Inland Revenue Department v Basslaj [2020] NZDC 19345 (16 September 2020)

Last Updated: 12 July 2021

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

IN THE DISTRICT COURT AT WELLINGTON I TE KŌTI-Ā-ROHE KI TE WHANGANUI-A-TARA

CRI-2019-042-001419

[2020] NZDC 19345

INLAND REVENUE DEPARTMENT

Prosecutor v

NEVIL ROSS BASALAJ Defendant

Hearing:	16 September 2020
Appearances:	A Instone for the Prosecutor D Weaver for the Defendant
Judgment:	16 September 2020

NOTES OF JUDGE J KREBS ON SENTENCING

[1] Mr Basalaj, you face sentence today, as you know, on nine charges of applying tax deductions for a purpose other than accounting to the Inland Revenue Department.

[2] You operated a boat building business in Nelson for many years. In 2008 you purchased the business of another boat building company to expand your own existing business. You set up a company called Nelson Reliance Company 2008 Limited. You built boats and you refitted existing boats. It was a substantial operation and at one point you employed about 50 staff members.

[3] The company fell on difficult times and 10 years after it was incorporated was placed in liquidation in March 2018. Throughout that you were the sole director of

INLAND REVENUE DEPARTMENT v NEVIL ROSS BASALAJ [2020] NZDC 19345 [16 September 2020]

the company and you have accepted very frankly that you had responsibility for all of the company’s operations including its tax responsibilities.

[4] Every week or every fortnight when you paid wages to your employees, you deducted from what they were entitled to receive, income tax, student loan repayments, child support payments, Kiwi Saver payments and employer super contribution tax.

[5] Effectively those deductions were held in trust by you. Your lawyer, Mr Weaver, argues that it is not as simple as that, that the money was not necessarily paid into a separate account to be later paid to the tax department but in reality and the authorities are clear, the money that was due to be paid to the employees but which you did not pay because you had to withhold it, was in fact held as a credit in trust by you.

[6] There had been a period in somewhere around 2014 or 2015 where you had failed to pay this money across to the Inland Revenue Department on time, although you had filed the tax return. So there was no question of you wanting to hide the money. The IRD representative spoke to you and all of that was repaid, together I am told with any penalties and late payment interest.

[7] In May 2015 you were given a verbal warning and told that it was a criminal offence not to pay PAYE. Then again in February the following year, 2016, there was another discussion between you and the tax department and again you were reminded that it was not your money that you were given and you were again given written advice that the PAYE had to be paid on time and you were told that there would be potential criminal prosecution and potential penalties of up to five years’ imprisonment or a fine of up to $50,000 for not making the PAYE payments on time. In February 2016 no prosecution was brought and the funds were paid.

[8] But then again, about 15 months later in June 2017, your business got into strife and between June 2017 and February 2018, you did not make any of the PAYE payments. That was despite you keeping the business operating, keeping paying your employees and effectively deducting from what they were entitled to receive, the tax,

the PAYE and other payments. In total $491,447.31 was effectively withheld by you and not paid over to the tax department. And it is for those nine monthly payments that you have been charged with the nine offences.

[9] You were full and frank in your admissions to the tax department. You did not try to hide any of this. You had filed the returns and that is an important distinction because in some cases employers not only do not pay the money to the tax department, they do not even file the returns which would alert the tax department to their liability. They go under the radar and that is a significantly more troublesome offence than what you are charged with and have pleaded guilty to here.

[10] You explained to the tax department when you were interviewed that your company had suffered the loss arising from a $1 million breach of contract. You had invested about $400,000 to $500,000 in legal fees trying to pursue that money in the hope that you would get that back and that had contributed to your inability to make the tax payments in part.

[11] Secondly, you had explained that a disgruntled employee had set up a company in opposition to yours and as a result two lucrative contracts were lost.

[12] Thirdly, you explained that another company, Reliance Engineering Limited, had been placed in liquidation. That was unrelated to you but had a similar name and there was some spin-off in terms of the way that reflected on the reputation of your own company.

[13] Fourthly, and finally in relation to your explanations, you admitted taking your eye off the ball in October 2017, so that was four or five months into this period, because your son was diagnosed with a serious illness and you focussed your attention on him. I accept that and I accept that that is what any father would do.

[14] That said, the sums involved here are significant. There is quite a difference in the starting points contended for by your lawyer and by the Department’s lawyer. As would have been explained to you, the starting point is the starting point for penalty which I have to set before going on to decide what the discounts should be.

[15] The maximum penalty here is five years’ imprisonment for each offence and the prosecutor says that a starting point of two and a half years would be appropriate in your case.

[16] Mr Weaver, on your behalf, suggests that a starting point of 18 months’ imprisonment should be adopted.

[17] Some years ago the Court of Appeal in the case of Zaheed v R determined that in tax cases deterrence, denunciation and accountability are the factors which sentencing judges should hold in mind.1 By that they meant that a sentence which deters you from behaving this way again and deters others from behaving this way, denunciation simply to reflect that what you did here was an offence, not against the tax department per se but against the whole of New Zealand and thirdly, to hold you accountable for what you have done.

