IRD warns investors of tax avoidance schemes

Inland Revenue
Te Tari Taake

MEDIA RELEASE

17 April 2001

Inland Revenue warns investors of tax avoidance schemes

The Commissioner of Inland Revenue is cautioning people against buying into tax avoidance schemes, which can prove ruinous.

“If these schemes look too good to be true, they probably are,” said David Butler.

“Investors risk severe monetary penalties and may be prosecuted for fraud.”

His comments came after the Privy Council ruled against a scheme promoted by an Auckland tax adviser, JG Russell.

This was perhaps the most prolific tax avoidance scheme in New Zealand history.
It was described by the Taxation Review Authority as affecting the lives of hundreds or thousands of people who invested in it. The Authority also said that these investors and their families and staff “are having their lives ruined by financial stress which seems likely to continue for years and years”.

Mr Butler said the Privy Council ruling made it clear beyond doubt that the JG Russell scheme is void for tax purposes. He said from the date of the judgment any investor who files tax returns claiming the alleged tax advantages from the scheme is likely to receive severe monetary penalties for taking an “abusive tax position”. Such investors may also be prosecuted for fraud.

“People investing in similar tax avoidance schemes run the same risks,” said Mr Butler.

He said investors should ask whether a scheme is the subject of a ruling by Inland Revenue, and confirm if it is binding and clarifies a scheme’s tax status.

Inland Revenue is pursuing at least $10m of tax owed by investors in the JG Russell scheme. The Magnum case, by comparison, involved only $2m of tax.

In the last year, litigation was completed on tax avoidance cases involving $148 million in revenue. Of that amount, $139 million (94%) was resolved in favour of the department, said Inland Revenue's Director of Litigation, Mike Lennard.

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Mr Butler said he welcomed the Privy Council’s rejection of serious allegations against Inland Revenue staff of irrationality, abuse of power, and acting without delegation. All these allegations were considered, but each of them was firmly struck-off by the Privy Council. In particular the allegation of irrationality was described as “preposterous”.

ENDS

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