Court delays decision on $138 million tax dispute

Photo / Nigel Marple

John George Russell, the man at the centre of a $138 million tax dispute with Inland Revenue, will have to wait several months until a decision is reached on whether he will be forced to foot the bill.

Russell has been contesting the tax bill, which involves alleged earnings he made during 1985-2000, with the IRD for a decade.

He told the Business Herald if he lost his Taxation Review Authority appeal he would most likely become bankrupt because he "doesn't have the money".

Russell, in his 70s, claims he does not owe the IRD a "single cent".

On Tuesday, in the High Court at Auckland, Justice Edwin Wylie reserved his decision on whether Russell's scheme was tax avoidance.

Russell says the penalties and interest that has compounded on the original amount of $5 million, ballooning it to $138 million, are draconian.

"What I'll do if I lose this case? Well, I'll just start saving up. They [the IRD] know they're not going to get anything. If they are successful they might bankrupt me. It doesn't really worry me one way or another. I'm not in business any more."

Russell started his business, Commercial Management, in the 1970s after Securitibank collapsed, which at the time was New Zealand's largest corporate failure, he said.

As a result, Russell started the "boom and disaster" enterprise, where he loaned money to companies close to collapse to try to save them, but often the businesses collapsed anyway.

Russell, then the largest secured creditor, would take over the businesses and buy the assets of profitable companies in the hope of building them back up.

As a result the company could file tax losses even though it had an opportunity to buy back the assets after a period and retained the daily management of the company.

The Taxation Review Authority decision claimed Russell benefited financially from the scheme and did not pay tax on those earnings.

The Privy Council later found the scheme breached anti-avoidance provisions of the Incomes Act.

In 2001, Taxation Review Authority judge Paul Barber estimated up to 3500 taxpayers could have been affected by Russell's schemes.