"I've spent time with Mr Edmonds discussing the offending and I think to this day he probably doesn't quite understand what went wrong with these businesses," Waugh said.
"He understands that you need to pay your tax. He understands that he didn't and he has been bankrupted for that, as has his wife."
Edmonds' wife, Te Waimoko Jacqueline Edmonds, was sentenced to seven months' home detention in January for her involvement in the same offending.
Sean Edmonds' offending was broken down into four time periods, from September 2009 until March 2014, December 2014 to August 2015, December 2015 to November 2016 and once in May 2017.
Because of his bankrupt state, the prosecution did not seek reparation from Edmonds.
Judge Philip Crayton said diversion of funds on this scale had a significant effect on all New Zealanders.
"PAYE falls due when the employees are paid. It is effectively taken from their salary by deduction. The reason why that is important is it acknowledges that those contributions that should have been made, were not.
"In simple terms, what this offending means is that $354,000 is not available for use as it needs to be within the tax system. It's diverted and therefore it has to be found from elsewhere."
Judge Crayton sentenced Edmonds to 10 months and two weeks' home detention and 200 hours' community work.
"There is clear concern that you perhaps don't understand the gravity of your offending. You need to. Be under no illusions, people go to prison for this every day," the judge said.
"If you had a worse record, other offences or you had not stayed out of trouble, you'd be going to prison."
