment in s227 of the term defined in s227(1), "repealed enactments" as meaning "the enactments repealed by sYB 3 of the Income Tax Act 1994" is an inconsequential difference. Importantly, subject to that inconsequential difference, s227(4) was in precisely the same terms as sYB 5(4). It reads:

Any express or implied reference in any enactment, instrument, or document (including this Act) to any provision of this Act, or to things done or to be done or falling to be done under or for the purposes of any provision of this Act, shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, circumstances, or purposes in relation to which the corresponding provision in the repealed enactment has or had effect, a reference to, or to things done or to be done or failing to be done under or for the purposes of, that corresponding provision.

[12] Section 227(4) and sYB 5(4) appear to have been based on s275 of the Capital Transfer Tax Act 1984 (UK), now the Inheritance Tax Act 1984.
[13] When the Tax Administration Act 1994 was enacted s108 was the counterpart of and replacement for s25 of the Income Tax Act 1976. It was in precisely the same terms as s25.

(3) Under the 1996 Tax Administration Amendment Act (No 2)

[14] Section 108(1) of the 1994 Act was replaced and a new s108B providing for waiver was also enacted. They provide:

108. Time bar for amendment of assessment of tax under Income Tax Act 1994

(1) Except as specified in this section or in section 108B, if -

(a) A taxpayer provides a tax return and is assessed for tax for the return period; and

(b) 4 years have passed from the end of the income year in which the taxpayer provides the tax return, -

the Commissioner may not alter the assessment so as to increase the amount assessed.

108B Extension of time bars

A taxpayer may, before the expiry of the period of 4 years applicable under section 108 or section 108A, sign a waiver in the prescribed form to extend the applicable time bar by up to a further 6 months.

[15] Pursuant to s2(2) those provisions came into force on 1 October 1996. The old s108 was repealed. The new provisions were not retrospective. They created the possibility of extending the time bar and thereby waiving temporarily the time limitation that would otherwise apply to the amendment of assessments. Importantly, they did not affect the taxpayer's right to continue to insist on adhering to the four year limitation period.

(4) Under the Taxation (Remedial Provisions) Act 1997

[16] Section 108(4) of the 1996 amendment had applied the new s108(1) to all returns filed on or after 1 April 1997. That, it seems, overlooked that for a taxpayer with a balance date between 1 October and 31 March its taxable income for that year to balance date was deemed to be its taxable income for the income year ending on that 31 March. Accordingly, s107A(3) provided that the inserted s107A(1) applied to a return filed in the period between 1 October 1996 and 31 March 1997 and "for such a return, a reference to s108 of this Act is deemed to be a reference to this section".
[17] Section 107A(1) provided:

When any person has made returns and has been assessed for income tax for any year, it shall not be lawful for the Commissioner to alter the assessment so as to increase its amount after the expiration of 4 years from the end of the year in which the notice of original assessment was issued.

