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District Court of New Zealand |
Last Updated: 10 July 2024
EDITORIAL NOTE: CHANGES MADE TO THIS JUDGMENT APPEAR IN [SQUARE BRACKETS].
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IN THE DISTRICT COURT AT WELLINGTON
I TE KŌTI-Ā-ROHE
KI TE WHANGANUI-A-TARA
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CRI-2019-085-001534
[2024] NZDC 9248 |
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COMMISSIONER OF INLAND REVENUE DEPARTMENT
Prosecutor
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v
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KEITH THOMAS JAQUES
Defendant
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Hearing:
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20 February 2024
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Appearances:
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A Instone and E O’Sullivan for the Prosecutor M Robinson for the
Defendant
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Judgment:
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26 April 2024
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RESERVED JUDGMENT OF JUDGE R L B SPEAR
[Reasons for the Verdicts]
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VERDICTS
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CRN
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19085500658
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Guilty
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19085500659
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Guilty
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19085500660
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Guilty
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19085500661
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Not Guilty
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19085500662
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Not Guilty
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19085500663
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Guilty
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19085500664
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Guilty
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21085500049
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Guilty
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21085500050
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Guilty
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21085500051
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Guilty
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COMMISSIONER OF INLAND REVENUE DEPARTMENT v KEITH THOMAS JAQUES [2024] NZDC 9248 [26 April 2024]
[1] The defendant faces nine charges for offending under the Tax Administration Act, (the TAA):
- (a) Six of the charges relate to the 2013, 2014 and 2015 tax years. They have been collectively referred to as the 2019 charges, given that they were laid on 25 June 2019.
- (b) There are then three further charges relating to the 2019 and 2020 tax periods, which have been collectively referred to as the 2021 charges, given that they were laid in February 2021.
[2] On 21 April 2022 an order was made that all the charges would be heard together.
[3] A convenient summary of the charges is set out in paragraphs [3], [4] and [5] of the prosecutor’s opening submissions:
- [3] The first set of charges (filed in 2019) are as follows:
- (a) 4 charges under s 148 and s 143B(l)(c)&(f) (3 being representative and 1 being stand alone) of the Tax Administration Act 1994:
That the Defendant aided and abetted Wellington Events Limited and Donut Express Limited to provide the Commissioner of Inland Revenue with false or misleading information (namely 18 GST returns, and 4 income tax returns) in respect to a tax law with the intention of evading the assessment or payment of tax. (See: CRNs ended 00658, 00659, 00661 & 00662);
(b) 2 representative charges under s 148 and s 143B(l)(d)&(f) of the Tax Administration Act 1994:
That the Defendant aided and abetted Wellington Events Limited and Donut Express Limited that knowingly failed to make deductions required by a tax law and did so with the intention of evading the assessment or payment of tax. (See: CRNs ended 0660 & 0663);
(c) 1 representative charge under s 143B(l)(c)&(f) of the Tax Administration Act 1994:
That the Defendant provided the Commissioner of Inland Revenue with false or misleading information (namely 3 personal income tax returns) in respect to a tax law with
the intention of evading the assessment or payment of tax.(see: CRN ended 0064).
[4] The second set of charges (filed in 2021) are as follows:
- (a) 1 representative charge under s 143B(2) of the Tax Administration Act 1994:
That the Defendant evaded or attempted to evade the assessment of GST in relation to certain business activities in the food vending industry for the period 31 March 2019 to 31 March 2020. (see CRN ended 00049);
(b) 1 representative charges under s 143B(2) of the Tax Administration Act 1994:
That the Defendant evaded or attempted to evade the assessment of PAYE in relation to certain business activities in the food vending industry for the periods ended 1 April 2019 to 31 March 2020 (see: CRN ended
00050);
(c) 1 representative charge under s 143B(1)(b)&(f) of the Tax Administration Act 1994:
That the Defendant knowingly did not provide information (including tax returns and tax forms) to the Commissioner of Inland Revenue or any other person when required to do so by a tax law and did so intending to evade the assessment or payment of tax. (see: CRN ended 00051).
[5] All of the offences have a maximum penalty of a term of imprisonment not exceeding 5 years and/or a fine not exceeding
$50,000.
