RETROACTIVE AND RETROSPECTIVE INCOME TAX LEGISLATION: THE NEW ZEALAND CONSTITUTIONAL PERSPECTIVE.

Retroactive tax legislation is one of several tools available to the government in its ongoing mission to combat taxpayers' exploitation of loopholes in tax legislation. However, the use of such tools undermines the rule of law. As this article demonstrates, it does so by infringing on subjects' legitimate reliance that the statutes governing the legal (taxation) consequences of their actions will do so only in a prospective manner. Non-prospective tax laws also amount to the expropriation of subjects' vested property interests in a way that prospective statutes do not. The sovereignty of parliament does not provide a satisfactory justification for the adoption of such laws. New Zealand's commitment to parliamentary sovereignty reflects an underlying commitment to liberal democracy. Indeed, the commitment to parliamentary sovereignty is in fact a commitment to upholding liberal democracy. It is possible, though admittedly not yet the case, that judges would, and arguably should, refuse to enforce statutes that do not promote the continuation of liberal democracy. Upholding the rule of law is important, under circumstances of pluralism, to ensuring that society is governed by democratic processes and democratically made laws, as opposed to the will of the majority cloaked in legality. New Zealand's commitment to liberal democracy therefore suggests that laws inimical to the rule of law, including retroactive tax legislation, is not only unprincipled but also in fact potentially unconstitutional. However, as this article also demonstrates, two important factors mean the Crown retains considerable freedom to adopt non-prospective tax legislation while acting in a principled manner. The first is the unobjectionably retrospective -- as opposed to retroactive -- nature of all legislation. That defeats many principled objections. The second is the mechanical underpinnings of New Zealand's income tax legislation, which means that taxpayers gain a legitimate expectation as to their final tax liability, or lack thereof, at the end of each tax year. This allows significant scope for principled legislation combatting avoidance and minimisation. [ABSTRACT FROM AUTHOR]