Banker owed $500m to Inland Revenue
Merchant banker b October 8, 1934 d May 21, 2018
John George Russell, who has died aged 83, holds a special place in New Zealand’s tax history. He was best known for developing the Russell tax template, which was described by the New Zealand Court of Appeal in 1999 as a ‘‘blatant tax avoidance scheme’’.
Ultimately, he was the subject of the largest bankruptcy proceeding in New Zealand history, with Inland Revenue assessing him for tax, penalties and interest close to $500 million. He fought and litigated these matters for more than 30 years.
Russell not only challenged who was actually taxed, he made excessive Official Information Act (OIA) requests to Inland Revenue to tie up its resources. He was also the subject of thousands of information requests from Inland Revenue, and sought the recusal of a judge.
While Russell claimed Inland Revenue held a vendetta against him, litigation went all the way to the Privy Council, with the courts finding against Russell on almost every occasion.
Russell had been dux at his school. It was after enrolling in a college course by mistake that he discovered a love of accounting.
If he had followed his father’s advice and studied engineering, he might well have taken over the family farm on the outskirts of Hamilton and enjoyed a peaceful, bucolic life.
Instead, he became a leading figure in the development of the then-emerging New Zealand money market, and managing director of the merchant bank Securitibank.
When Securitibank collapsed in 1976, it was the largest corporate collapse in New Zealand history. Creditors were eventually repaid the $31m owed (plus interest) but Russell believed his reputation was so tainted he was unemployable.
He subsequently set up business as a liquidator and receiver. Novel approaches to commercial issues and tenacity in litigation were his trademarks. At the height of his activities, he had 58 staff.
Russell challenged almost every Inland Revenue decision and made so many OIA requests that Inland Revenue struggled to comply. In turn, Inland Revenue made numerous information requests targeted towards Russell in an attempt to stop him conducting his avoidance activities.
The height of their correspondence battle saw more than 3500 information requests issued to Russell in 12 months, including 101 requests in one day alone, and with Russell submitting OIA requests for matters as little as $20.
Russell corresponded with different branches of Inland Revenue and paid small amounts towards a tax debt, then would state that Inland Revenue was enforcing an incorrect amount.
Inland Revenue spent an estimated $30m pursuing template-related matters. Even in the early years of the battle, Inland Revenue estimated that Russell was tying up 18,000 employee hours each year.
His signature template grouped profit-making entities with lossowning entities and thereby reduced tax substantially. Inland Revenue thought it was a serious risk to the New Zealand tax base.
Russell’s perseverance was without equal in Australasia. There has been no other individual involved in a tax dispute for such a long time.
He appeared before Judge Paul Barber on numerous occasions, mostly in the Taxation Review Authority. The judge said he liked Russell, and found him a thoroughly nice person, but his overall view of the man was one of sadness – that someone with such talent got so misplaced in his views about tax and spent so much of his life fighting Inland Revenue.
In the courtroom, Russell was always polite, fluent, well-prepared, a quick thinker and astute, and Barber said: ‘‘I would often think
. . . if he had a law degree he would be in demand as a top appellate barrister.’’
Russell was self-effacing, with his legal battles apparently driven by firmly held beliefs rather than narcissism. He was a man of integrity by his own standards, and a devout Christian. He was known for his pro bono community work.
Russell’s lifestyle perplexed Inland Revenue. He clearly did not lead a life of lavish spending and flashy living. I once asked him if there was money stashed somewhere. He replied: ‘‘If Inland Revenue do find a big pot of money, they can keep half of it’’ because it wouldn’t be his.
Russell visited University of Canterbury taxation students in 2011 and 2014. He was always enthusiastic and meticulously prepared. For many of the students, his visits were a course highlight.
He continued to work on tax matters until he was no longer able to do so, and was eventually admitted to Middlemore Hospital, Auckland, where he died.
Russell married Melva Hyde when she was 20 and he was 21. The couple had five children, 11 grandchildren and five greatgrandchildren. – By Alistair Hodson, lecturer in taxation law at the University of Canterbury. He wrote his masters thesis on John Russell.