[4] At paragraph [7] of the prosecutor’s opening submissions, the essence of the prosecution case against the defendant is put in this way:
[7] The Prosecutor notes that whilst the charges are separate in time there is continuity of the same business enterprise and there is a continuum of the central allegations, namely: suppression of cash sales, failing to account for employee deductions and false reporting of tax positions throughout both sets of charges.
[5] The trial was set down for two weeks commencing 19 February 2024. Unfortunately, Mr Robinson of counsel for the defendant was recovering from Covid- 19 which meant a delayed start on 20 February 2024. Additionally, the principal witness for the Inland Revenue Department (IRD) in respect of the 2019 charges, Ms Goggin, succumbed to Covid-19 by the time of the start of the trial and accordingly
the IRD evidence for the 2021 charges was heard first. The evidence in respect of the 2021 charges relied to an extent on background information that was to be given by the lead prosecution witness (Ms Goggin) in respect of the 2019 charges. That meant that the evidence given by Ms Mellor (the lead IRD witness for the 2021 charges), was at times difficult to follow given many of the assumptions that were adopted by Ms Mellor as a result of certain conclusions reached earlier by Ms Goggin. Be that as it may, this was a criminal case that had been outstanding for far too long and it needed to be heard.
[6] From the early 2000s, the defendant and his then wife, Ms Mirusia Spetznar, were involved particularly with selling donuts at various events. It certainly appeared during the course of the trial the defendant was a hardworking person and something of an entrepreneur. From about 2005, the evidence was that the defendant was not only involved with the selling of donuts at various events, but also working as an A-grade mechanic, operating a stretch limousine business and also renting Xbox controllers and games.
[7] The defendant and Ms Spetznar, separated in 2011, around the time they were trading as “Little Orbit Donuts Wellington”. While Ms Spetznar, worked occasionally on the donut carts at events, she explains that the overall business management was undertaken by the husband. By the time of separation, the business had grown from a single donut cart purchased by the defendant on Trademe in 2002 to where there were up to seven carts at times for major events.
[8] Following the separation, a spousal maintenance agreement was entered into whereby the defendant paid Ms Spetznar the sum of $1,000 per week and an eventual capital sum of $200,000 in settlement, apparently for a share of the donut business.
[9] Following the separation, the defendant had two companies incorporated, being Wellington Events Limited (WEL) and Donut Express Limited (DEL). WEL also was registered for GST. WEL operated the business until September 2014 and at around the same time DEL registered for GST and as an employer with the IRD. In February 2015 the IRD were advised that DEL had purchased the assets from WEL. This advice prompted interest from the IRD as the defendant then claimed a GST
refund for DEL of over $200,000. That is significant only to the extent that it clearly made the defendant’s operations a matter of some interest to the IRD. To that end, on 30 July 2015 the defendant received notification from the IRD that it proposed to undertake an audit of the tax affairs of WEL, DEL and Mr Jaques personally.
[10] DEL applied for a loan from the BNZ on 12 November 2014 for $200,000. That loan was approved with the outcome that the $200,000 was drawn down by DEL and immediately paid out to Ms Spetznar – clearly in settlement of the matrimonial property, or more exactly her interest in the assets of WEL then taken over by DEL.
[11] WEL had effectively stopped trading in late 2014 and clearly the WEL business was taken up and run by DEL from that point. At all times, ownership and control of WEL was with the defendant. While the defendant used various advisors throughout the WEL and DEL trading periods, it is crystal clear that he was in complete and close control of the business operation. Indeed, that close control continued through to the 2019 and 2020 financial years when the business was run under a new company established by the defendant.
[12] What then followed by the audit of WEL, DEL and Mr Jaques and the defendant’s tax affairs is summarised in a letter to the defendant’s tax advisor of the time, Mr Ismail Rasheed by the IRD of 14 February 2018. This letter is of some significance, so it is now set out in full:
Dear Mr Rasheed
Re: Audit summary of concerns
Thank you for meeting with Rob Nicol and myself on Thursday 25 January 2018 . As discussed, I advised that I would provide a summary of the concerns Inland Revenue has uncovered during the Investigation into Mr Keith Jaques, Donut Express Limited and Wellington Events Limited. These are outlined below:
Mr Jaques
Wellington Events Limited
Donut Express Limited
The issues discussed further below will explain most of the sales discrepancies.
