IRD wins battle over $367m tax bill

79-year-old accountant’s original $5 million tab balloons with penalties and compound interest over 25 years

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, mazelike structure of companies, partner- ships 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 it was not overturned when he took the case to the Court of Appeal in 2012. The Supreme Court declined to hear the case.

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 judgment 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 instalments at $1000 a week for the rest of his life. The IRD rejected this proposal, which Russell said was irrational.

Russell has filed for a judicial review of this rejection of the instalment 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 prospects of success in this application “are not great”. He 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.

The judge said: “The issue of whether the Commissioner [of Inland Revenue] ought to have entered an instalment arrangement with the defendant is not relevant to the question of whether judgment ought to be entered for the amount of tax.”