Kiwi pensioner vows to battle to the death with IRD…

The taxman has invested millions and decades trying to shut down schemes of its 80-year-old nemesis, writes Phil Taylor of NZ Herald.
John Russell's files at his Kawakawa Bay home reflect his 36-year battle with the Inland Revenue Department.  Picture / Jason Oxenham
John Russell’s files at his Kawakawa Bay home reflect his 36-year battle with the Inland Revenue Department. Picture / Jason Oxenham

So John Russell, where are you hiding the Maserati?

Russell, 80, a tall man who walks with the aid of a stick, laughs heartily. “Unfortunately we don’t have any of them.”

In courtrooms and on business pages he is known as JG or John G Russell, scourge of the taxman.

Read more:
IRD hot on heels of tax dodgers
$400m IRD debtor stalls bankruptcy bid
Russell-linked tax avoidance case in High Court

To the Inland Revenue Department he is the country’s prime tax avoider.

It has spent decades and millions of dollars trying to bring him to book and is now seeking to bankrupt him on a tax bill of $442 million.

The IRD versus Russell began in 1978 and has raged all the way to the Privy Council. At its peak, 40 staff were dedicated to shutting down his tax schemes known as “the Russell Template”.

The department has tried five approaches — or “tracks” — in the Russell “tax wars”. In 2001 the Privy Council ruled that the template was “blatant tax avoidance”. The IRD is now working its way along Track E — seeking to personally bankrupt Russell for unpaid tax.

The figure has ballooned with interest and penalties from $74 million in little more than a decade. Offers by Russell, including paying $1000 a week until his death — an amount the department said wouldn’t even keep pace with the interest — have been rejected. Russell is seeking a judicial review of the IRD’s decision to decline his offers.

“They could have had $420,000 by now,” says Russell. Bankruptcy could see him and Melva, his wife of 60 years, see out their days in a retirement home courtesy of the taxpayer.

“It’s so ridiculous, I could burst out laughing.”

Bankrupting him may be one thing, finding assessable assets quite another.

Russell was once a high-flyer, the managing director of the biggest merchant bank in the country, Securitibank, with staff that included Sir Michael Fay, David Richwhite and Rod Petricevic (the latter is serving a jail sentence for fraud), but he has never lived the high life.

Before Securitibank collapsed in 1976, having got caught in a credit squeeze and a declining property market, Russell was sought out by media for comment on issues from property to the kiwi dollar.

Creditors were eventually paid the $31 million owed plus interest but Russell believed his reputation was so tainted he was unemployable and so set up business from his home as a liquidator and receiver. “While you are successful you are a financial genius, if you are unsuccessful you are a crook … that’s basically the way you are looked at in New Zealand.”

Russell says it is in his nature to challenge authority. Veteran business journalist Bob Dey suggested that resolve was hardened by Russell’s experience with Securitibank.

“He took his bitterness against the establishment into a business where the primary task seemed to be to outwit creditors of small companies which sought his help, and to infuriate bureaucrats.”

The template — which used partnerships to offset the profit made by one company against the tax losses of another — soon drew him into a battle with the IRD that Russell says has consumed half his time and millions in costs. His only other interest is the organ which he’s played in the country’s biggest churches and still plays most Sundays in the Kawakawa Bay Community Hall.

“Basically, the difference between the IRD and me is they say ‘we don’t want you to use those tax losses’ and I say ‘why not?’ If I’m the receiver of a company that owes money, those tax losses are an asset of the company [and] I am obliged to recover some money for the debenture holder.”

But isn’t the debenture-holder sometimes him? “Mostly it’s me!”

Some who have butted against him have described him as “trenchant” or worse. He understands he can be annoying. He’ll write to the IRD, enclose a copy of the relevant statute, and say “actually the statute doesn’t say what you said it said”.

“Oh, they hate that.”

At the height of his activities Russell had 58 staff, while the IRD, which feared other tax agents might copy the template if they saw Russell “getting away with it”, had nearly as many.

He sees the bid to bankrupt him as payback. “It is a true vendetta in that they are gunning for me personally and they are just going to do whatever they can to get rid of me.”

Good luck finding assets. The car in the drive is an unsexy secondhand Suzuki Aero, the house is ramshackle and due a lick of paint. Both are owned by a trust. Yellowing paper files line the carport, more inhabit boxes on the floor, documents fill his rumpty office out back.

For the interview we sit at the dining table, a bowl of plastic fruit between us while his five children, some of his 14 grandchildren and a beloved cat look on from framed photos on a sideboard.

No champagne, no chandeliers, just an old exercise bike in the front room and Melva busy in the dated kitchen preparing his hot lunch.

“Yes I enjoy the fight,” says Russell. He refers to old adversaries by their first names and says one once tried to hire him — a sort of takes-one-to-catch-one pitch. “I could never be a poacher who turns gamekeeper.”

Tax minimisation sits at the legitimate end of the spectrum, tax evasion at the criminal end with avoidance in between — the difficult grey territory that courts and even judges on the same panel can disagree about.

If a tax scheme is held to be avoidance — as Russell’s have — tax applies.

Russell has had many judicial scoldings — “blatant tax avoidance and contrary to our taxation laws” (Judge Paul Barber, 1994); “verging on fraud” (Privy Council, 1992); “negligent and reckless” (Justice Gault, 1989) — and some victories that include a ruling that the tax department was biased against him.

That came after an internal IRD strategy report urged the IRD to get personal. Russell could be dealt “a mortal blow”, the department must “take the fight to him … increase investigations of him … maintain any pressure … be more aggressive in court … hit him personally … ”

The taxman claims that between 1985 and 2000 Russell declared income of $298,700 when he should have declared $15.76 million. Russell claims he declared what he earned — less than $20,000 a year because that’s all he needs. The only item on his bucket list is an electric car. On second thoughts, he says, that seems a bit extravagant.

“I don’t think he’s motivated by money at all,” Canterbury University tax law lecturer Alistair Hodson, who did his masters degree thesis on Russell’s tax war, told the Herald.

“Perhaps it’s just the engagement, the game. The interaction has kept him going, his mind is so sharp.

“He has the ability to look at the law and say ‘oh, there could be a gap there’.” Russell has made a contribution to tax law but is no hero, Hodson says. “He is commonly seen as a tax avoider.”

Russell says he’s not worth anything personally. He would raise the $1000 a week he’s offered the IRD by causing companies he controls — “about 400” — to pay him that much more.

“Put it this way, the bricks and mortar and land — there are certain assets of that type that are owned by companies that are not mine but that I am receiver or liquidator of.”

A few years ago it was said that trusts he was associated with owned three properties with a combined valuation of less than $2 million.

One of those had “gone”, Russell commented when the Herald raised it.

The family home is owned by the Kawakawa Trust, of which his children are beneficiaries. It may be sold as Russell and Melva contemplate moving to retirement accommodation but that doesn’t mean surrender.

“It will be a fight to the death. I’ve said to [the IRD], ‘you guys have got to win in the end but I’m going to have a lot of fun in the middle section here because I’m not going yet’.”

When trust assets are eventually sold, the money will be spent by the beneficiaries and tax will apply, says Russell.

Death and taxes eh? “There’s nothing more certain,” smiles Russell.

“Well, maybe taxes not so much!”

-Acknowledgements:  NZ Herald

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11351404&ref=NZH_FBpage

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