Wellington Events Limited - 2013
Wellington Events Limited - 2014
Wellington Events Limited - 2015
2015 Donut Express Limited -
3. Cash deposits into Mr Jaques's private bank accounts
BNZ [bank account 1]
BNZ [bank account 2]
ASB [bank account 3]
ASB [bank account 4]
Westpac [bank account 5]
Westpac [bank account 6]
Please do not hesitate to contact Rob Nicol on [phone number deleted] if you have any further queries.
Yours sincerely
Lizzy Goggin
Investigator
[13] As can clearly be seen from a consideration of that letter, the defendant and his business entities (WEL and DEL) were in difficulty with the IRD and with the eventual outcome, DEL was placed into liquidation on 5 February 2019 on the petition of the IRD.
[14] The defendant however transferred some significant assets from DEL into his personal name the day before DEL was placed into liquidation. The defendant then began operating as a sole trader prior to the incorporation by him of a new company, Donut Express 2004 (DEL4) on 29 March 2019. The defendant was the sole shareholder and sole director of DEL4 at the time of incorporation. Notwithstanding some movement in the shareholding and directorships of DEO4, I am in not doubt that the defendant maintained the same level of complete and close control of DEO4 throughout that company’s trading life. That will be dealt with in due course.
[15] On 16 April 2020 the defendant also filed documentation with the Companies Office, changing the name of DEL4 to No Name Donuts Limited (NNDL). Any reference to NNDL can be taken also as a reference to DEL4.
[16] On 23 May 2019, all the shares in NNDL were transferred by the defendant to a Mr Bodie Bluett who was then also appointed as the sole director of NNDL consequent on the retirement of the defendant as director. Subsequently, 50 per cent of those shares were transferred to a Mr Steve Ottow who was also appointed as director. The documentation relating to the removal of the defendant as a director, the transfer of shares both to Mr Bluett and to Mr Ottow and their respective appointments as director were all filed at the Companies’ Office by the defendant.
[17] On 8 July 2020 the IRD notified the defendant of its intention to undertake an audit of his personal income position for the period 6 February 2019 to 30 June 2020.
[18] On 22 July 2020 the IRD notified the defendant of its intention to undertake an audit of NNDL for PAYE.
[19] On 4 August 2020, the defendant filed a document with the Companies Office confirming the removal of Mr Bluett as a director effective 20 July 2020, leaving Mr Ottow as the sole director of NNDL.
[20] Both Mr Ottow and Mr Bluett gave evidence. Mr Ottow gave his occupation as truck driver and “Ops manager”. Mr Ottow stated that he paid $5 to the defendant in return for receiving 100 per cent of the shareholding in NNDL.
[21] Mr Bluett was not sure how he received 50 per cent shares in NNDL and he was adamant that he did not pay for any shares. He was aware that he had become a director but subsequently informed the defendant that he could not continue because of mental health difficulties. Mr Bluett confirmed that he was a friend of both Mr Ottow and the defendant, that he had no experience in running a business and while he had worked in the donut business, that was undertaking cleaning work.
[22] Notwithstanding the change in shareholding and the appointment and retirement of directors, the evidence established that the defendant remained as general manager of the business. I am in no doubt at all that the defendant inserted two of his friends or associates as shareholders and directors of NNDL to provide something of a buffer between himself and the IRD, but that at all times he remained firmly in control of the NNDL business in all respects. Neither Mr Ottow nor Mr Bluett impressed me as individuals with even a modicum of business experience such as to provide any qualification to attend to the governance of this business.
[23] The charges relating to the various companies have charged the defendant as having aided and abetted those companies to have committed the offences concerned. In all respects, I am in no doubt that, in all respects, the various actions alleged to have been undertaken or not undertaken by the companies were at the direction of the defendant.
[24] I have covered the development of the defendant’s business interests that are relevant primarily through WEL, DEL, a short period of personal trading and finally
DEL4 / NNDL. Essentially, the evidence established that the business commenced in Wellington and primarily at Westpac Stadium. It then developed its sphere of operations to include events at Auckland and Hamilton. There was also the occasional major event outside those three centres and in particular reference has been made to the Rhythm and Vines event at Gisborne. The business operation started with just selling donuts but developed to include coffee carts and also churros.