[18] The prosecutor argues that this was premeditated in that you were pre-warned, that there were nine separate offences, the quantum is significant, approximately half a million dollars, and as I have said that this was not victimless. Mr Instone accepts that you have no relevant previous convictions and should receive at least some credit for your good character.

[19] Mr Weaver, in submissions, has argued that whilst this might be considered premeditated in that it was a conscious choice what you did, you really left with no feasible option other than to shut the company doors on 1 June, when you first could not make the payment. He did not use these words, but the thrust of the submissions was that was unrealistic and what you were really trying to do was to keep your business afloat and you tried to keep your employees employed. That would have had a benefit to the community of course in keeping people in employment and putting money into other families’ homes.

[20] Mr Weaver accepts that you made a choice that was wrong, it breached the law and you have admitted that but you did so for reasons which were, I think the proper

1 Zaheed v R [2010] NZCA 573.

word is, altruistic. Furthermore, the pot was empty and there was simply no means for you to pay this tax liability.

[21] I received reference to a significant number of other cases where judges in other courts have sentenced people in the past for tax offences such as these. I first need to acknowledge that, as I have done I think already, that the offence here is one of simply failing to pay an acknowledged debt, not trying to avoid recognition of the debt in the first place which would have been more serious and Mr Instone accepts that that is the case. His submissions are predicated, however, on the basis of some cases which do involve that more serious offence and, in my view, the started point contended for is too high here.

[22] The cases of R v Easton and Clancy v Inland Revenue Department I think are relevant.2 In the case of Easton the amount not paid was less than half of the amount you did not pay, that went on appeal and as an absolute minimum the Court of Appeal felt that a starting point of 12 months’ imprisonment would be appropriate. In my view the offending here is worse than in the case of Easton, there was a greater sum of money involved for a start and secondly, it is clear that you were alerted over the years preceding your offending here to the fact that you did need to prioritise tax payments. Whilst it is true that you may have had few options, nonetheless on nine separate sequential occasions you chose to commit the offence which you had already been warned about.

[23] The case of Clancy in my view is more serious. The starting point there was two and a half years’ imprisonment. The endpoint reached was 20 months’ imprisonment. There were 12 periods involved. It was a similar sort of offence to here, in other words a failure to pay, not a hiding of the liability in the first place. Because there were more episodes in that case than in this case, in my view that is more serious.

[24] Without express reference to all of the other authorities, for which I thank counsel, in my view the appropriate starting point here is 24 months’ imprisonment or two years’ imprisonment. From that I will deduct six months, being 25 per cent for

2 R v Easton [2013] NZCA 677; Clancy v Inland Revenue Department [2017] NZHC 2029.

your guilty plea and for your thorough co-operation with the tax department throughout the investigation. That would take me to 18 months’ imprisonment.

[25] I am prepared to grant a further discount for your previous good character. That is somewhat tempered or reduced because of the repeated behaviour here, however, a three-month discount for good character and a further three months because of the efforts which you are going to take to make the repayments and by that I mean the reparation which I am about to order. That would bring me to a final sentence, were it to be imprisonment, of 12 months’ imprisonment.

[26] Imprisonment is not required in this case. I am required to impose the least restrictive outcome, given the way in which these offences arose and the financial constraints with which you were faced, a sentence short of imprisonment is appropriate. I would instead reduce that to home detention which would be for a period of six months.

[27] I am persuaded in this case by Mr Weaver, however, that in order to be able to make the repayments, it is important that you are able to continue to maintain the business which would allow you to make the reparation payments which you have started and which I will shortly order. That said, if that does not prove possible or if there are any slip ups with the reparation, you know that the department will invite me to re-sentence you and there will be a different sentence imposed. You do understand that, you are nodding at me and I record that.

[28] The sentence therefore will be a sentence of community detention for the maximum period I can impose which is for a period of six months. That will commence tomorrow, 17 September. You will be required to be detained at [address deleted] in Nelson between 7 pm and 7 am daily. You are to report to the Probation Service in Nelson by 4 pm tomorrow. You may go at any time in the afternoon if possible tomorrow, but you are to report to Probation in Nelson by 4 pm, by that time, to be inducted into your sentence and then the sentence, as I say, will commence tomorrow evening.

[29] In addition, you are sentenced to 300 hours’ community work as a further punitive component of this sentence.

[30] In relation to reparation, you have offered to pay reparation. You want to pay reparation. You acknowledge that it needs to be paid. The department has no means to recover that because the company which actually owes the money is in liquidation. However, you recognise that you are responsible for the debt as the director of the company morally, if not legally. You have offered to pay a substantial amount of reparation and some has been paid by you into a solicitor’s trust account already. I am told and accept that that is in the sum of $18,000 and I direct that that be paid by way of reparation no later than 25 September, which is Friday next week.

[31] I am going make an order that $300,000, which is not the full amount of reparation, which is an amount which you have essentially offered, be paid by way of reparation at the rate of $2,000 per week, a substantial amount I acknowledge, but that is offered by you and you confirm you can pay it and that is to commence on 2 October 2020.

Judge J Krebs

District Court Judge

Date of authentication: 08/10/2020

In an electronic form, authenticated pursuant to Rule 2.2(2)(b) Criminal Procedure Rules 2012.