The corresponding provision question

[18] Against that statutory background the short point is whether the corresponding provision elements of s227(4) apply in this case to relate the new s108 and linked s108B enacted in 1996 to s25.
[19] It follows from the preceding analysis that three time bar provisions expressly apply under the Tax Administration Act. The new s108 governs returns filed from 1 April 1997 onwards. Section 107A governs returns filed in the period 1 October 1996 to 31 March 1997. The original s108 provided the time bar for returns filed prior to 1 October 1996 and necessarily governed the period 1 April 1995 to 30 September 1996. Section YB 5(2) and s227(2) had provided for the repealed enactments to remain in effect for assessment purposes in respect of the year to 31 March 1995 and earlier years and, as well, s17(e) of the Interpretation Act 1999 makes it clear that the repeal of an enactment (here the old s108) does not affect "the previous operation of the enactment or anything done or suffered under it".
[20] Section 227(4) requires any reference in any enactment, including the Tax Administration Act, to any provision of the Act "if and so far as the nature of the reference permits" to be construed "as including, in relation to the times, circumstances, or purposes in relation to which the corresponding provision in the repealed enactments has or had effect, a reference to, or to things done or to be done or failing to be done under or for the purposes of, that corresponding provision".
[21] Section 108B contains express reference to the new s108 of the Tax Administration Act. The old s108 was the immediately repealed provision. But, if in terms of the meaning of "corresponding provision" within s227(4) s25 has continued operation, it must be characterised as a corresponding provision.
[22] Both sYB 5 of the Income Tax Act and s227 of the Tax Administration Act are directed to the enactments repealed by sYB 3. The savings provisions of sYB 5(4) and s227(4) are in identical terms. They are both capable of the like application of the same corresponding provision test to the income year of the taxpayer ending 31 March 1991 and to the income year ending 31 March 1994 in which the return was filed and the notice of original assessment was issued. Given that co-incidence of coverage, expression and timing it would be artificial to view sYB 5(4) and s227(4) as separate and unrelated.
[23] The blanket duplication in sYB 5(4) and s227(4) may simply reflect an illogically extreme drafting caution stemming from the splitting of the Income Tax Act 1976 into two Acts in 1994. But the overlap in this case, while confusing, cannot affect the reality that s25 and the old s108 provide the same touchstone for considering the application of s227(4) vis-à-vis the new s108 and s108B. Whether the analysis is made in one step considering the application of s227(4), comparing s25 and the new s108, or whether it is made in two chronological steps under which the question is whether s25 corresponded first to the old s108 and then on the repeal of the latter to the new s108, the answer must surely be the same. In that regard it is of interest that Schedule 23 to the Income Tax Act 1994 which, in terms of sYB 6 "sets out, as a guide only, tables of corresponding provisions" identifies the original s108 of the Tax Administration Act 1994 as the corresponding provision to s25 of the Income Tax Act 1976.
[24] It follows, then, and as counsel appeared to agree in oral argument, that the crucial question is whether the differences between s25 (and its identical replacement, the old s108) and the new s108 preclude concluding that s25 corresponds to the new s108.
[25] There are two textual differences. The first is that s25 states, "it shall not be lawful for the Commissioner to alter the assessment so as to increase the amount assessed" whereas the new s108 phrases it, "the Commissioner may not alter the assessment ...". In short, there is a change from the language of obligation to the language of discretion. The second is that under s25, the four years runs from the end of the year in which the assessment was made, whereas under the new s108 it runs from the end of the year in which the return is filed. Factually, it makes no difference for the present case because the return was filed and the assessment was made in the same income year. But it could be significant if there were delays between those acts which take the assessment into a subsequent year.

Discussion: the corresponding provision

[26] The dismal experience of those who work with legislation is that special transitional and savings provisions crafted to reflect perceived special features of the particular legislation often tend to become complex, which adds to difficulties in interpretation. And the simple general provisions of the Interpretation Act 1999, as in the case of its predecessor, the Acts Interpretation Act 1924, yield to the special provisions of the particular legislation.
[27] The touchstone provided in s227(4) is whether there is a "corresponding" former provision and, as that word itself indicates, it does not require coincidence. In Winter v Ministry of Transport [1972] NZLR 539, 541, referring to s20A of the Acts Interpretation Act 1924, Turner J said:

We read "corresponding" in s20A as including a new section dealing with the same subject matter as the old one, in a manner or with a result not so far different from the old as to strain the accepted meaning of the word "corresponding" as given in the Shorter Oxford English Dictionary - "answering to in character and function; similar to". The new s58A(6) answers to the old one (the second part of the old s59B(1)) in character and function; it is similar in purpose, prescribes the same thing to be done, and is designed to produce the same result. We hold it to be a "corresponding section".