[25] What is of particular significance is the way in which the business was conducted. Essentially, a number of casual staff were engaged either to man the donut/coffee/churro carts, or to “work the aisles”. These casual staff appear primarily to be students. The defendant accepted that the casual staff were employees and not contractors but, in many cases, made no deduction for PAYE. This is an issue that will be returned to. What is also not disputed is the record keeping of the business operation, or at least as applied by the defendant. Those casual staff involved with the taking of payment for the goods supplied would at the end of the day complete a return identifying the payments received, primarily divided between Eftpos and cash. Later on, the use of loaded credit/debit cards were also factored in. The defendant would then collate all those individual payment returns in completion of what was described as an “end of event record”.
[26] It is in respect of the record keeping for the cash that there is a significant and fundamental dispute between the IRD and the defendant. The case for the prosecution is that the defendant did not account for all the cash received in respect of the various events either for his various companies from time to time or for himself. The evidence for the prosecution against the defendant was directed primarily at proving that the defendant did not fully account for all cash received in respect of his various returns to the IRD, either for his businesses or for himself personally.
[27] The evidence is clear that the bookkeeping for the various businesses and the defendant personally depended upon the defendant correctly accounting for all the cash received. It depended on the defendant accurately transcribing the returns completed by each of the casual employees onto the end of event record.
[28] While the defendant did, from time to time, employ various consultants to assist with his business dealings, the evidence is also abundantly clear that he was in complete control of the business operation. Having regard to the impression made on me by the defendant during the course of his evidence, and also observing the way the defendant conducted himself over the course of the four recorded interviews with the IRD, I have no doubt at all the defendant was over all aspects of this business at all times and that nothing occurred without his knowledge and approval. Indeed, while the defendant certainly left the impression of being something of an entrepreneur and perhaps someone who remained focused on the development of the business, it would also be fair to describe him as something of a micro-manager.
[29] It is of course for the prosecution to prove each of the essential elements of any of these charges to the high criminal standard of beyond reasonable doubt before a verdict of guilty can be entered. The defendant is presumed to be innocent of each of these charges until or unless the charge is proven beyond reasonable doubt. While the defendant gave evidence in this case in his defence and subjected himself to four separate and lengthy interviews with the IRD investigators, he had nothing to prove at all.
[30] All but one of the charges are specified to be representative charges. In respect of each of those representative charges, the allegation is that the defendant committed the specified offence in respect of certain specified tax returns. In order for the defendant to be found guilty of any of those representative charges, it is incumbent on the prosecution to prove beyond reasonable doubt that the offence was committed in one or more of the specified respects.
[31] Essential to all the charges is the requirement to prove that the specified act or omission was undertaken with the intention to evade the assessment or payment of tax. In this respect reference is made to the decision of the High Court in R v Rowley & Skinner,1 where at [457] Kos J stated:
...“Evade” denotes an element of intent. In Babbington v CIR (No 2) Turner J held that an evasive intent involves knowing that the act or omission intended is wrong or acting deliberately or recklessly as to whether or not the act or
1 R v Rowley & Skinner [2012] NZHC 1778.
omission is wrong. In Abraham v District Court at Auckland the Court of Appeal said:
The appellant does not appear to have any viable defence to the charges. The appellant accepts that the company filed false GST returns, prepared and signed by him, but says that there was no intention to evade GST as he always intended to rectify the position with the IRD at some future point. But even if this account were to be accepted as credible or possibly credible (which on the facts must be very unlikely), it would not constitute a defence to the charges. Given a taxpayer’s obligations in this context (see R v Gilchrist [2007] 1 NZLR 499 (SC), especially at [9] and [15] – [20]) we consider that the company and the appellant would have had the necessary intention even on the appellant’s version of events. This was not a case of error or oversight in the completion of a return. Rather, at the appellant’s instigation, the company’s income was deliberately under-stated in its returns so that the company did not have to meet its GST obligations as they fell due. There was an intentional avoidance of payment in circumstances where the company knew it was under an obligation to pay. This constitutes an intent to evade - see Wilson v Chambers and Co Pty Ltd (1926) 38 CLR 131, especially at 141 – 142 per Isaac J, and
Taylor v Attorney-General [1963] NZLR 261 at 262 (SC).
