Man with $485m IRD bill loses courtroom battle

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

John George Russell has lost another courtroom fight with Inland Revenue - this time about a company which has been in receivership for 20 years.

Russell, an octogenarian, owes IRD almost half a billion dollars, the vast bulk of which is penalties and interest rather than core tax.

The former head of a merchant bank, Russell has been battling the IRD for decades and developed a template that the Court of Appeal called a "blatant tax-avoidance scheme".

According to that same court, the accountant established 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.

Inland Revenue issued bankruptcy notices to Russell in April over his personal debt but he is continuing to fight and challenge the tax department.

Russell's latest, unrelated courtroom stoush involves Kensington Developments, a company which has been in receivership since 1994 and which Russell is the receiver of.

Kensington filed tax returns claiming interest deductions increasing from $302,398 to $2,191,870 for the 1997 to 2008 tax years.

The company has also claimed deductions for interest expenditure for a debenture held by Downsview Finance, which is beneficially owned by Russell and his wife.

Kensington has also acquired debentures over 14 other companies which Russell is the receiver of.

Many of these companies have also claimed deductions for interest they owe under the debentures, even though Kensington has not received any interest payments from them.

Inland Revenue's position is that Kensington has not incurred the interest expenses and that the deductions should be denied as part of a tax avoidance arrangement.

Kensington is challenging the rejection of its returns and Russell commenced action before the Taxation Review Authority.

The IRD then successfully had the case transferred to the High Court.

Kensington fought this move but was unsuccessful in overturning it before the Court of Appeal.

The company tried to take the matter to the Supreme Court, which declined to grant it leave to appeal today.

Kensington's main argument related to costs because if the matter was before the TRA, Russell could appear in for the company rather a lawyer needing to.

Also, if unsuccessful before the TRA, Kensington would not be liable for court costs.

The Supreme Court, in a decision from Justices William Young, Susan Glazebrook and Terence Arnold, said these considerations were taken into account by both the High Court and Court of Appeal.