[28] Clearly the framers of s227(4) intended an expansive application of s227(4). It is directed to "any express or implied reference in any enactment ... ". It is to be construed "if and so far as the nature of the reference permits", as including "in relation to the times, circumstances, or purposes in relation to which the corresponding provision in the repealed enactment has or had effect, a reference ... to things ... to be done ... under or for the purposes of, that corresponding provision".
[29] The question, then, is whether there is correspondence in that broad sense in relation to the times, circumstances or purposes as regards the continuing operation of s25. We have no hesitation in holding it to be a corresponding provision to the new s108. It has the same character and function. It pre-supposes the amendment of assessments within the time limit. During the four years the amendment function will be exercised as the statute provides. That is intended in each case and s25 and the new s108 are intended to produce that result. The altering of assessments during the 4 year period is something which is "to be done under or for the purposes of, that corresponding provision".
[30] There is nothing of significance in the two differences between s25 and the new s108 to affect that conclusion. First, in relation to the expiry of the amending function, the move from "it shall not be lawful" after four years to alter the assessment to increase the amount, to "the Commissioner may not alter" after that date does not in context represent a change in substance. While s23, the general amendment provision of the 1976 Act, empowered the Commissioner to amend, s19 also provided for successive assessments in respect of any income year, employing the language of obligation. Clearly the 1976 Act did not itself sharply differentiate between unlawfulness and absence of power and there is no discernible reason to attach controlling significance to the change in that regard between s25 and the new s108. As well, the framers of s107A in 1997 did not recognise any such distinction. In s107A(1) the legislation still employs the expression "it shall not be lawful" and s107A(3) deems the reference to s108, that is the new s108, in relation to returns filed between 1 October 1996 and 31 March 1997, to be a reference to s107A. Section 108B thus applies.
[31] Similarly, the change in the starting date for the running of the four year period during which amendments are made, from the end of the year in which the notice of assessment was issued (ordinarily a computer generated notice, not based on audit of the taxpayer's affairs) to the end of the year in which the return is filed, does not affect the amendment function itself. That change served the purpose of improving the pre-assessment process by encouraging the prompt issue of assessments following the filing of returns. As well, given the changes in the dispute resolution process also introduced in the 1996 Amendment Act providing for disclosure, consultation and conference before assessments are made following the audit process, the waiver power under s108B introduced at the same time allowed for a taxpayer initiated or approved extension of the four year period without the Commissioner, in effect, being obliged to issue an amended assessment in haste to avoid the immediate operation of the statute bar. The potential benefits for the taxpayer are that completion of the pre-assessment adjudication process may lead to the Commissioner's deciding not to amend or to make a lesser assessment and to the deferral of liability to pay tax in respect of the amount ultimately assessed until it is assessed.
[32] In broad terms, too, the changes may well have also reflected the move to the greater flexibility of care and management provisions introduced by the 1995 amendments to the Tax Administration Act which had previously been seen as limited by the rather more rigid language of obligation in the earlier income tax statutes. But, whatever the influencing factors, the differences between s25 and the new s108 cannot sensibly be seen as materially affecting the amendment function which continues during the four year period, and so as affecting the correspondence of the two provisions for the purposes of s227(4).
[33] Mr Heath drew attention to s2(4) of the Tax Administration Act which provides:

Except as otherwise expressly provided, the provisions of this Act that correspond to former provisions of the Income Tax Act 1976 shall not apply to any of the Inland Revenue Acts other than the Income Tax Act 1994 and the Taxation Review Authorities Act 1994.

He contended that there was no such express provision in the 1994 Act. Section 2(4) in its specificity appears designed to avoid giving too wide an ambit to the expression "Inland Revenue Acts" which as a defined term includes such disparate taxes as Child Support, Goods and Services Tax and Gift Duty. Further, s108 of the Tax Administration Act, like s25 of the 1976 Act, is an express provision which functions in the way we have described.

[34] We referred earlier (para [5]) to the 1999 statute. It cannot, of course, provide guidance as to the intention of the framers of the new s108 and linked s108B in 1996. It is sufficient to note that in enacting a new replacement s108B to apply on and after 1 October 1996, which also expressly referred to s25 and to the old s108, s101 of the 1999 Act provided in subs (3) that the replacement provision should not apply to a waiver made under s108B "if the waiver was signed and delivered to the Commissioner before 17 November 1998", being the date the Bill was introduced.
[35] Because of the conclusion we reach on what in our view is the crucial issue in the case, we do not find it necessary to explore the other considerations which weighed with Penlington J in responding to the detailed submissions of counsel. The Judge saw several key matters as standing out and as to a large extent decisive (para [136] of the judgment). He dealt very briefly at the end with the corresponding provision analysis, concluding that the new s108 was not a corresponding provision to s25 (para [149]), having earlier concluded that the old s108 enacted in 1994 applied only prospectively (para [136] sub para (1)). We have concluded that the crucial issue and the appropriate starting point is the corresponding provision analysis required by s227(4) which is decisive of the answer in this case.

Result

[36] For the reasons given the appeal is allowed and the orders made in the High Court are quashed. In lieu there will be a declaration that any amended assessment made on or before 30 September 1998 in respect of the return of income for the 1991 income year is valid and, subject to extant objection procedures, enforceable. We were advised that the case is regarded as a test case but if any questions of costs in the High Court or this court arise, counsel may submit memoranda.

Solicitors
Crown Law Office, Wellington, for appellant
Bradbury & Muir, Auckland, for respondent