I accept the submission by the Crown that where the accused knew they were deliberately understating their income in the relevant tax returns (as I have found), then the “only available inference” is that they intended to evade the assessment or payment of tax.
[32] I approach the element of the charges of an intention to evade the assessment of payment of tax in accordance with that authority, that is that “an evasive intent involves knowing that the act or omission intended is wrong or acting deliberately or recklessly as to whether or not the act or omission is wrong”.
[33] It is well understood that New Zealand’s tax system is predicated on the concept of voluntary compliance. That is, that there is an expectation that taxpayers will file tax returns with minimal prompting and what they file will be honest and accurate. It encapsulates the taxpayer’s tax obligations as provided by s 15B of the TAA:
15B Taxpayer's tax obligations
A taxpayer must do the following:
(aa) if required under a tax law, make an assessment:
(a) unless the taxpayer is a non-filing taxpayer, correctly determine the amount of tax payable by the taxpayer under the tax laws:
(b) Deduct or withhold the correct amounts of tax from payments or receipts of the taxpayer when required to do so by the tax laws:
(c) Pay tax on time:
(d) Keep all necessary information (including books and records) and maintain all necessary accounts or balances required under the tax laws:
(e) Disclose to the Commissioner in a timely and useful way all information (including books and records) that the tax laws require the taxpayer to disclose:
(f) To the extent required by the Inland Revenue Acts, co-operate with the Commissioner in a way that assists the exercise of the Commissioner's powers under the tax laws:
(g) Comply with all the other obligations imposed on the taxpayer by the tax laws.
[34] Every taxpayer must file an income tax return for each tax year by a specific date.2
[35] Any person registered for GST in terms of s 51(3) of the Goods and Services Tax Act 1985 (the GSTA) must furnish a GST return by the 28th of the month following the end of each taxable period (except for the March and November periods which allow slightly more time for filing).3
[36] While much of the evidence for the IRD was directed towards assessing the GST and income tax positions at various times, this is not a case where the Court has to determine what (if any) tax is unpaid. Evidence of those assessments was simply part of the factual matrix from which the Court was to consider what inferences (if any) could be drawn towards a consideration as to whether a particular charge has or has not been proven to the required standard.
The 2019 charges
2 Section 33 and 37 Tax Administration Act 1994.
3 Section 16 Goods and Services Tax Act 1985.
[37] It is convenient to deal first with the 2019 charge relating to the GST returns for WEL prior to addressing the other charges relating to that company. The charge is more exactly:
Between 27 June 2012 and 19 December 2014 at Wellington (the defendant) aided and abetted the offending of Wellington Events Limited that knowingly provided the Commissioner of Inland Revenue with false information (namely 15 GST returns) with the intention of evading the assessment or payment of tax in relation to the GST periods ended 31 July 2012 to 13 November 2014 (inclusive) –
s 148 and 143B(c) and (f) Tax Administration Act 1994 -Representative charge
[38] The elements required to be proven beyond reasonable doubt in relation to this charge are as follows:
- (a) WEL knowingly provided information to the Commissioner of Inland Revenue.
- (b) The defendant aided and abetted WEL in that respect.
- (c) That information was in respect of a tax law or matter or thing relating to a tax law.
- (d) The information provided was false and misleading.
- (e) The defendant did so intending to evade the assessment or payment of tax for WEL.
[39] Pursuant to s 148 TAA, a person who aids, abets, incites or conspires with another person to commit an offence (the principal offence) against the TAA commits an offence against the TAA. In this case, and as applies to all the other charges that relate to the defendant “aiding and abetting” a company to commit an offence, the overwhelming evidence is that the defendant was in complete management control of the relevant business. The defendant was assisted over much of this period with respect to both GST and income tax returns for WEL by Mr Payush Gosalia. Mr Gosalia’s evidence is that he prepared GST and income tax returns for WEL over this relevant period. However, Mr Gosalia was clear that he prepared those GST and
income tax returns for WEL on instructions from the defendant. While he had access to the records through Xero, he did not have access to the business bank accounts. Importantly, he relied on the information provided to him by the defendant as to the turnover and expenditure.
