Inland Revenue Department v Johnston [2017] NZDC 16853 (1 August 2017)

Last Updated: 26 July 2018

EDITORIAL NOTE: CHANGES MADE TO THIS JUDGMENT APPEAR IN [SQUARE BRACKETS].

IN THE DISTRICT COURT AT PORIRUA

CRI-2017-091-000673

[2017] NZDC 16853

INLAND REVENUE DEPARTMENT

Prosecutor v

JOHN FELIX JOHNSTON Defendant

Hearing:	1 August 2017
Appearances:	N W Coyle for the Prosecutor J K Mahuta-Coyle for the Defendant
Judgment:	1 August 2017

NOTES OF JUDGE J A R JOHNSTON ON SENTENCING

[1] John Felix Johnston, you are 43 years old and you appear today for sentence, having pleaded guilty to 33 charges pursuant to s 143A Tax Administration Act 1994, for knowingly applying a total of $749,213.17 of PAYE for a purpose other than in payment to the Commissioner of Inland Revenue.

[2] Those charges relate to the period between 20 January 2011 and 20 September 2013.

[3] Each charge carries with it a maximum penalty of five years’ imprisonment and/or a fine not exceeding $50,000.

[4] The summary of facts shows that you were a director and majority shareholder in RDS Group Limited. That company provided labour supply in the form of truck drivers. The company started employing from 17 March 2010 and went into voluntary liquidation on 11 July 2013.

[5] The company employed around 30 people.

[6] The company was required to pay to the Commissioner of Inland Revenue deductions or withholding tax and PAYE made from employees’ earnings during each month by the 20th of the following month.

[7] The company did not pay $749,213.17 of PAYE by the due dates and is therefore deemed to have applied those funds for a purpose other than in payment to the Commissioner.

[8] The company eventually paid late payments totalling $298,180.11. Some of these late payments were applied to make the payment of penalties and use of money interest. At the time of liquidation, $525,139.25 of PAYE remained unpaid.

[9] On five occasions, the company had sufficient clear funds to pay the PAYE by the due date. As the director of the company, you were the person in charge of making sure that the company met its PAYE obligations.

[10] The Commissioner contacted the company numerous times via letters and phone calls to remind it of its obligations. Employees of the company, according to the summary, have confirmed that you received these regular reminders and made a conscious decision not to pay the PAYE deductions held by the company to the Commissioner. Instead of doing so, you prioritised a payment of trade creditors over the Commissioner and, I am told, gambled away at least $29,000 at the casino.

[11] The Commissioner is unlikely to recover any outstanding PAYE through civil proceedings. The liquidator of the company petitioned the High Court to adjudicate you bankrupt due to your failure to pay $233,047.94 that you owed to the company. The High Court granted a bankruptcy order on 14 December last year.

[12] The Commissioner seeks reparation. That is an agreed amount of $20,000.

[13] The summary discloses that you have previously appeared, but importantly, it is not relevant to tax offending. In fact, there is no fraud or dishonesty-related previous offending.

[14] When it comes to sentence, Mr Johnston, the Court has to look at a number of sentencing factors. Not only accountability for the harm that you have caused to the community but also promoting in you a sense of responsibility, providing reparation, denouncing your actions, and deterring not only you but also others from such offending.

[15] There are principles that the Court must also take into account, the gravity of the offending and your culpability for that offending, the seriousness of it in comparison to other offences as indicated by the maximum penalty for each charge. The Court must also be consistent with similar offences and where appropriate look to impose the least restrictive outcome.

[16] There are some aggravating features here.

[17] The extent of the loss. The loss to the community was significant, the tax shortfall alone in the vicinity of $500,000. Such offending is generally looked at as theft from the public purse.

[18] There is an element of premeditation here that is inherent in such offending. Month by month you were not meeting your obligations.

[19] I also add the duration and persistency over some two years and nine months, including 33 periods that were deliberate, calculated and – as I have said – have some premeditation to them.

[20] In your favour, of course, all matters are being dealt with by way of guilty pleas. I think it is important to mention here that this is not a case of deception, false invoicing, or of failure to file returns or erroneous returns. It is a situation where the omission was not meeting your obligations.

[21] Mr Coyle for the IRD has filed helpful submissions with authorities, and submits after the consideration of authorities including IRD v Coffey, IRD v Batchelor & Grifsky and IRD v Lusty1, that a starting point of 32 months’ imprisonment is appropriate.

