Commencement date for amendments to the Income Tax Act 2004

Readers will notice that most provisions amending the Income Tax Act 2004 come into force on 1 October 2005, under section 2(16), and apply for the 2005-06 and later tax years, under section 167(2).

The Income Tax Act 2004 comes into force on 1 April 2005, under section A2(1), and applies for the 2005-06 and later tax years, under section A2(2). Many of the amendments to that Act made by the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 thus apply for the same tax years as does the amended Act but come into force later than does the amended Act.

There are two reasons for delaying the commencement of provisions that amend the Income Tax Act 2004 until 1 October in the first tax year for which the amendments apply. The first reason is relevant to the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 because that Act amends provisions of the Income Tax Act 1994 and similarly amends the corresponding provisions of the Income Tax Act 2004. The second reason is relevant to future amendments that apply for periods that are tax years.

Section YA 3 of the Income Tax Act 2004

The first reason relates to the effect of section YA 3 of the Income Tax Act 2004, which governs the relationship between the Income Tax Act 1994 and the Income Tax Act 2004. Section YA 3(4) and (5) provide that:

Old law is interpretation guide

4. Except when subsection (5) applies, in circumstances where the meaning of a taxation law that comes into force at the commencement of this Act (new law) is unclear or gives rise to absurdity, -
   1. the wording of a taxation law that is repealed by section YA 1 and that corresponds to the new law (old law) must be used to determine the correct meaning of the new law; and
   2. it can be assumed that a corresponding old law provision exists for each new law provision.

Limits to subsections (3) and (4)

5. Subsections (3) and (4) do not apply in the case of -
   1. a new law specified in schedule 22A (Identified policy changes); or
   2. a new law that is amended after the commencement of this Act, with effect from the date on which the amendment comes into force.

Section YA 1 repeals the Income Tax Act 1994. It thus repeals several provisions after they have been amended by the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004. The repealed provisions, called "old law" in section YA 3, correspond to provisions in the Income Tax Act 2004, called "new law" in section YA 3, that are also amended by the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004.

If an amendment to a new law commences on the same date as the Income Tax Act 2004, section YA 3(4) applies to the interpretation of the amended new law. Section YA 3(4) would require the meaning of an amended new law that "is unclear or gives rise to absurdity" to be determined by the corresponding amended old law. Such an approach would not be appropriate because the amended new law is not a rewritten version of the amended old law; the old law was rewritten and then the resulting new law was amended. The interpretation of the amendment to the old law should not determine the interpretation of the amendment to the new law.

Section YA 3(5)(b) prevents such an application of section YA 3(4) if the amendment to the new law has a commencement date later than 1 April 2005. Since the amendments in the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 come into force after 1 April 2005, their interpretation will not be affected by section YA 3(4).

Amendments applying for tax years

Many amendments to the Income Tax Act 2004 apply for a specified tax year and later tax years. An individual taxpayer is initially affected by the amendment for the taxpayer's income year that corresponds to the first tax year. The taxpayer's corresponding income year may begin at any time from 2 October in the preceding tax year to 1 October in the tax year.

A commencement date of 1 October 2005 is chosen for an amending provision so that the amended provision of the Income Tax Act 2004 is not affected before the end of the latest possible preceding income year. If an earlier date were chosen, some taxpayers would be governed for part of the preceding income year by the provision of the Income Tax Act 2004 as it appeared in the statute book before the amendment, although that form of the provision would no longer be part of the statute book.

In the past, amending provisions that apply for the income years that correspond to a tax year have commonly come into force on the first day of the tax year, such as 1 April 2005. The later commencement date for such an amending provision does not affect the application of the amended provision for all of the income years that correspond to the tax year. Only the date of the change to the text of the Income Tax Act 2004 is affected.