[40] The evidence from the defendant in this respect is that he relied upon the expertise of his accountant and bookkeepers to ensure these returns were filed correctly. However, they necessarily had to rely upon the information provided by the defendant, and it is simply not credible for the defendant to attempt to distance himself from the inaccuracies in the various GST and income tax returns. Indeed, as the trial progressed and the Court was able to observe the defendant both being interviewed on those four occasions by Ms Goggin as well as during the course of his evidence, it was clear that he had an excellent grasp of his business, the attendant responsibilities and the records that he was required to keep.
[41] The GST returns filed for WEL can be summarised as follows:
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Periods
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Date Filed
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Total Sales
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31/05/2012
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08/06/2012
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Nil return
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30/07/2012
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29/08/2012
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$113,871.54
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30/09/2012
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29/10/2012
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$136,683.10
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31/11/2013
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24/12/2012
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$88,435.38
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31/01/2013
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10/06/2013
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$36,571.92
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31/03/2013
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10/06/2013
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$68,451.30
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WEL
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Annualised
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Sales
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$444,013.24
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GST
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31/05/2013
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09/07/2013
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$58,563.52
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31/07/2013
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28/08/2013
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$68,594.51
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2~monthly
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30/09/2013
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24/10/2013
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$42,418.13
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30/11/2013
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12/12/2013
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$43,382.29
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as
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31/01/2014
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20/02/2014
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$55,425.94
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31/03/2014
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24/04/2014
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$125,838.21
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filed
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Annualised
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Sales
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$394,222.60
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31/05/2014
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19/06/2014
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$87,382.98
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31/07/2014
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27/08/2014
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$119,452.88
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31/09/2014
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16/10/2014
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$74,775.45
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30/11/2014
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19/12/2014
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$10,754.42
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Annualised
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Sales
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$292,365.73
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[42] This covered the 2013, 2014 and 2015 financial years for each of the two monthly periods that WEL operated.
[43] During the course of Ms Goggin’s investigation, she requested source records to determine whether the GST returns were accurate. Interviews then followed with the defendant. Those interviews took place on 21 August 2015, 9 February 2016, 26 July 2016 and 29 May 2017. It was only during the course of the third interview on 26 July 2016 that the defendant indicated that he had the “end of event records” of which Ms Goggin had repeatedly requested copies. Those end of event records were provided in three stages from 3 October 2016 through to 5 January 2017. Ms Goggin received a total of 1,287 end of event records. Those end of event records were of course the records that purportedly contained the transposition of the returns received by each of the workers at an actual event as to cash / Eftpos received. Having those end of event records enabled Ms Goggin, a chartered accountant with the IRD, to attempt to reconcile the spreadsheets with the bank deposits. However, Ms Goggin had difficulty doing so.
[44] For the 2013 year, Ms Goggin worked on an assumption that 90 per cent of the revenue was generated by cash sales as against Eftpos sales. Using the defendant’s end of event records, the actual cash percentage for cash / total sales was 93 per cent with the remaining 7 percent account for by Eftpos sales. Applying this methodology, Ms Goggin calculated that WEL must have had total sales for that year of $929,523.96 (GST inclusive) which was in contrast to the total sales shown by the filed GST returns of $394,222.60 (GST inclusive). The difference between the as filed and Ms Goggin’s calculations was $485,510.72 (GST inclusive). Assessing the GST applicable to that revenue, Ms Goggin calculated that a total of $70,655.07 should have been accounted for as against the amount that was accounted for of $19,099.40. The difference therefore was $51,555.67.
[45] The assumption of 90 per cent was generous to the defendant given that the end of event records indicated a cash / total sales ratio of 93 per cent.
[46] Ms Goggin then repeated the process for the 2014 year, using much the same methodology but with the assumption that cash sales amounted to 87.5 per cent of the total sales. The calculation then indicated that WEL would have total sales of
$1,121,610.81 (GST inclusive), which could be contrasted with the total sales returned and the GST returns of $444,013.24 (GST inclusive). Ms Goggin calculated therefore
that the GST that should have been accounted for was $77,328.18 in contrast to the amount returned of $1,852.95 – being a deficiency of $75,475.18.
[47] Applying the same approach in respect of the part year for 2015, and on the assumption that 82.5 per cent of total sales were by cash, Ms Goggin assessed WEL to have had total sales of $571,823.79 (GST inclusive) as against the total sales returned via the GST returns of $292,365.73 (GST inclusive), being a difference of
$279,457.06 (GST inclusive). That amounted to a deficiency for GST for that period of $35,552.75.