[22] This is because their submission is that your situation is less serious than the Coffey case, where the starting point was 36 months’ imprisonment, but a bit more serious than the Lusty case where the starting point was 24 months’ imprisonment.

[23] There is some issue taken between the parties as to the quantum of the offending. The Crown submits that it could be in the vicinity of $525,000 of unpaid PAYE. Mr Mahuta-Coyle on your behalf suggests a figure closer to 450,000. The short point is that it is a significant sum involved.

[24] Mr Mahuta-Coyle has also filed very helpful submissions on your behalf.

[25] You are taking full responsibility for what you have done, and whilst there has been some question mark about the relevance of the gambling aspect, the reality is it is part of the mix. There were funds that were used by you for gambling, but in terms of its significance in the overall scheme, it is in my view not a significant amount when compared to the total quantum.

[26] You are supported in Court today by your mother. You are her only child. I am told that she is unwell and you provide care for her daily. I acknowledge her, and I thank her for providing some correspondence to the Court, which has been of some assistance.

[27] I take into account that you are remorseful. I take into account that you have been trying to put things right. This is a situation where you have been charged with aiding and abetting the company. To a degree, in the material that has been filed on your behalf – including an affidavit from you – you say that there has been some naivety on your part as a businessperson. You have clearly prioritised other creditors over the Commissioner, but you have also tried to take steps to address the offending.

1 IRD v Lusty (DC North Shore) CRI-2008-084-100, 6 March 2009

In that first year – and it is easy to look back with the benefit of hindsight – but that is where things went significantly wrong. I accept the submission from Mr Mahuta- Coyle that you essentially at that point got onto a treadmill and things worsened for you.

[28] The summary of facts that I have referred to earlier does not refer to if payments made were deducted entirely from the unpaid PAYE rather than interest and penalties. I also take into account that you have made ongoing regular payments since 2011, but they did not meet the accruing debts as they fell due.

[29] There is a pre-sentence report. That has a recommendation of home detention. That outcome is endorsed by Mr Mahuta-Coyle on your behalf and, as I say, reparation is also offered and an agreed figure of $20,000 at weekly payments of $125 per week is suggested.

[30] In all the circumstances and having considered the material before me, the starting point that I adopt in this case is one of 30 months’ imprisonment. That is based on the level of the fraud, its repeated and ongoing nature over the two year eight month period, but it also recognises my assessment of your dishonesty. It also includes the aggravating features that I have mentioned.

[31] I do not propose any uplift.

[32] There should also be discounts. There should be a discount for your guilty pleas and that is some seven and a half months.

[33] I also accept the submission from Mr Mahuta-Coyle that there should be some discount for the repayments that have been made, and that will be for an additional two months.

[34] It is also appropriate to take into account your remorse and responsibility for your offending, and what your most current employer has said about you. I give you another two month discount for that.

[35] That is a total discount of 11.5 months, which gets to an end point of 18 and a half months’ imprisonment which I round down to 18 months imprisonment in your favour.

[36] I then need to consider whether home detention is appropriate, because 18 months is a short sentence of imprisonment.

[37] I am satisfied on the basis of the applicable authorities and statutory factors that in these circumstances a short term of imprisonment would otherwise be appropriate, and that you are a suitable candidate for a sentence of home detention.

[38] The purposes for which this sentence is being imposed cannot be achieved by any less restrictive sentence or a combination of other sentences. The proposed address is suitable. The [occupant], consents and, of course, you know that she may withdraw that consent at any time.

[39] On each of the charges, you are therefore convicted and sentenced to home detention for a period of eight months. You are to reside at [address deleted].

[40] It is also appropriate to undertake community work, and on each of the charges you are convicted and sentenced to 200 hours of community work. I give authorisation to convert hours of work to training if that is deemed appropriate by your Corrections officer.

[41] Last, there is the issue of reparation and I order you to pay reparation of

$20,000 by instalments of $125 per week. The first payment will be in 14 days. That is 15 August 2017.

[42] So Mr Johnston, a total of eight months’ home detention, 200 hours of community work, and the reparation of $20,000.

[43] ADDENDUM.

[44] Post sentence it was drawn to my attention that no standard post detention conditions were imposed pursuant to s 80N Sentencing Act 2002. The matter was recalled pursuant to s 180 Criminal Procedure Act 2011 on 4 August 2017 to enable the error to be corrected.

[45] In addition to the sentence I imposed on 1 August 2017 set out above Mr Johnston is also sentenced to the standard post detention conditions for a period of 6 months from the detention end date in accordance with s 80N Sentencing Act 2002.

J A R Johnston District Court Judge