He owes half a billion dollars in tax, and he's now out of options

John Russell owes the Inland Revenue Department nearly half a billion dollars. Photo / Jason Oxenham.

The High Court has rejected the only proposal that stood between John George Russell and bankruptcy as Inland Revenue closes in on the 80 year-old accountant who owes it around $500 million.

The judge also said Russell's situation - where around 99 per cent of his bill is penalties and interest rather than core tax - was one of his own making.

More than a year after Inland Revenue got judgment against Russell for $367 million, it appears he is running out of options in his fight with the tax department.

Inland Revenue has already issued a bankruptcy notice to Russell, who is best known as the governing mind behind a template that the Court of Appeal called a "blatant tax-avoidance scheme".

In 2003 Russell was issued a $75 million bill when $15 million earned by companies between 1985 and 2000 was reassessed to him personally.

Almost a decade passed before Russell exhausted his challenges to this and the debt continued to accrue interest and penalties over that time.

Inland Revenue in April issued bankruptcy notices to Russell, who has previously proposed to pay off the debt at $1000 a week.

Although the tax department rejected the offers, the octogenarian earlier this month applied for the High Court to approve the proposal - which would see him pay $1000 back per week for the rest of his life and allow the IRD to prove the debt into his estate when he dies.

Russell also applied to set aside the IRD's bankruptcy notices.

But Associate Judge Hannah Sargisson this week rejected both Russell's proposal and his bid to set aside the notices.

"In a situation such as this, where Mr Russell has knowingly engaged in large-scale tax avoidance over a period of years, and wasted large amounts of public money on unmeritorious challenges, the broader public interest is clearly engaged against setting aside the bankruptcy notices," she said.

But the situation is one of his own making, created by his own failure to recognise the core debt and either pay it or reach a compromise with the IRD at an early stage.

Associate Judge Hannah Sargisson.

"It is true that the core tax debt is a very small proportion of the total debt, and that the difference can be attributed to interest and penalties {and interest and penalties on those sums, compounding over a period of years). I can understand how Mr Russell, faced with a debt of this size, might think that the law itself is unjust.

But the situation is one of his own making, created by his own failure to recognise the core debt and either pay it or reach a compromise with the IRD at an early stage," Associate Judge Sargisson said.

Inland Revenue can now proceed to file an application to have Russell declared bankrupt, the judge said.

The judge said that unless Russell's proposal had been approved, a order declaring him bankrupt would be inevitable - if Inland Revenue asked for one.

"Though he has attempted to challenge the debt in various courts and authorities, he has not been successful. There would be no statutory grounds remaining under which he could realistically challenge either the debt or an application for adjudication," she said.