[48] While some latitude can justifiably be applied to the assumptions made by Ms Goggin when determining the ratio of cash to total sales, those assumptions were broadly in keeping with the end of event records provided by the defendant.
[49] Clearly, Ms Goggin suspected that not all cash received had been taken into account with the preparation of those GST returns and as shown on the end of event records. The investigation extended then to the personal bank accounts of the defendant, Ms Spetznar the defendant’s wife from whom he separated in 2011 and Ms Buchanan, who was then defendant’s partner for much of this period and who also worked for the business.
[50] That investigation revealed that the total cash deposited in the defendant’s personal bank accounts over this three-year period amounted to $357,720.05. There were also cash payments made into the bank accounts of Ms Spetznar and Ms Buchanan, although it can be noted that some of the payments made to Ms Buchanan may well have been by way of loan repayments. That notwithstanding, the cash deposits made into those personal bank accounts of the defendant, and Ms Buchanan over that three-year period from 1 April 2012 to 31 March 2015 was
$562,047.29.
[51] The defendant responded that the cash deposits into his personal bank accounts were the proceeds of his sole trading activity. In that respect the defendant explained that Ms Spetznar was not comfortable with the business operating at the Rhythm and Vines festival because of the greater commercial risks involved, although there was no evidence at all from Ms Spetznar in that respect. It is simply incredible that the
defendant would contend that he earned an income from personal trading over that three-year period of sales of $357,720.05 given that his entity (WEL) was also operating over that period and would have been the obvious vehicle for the defendant to run his business within.
[52] Of some significance also is that the defendant claimed that he never looked at his bank statements and that he simply left that to his accountant. I do not accept his evidence in that respect.
[53] The evidence is overwhelming that the defendant was instrumental in the data provided to either the accountants or bookkeepers engaged by the defendant for the preparation of the GST returns over these periods. Furthermore, that the data for total sales provided was grossly inaccurate and understated, just given Ms Goggin’s assessment and making generous allowance also for some movement in the assumptions that she made in respect of cash as against total sales for that three-year period. I am left sure that the defendant provided incorrect sales figures to his accountant or his bookkeepers for the purposes of reducing the tax liability of WEL as much as possible. He did this by siphoning off cash from the WEL sales with much of that cash being deposited into private accounts and he did so for the purposes of evading the assessment of tax for WEL.
[54] At the fourth interview between the IRD (Ms Goggin) and the defendant at Auckland on 29 May 2017, Ms Goggin provided the defendant with her assessment of the GST and income tax positions for both WEL and DEL for the 2013, 2014 and 2015 tax years. At that meeting the defendant considered that the assumption taken by Ms Goggin for site fees was too high and should be in the range of 20 per cent. Subsequently in August 2017, the defendant emailed Ms Goggin with his review of the total sales for both WEL and DEL for the 2013, 2014 and 2015 tax years. That was summarised on an annualised basis as follows:
|
|
Periods
|
Sales
|
|
|
|
|
|
Defendant’s
|
31/03/2013
|
$918,328
|
|
Figures
|
31/03/2014
|
$1,043,325
|
|
WEL
|
31/03/2015
|
$611,730
|
|
|
|
|
|
Defendant’s Figures DEL
|
31/03/2015
|
$586,509
|
|
|
|
[55] How then does this compare?
|
31/3/2013 WEL
|
Total GST Sales As filed
|
Total GST Sales IRD
|
Total GST Sales Defendant 8/17
|
|
31/3/2013 WEL
|
444,013.24
|
929,523.96
|
918,328
|
|
31/3/2014 WEL
|
394,222.60
|
1,121,610.81
|
1,043,325
|
|
31/3/2015 WEL
|
292,365.73
|
571,823.79
|
611,730
|
[56] The defendant’s own review figures clearly demonstrate that the GST and income tax returns for WEL for the 2013, 2014 and 2015 tax years were grossly understated to the point where it could not be understood as to where the “as filed” figures came from, except as an attempt to portray the GST and income tax position of WEL for those three financial years in a false and misleading way.
