Hamish Fletcher

Business reporter for the NZ Herald

IRD wins $367m tax case against 79-year-old

Judgment goes in favour of the Inland Revenue. /file pic
Judgment goes in favour of the Inland Revenue. /file pic

Inland Revenue has won a $367 million judgment against a 79-year old accountant for an unpaid tax debt.

John George Russell developed what became known as 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.

The IRD issued a demand for $367 million last year and then sought summary judgemnt in the High Court at Auckland for this amount.

The IRD's application was heard last month, with the department saying Russell had not paid the amount demanded and had no defence to the claim.

Russell's lawyer, on the other hand, submitted that his client had offered to pay the debt through installments at $1000 a week for the rest of his life. The IRD rejected this proposal, which Russell said was irrational.

Russell has also filed for a judicial review of this rejection of the installment-proposal.

In his decision released this week, Associate Judge Jeremy Doogue said the entry of summary judgment would not create any difficulty for this judicial review bid.

Even so, the judge said Russell's prospect of success in this application "are not great".

In concluding, Associate Judge Doogue said there were no grounds to decline granting the judgment and made it in favour of the IRD for $367 million.

According to Russell's lawyer yesterday, his client's tax debt had since ballooned to more than $400 million.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production bpcf02 at 22 Dec 2014 10:25:05 Processing Time: 37ms