Business reporter for the NZ Herald

IRD chases $367m tax debt

Accountant’s original bill of about $5 million soars with penalties and compound interest.

Photo / APN
Photo / APN

Inland Revenue has gone to the High Court seeking a judgement against John George Russell for a $367 million alleged tax debt.

The 79-year-old accountant developed the Russell template, which the Court of Appeal called a "blatant tax-avoidance scheme".

Between the late 1970s and 2000, Russell established what the same court said was an "elaborate, maze-like structure of companies, partnerships and trusts" and provided advice on how others could avoid tax through their participation in the Russell template.

The IRD argued that through the use of a partnership, Russell avoided paying tax on income earned through Russell template transactions.

It reassessed Russell's personal income and said he should have declared income of $15.76 million between 1985 and 2000 instead of $298,700.

This assessment was upheld by the High Court in 2010 and Russell failed to overturn it when he took the case to the Court of Appeal in 2012.

Russell's original tax bill was around $5 million, but penalties and compound interest over 25 years inflated it to $138 million at the time of his High Court case and in excess of $177 million when he went to the Court of Appeal.

In September last year, IRD demanded a payment of $367 million of tax, interest and penalties from Russell. Inland Revenue then applied for summary judgement in the High Court against Russell for this amount, which was heard yesterday by Associate Judge Jeremy Doogue in the High Court at Auckland.

IRD lawyer Pauline Courtney said Russell had not paid the amount demanded and had no defence to the claim. The court heard that Russell had last Friday filed for a judicial review of an IRD decision rejecting his proposal to pay back $1000 a week for the rest of his life. Russell first suggested this in 2006.

Courtney said this was another way to delay the case and argued the bid for judicial review did not prevent the court from entering summary judgement.

Russell's lawyer, Simon Judd, opposed the IRD's application and said his client had no assets or ability to pay $367 million.

The $1000-a-week instalment proposal was the best way to maximise recovery of outstanding tax, Judd said. The purpose of the IRD's enforcement action was not to recover money but to bankrupt Russell, the defence lawyer said.

Judd indicated he would file for interim relief today to either stay the summary judgement proceedings or any other enforcement action by IRD, pending the judicial review.

Following discussion on whether it was appropriate or not to defer his decision until after the judicial review, Associate Judge Doogue reserved his decision on the summary judgment.

- NZ Herald

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