[57] Given the substantial quantity of cash deposits made into both the defendant’s and Ms Spetznar’s personal bank accounts over those periods, the obvious conclusion is that the defendant was endeavouring to avoid accounting for that income by syphoning off cash into personal accounts and/or retaining it in hand rather than depositing it in WEL’s bank account. There was evidence that cash of $1,000 was paid into Ms Spetznar’s personal bank account each Monday over a considerable period. The defendant repeatedly claimed that this was a payment required for spousal maintenance following the separation, that it had to be paid on a Monday and he applied his own cash for those payments. When questioned as to why it had to be cash, the defendant was unable to provide a credible explanation, particularly as an examination of the WEL bank accounts revealed that there were always sufficient funds to support a bank transfer. There can be no credible explanation as to the source
of the weekly cash sum paid of $1,000 other than it was from cash generated by that weekend’s event or events. It was cash that did not go through WEL’s bank accounts.
[58] In the 2013-year, cash deposited into the defendant’s bank accounts and Ms Spetznar’s bank accounts amounted to $162,462. As the prosecutor submitted, if this was added back to the total sales by the “as filed” position of WEL for that year of $441,013.24, this would increase the actual sales to $606,473.
[59] In the 2014 year, the cash deposits made into the defendant’s bank accounts and Ms Spetznar’s bank accounts amounted to a total of $157,409.80. Again, if this was added back to the total sales from the “as filed” position of WEL for the 2014 year of $394,222.60, would increase the actual sales to $551,632.40.
[60] For the 2015 year, the total cash deposits made into the defendant’s bank accounts and Ms Spetznar’s bank accounts amounted to a total of $109,566.70. WEL ceased trading in early October 2014, so excluding the cash deposits from December 2014 if the balance was added back to the total sales from the “as filed” position of WEL for the 2015 year of $292,365.73, this would increase the actual sales to
$551,632.40.
[61] As further evidence of the inadequate and inaccurate presentation of the true financial position of WEL, reference is made to the evidence of Mr Gordon Trainer who was called for the defence. Mr Trainer is a chartered accountant who was engaged by the defendant to assist particularly with the application to the BNZ by DEL for loan finance. The application was supported by advice as to the financial results of the “Donut Express business” for the 12 months ending 30 June 2014 when the business was operating under WEL. That application stated that the total revenue (sales) was
$861,156. This is in contrast with the “as filed” GST returns for WEL for that same year of $473,987.
[62] I find that the inaccurate, grossly understated, revenue information in the GST returns of this period was false, that it was provided knowingly and intentionally by the defendant with the intention of evading the assessment or payment of tax for at least one if not all those GST periods. Indeed, I go further and find that this was a
deliberate strategy on the part of the defendant to understate the revenue position in the GST returns to hide the cash that was received but not accounted for.
[63] I find the defendant guilty of this charge.
WEL income tax returns – CRN ...0658
[64] Those income tax returns for WEL returned income as set out in the following table:
|
|
Periods - YE
|
Date Filed
|
Total Sales
|
|
|
|
|
|
|
WEL
|
31/03/2013
|
12/02/2014
|
$390,648.00
|
|
|
|
|
|
|
Income Tax
|
31/03/2014
|
10/03/2015
|
$91,089.05
|
|
|
|
|
|
|
as filed
|
31/03/2015
|
04/05/2015
|
$353,946.16
|
[65] The income tax returns that were filed for that three-year period were identified by Ms Goggin as having been based directly from the figures used in the GST returns that had already been filed. As those GST returns were falsely understated and to a gross degree, it therefore follows that the income tax returns must be similarly false as to the amounts returned. Making due allowance for a deduction for wages (20%) and site fees (also 20%), Ms Goggin calculated that the tax evaded by the incorrect income tax returns was as follows:
(a) 2013 year $19,853.07
(b) 2014 year $34,322.55
(c) 2015 year $17,569.43
Total $71,745.05
========
[66] It is clear accordingly that the defendant is similarly guilty of this charge.
Donut Express Ltd GST evasion – CRN ... 0662 (Representative Charge)
[67] DEL filed GST returns with the last three GST periods of the 2015 year, indicating total GST sales by DEL for that period of $550,197.57. Those three GST returns for DEL are as follows:
|
|
Periods
|
Date Filed
|
Total Sales
|
|
|
|
|
|
|
DEL
|
30/11/2014
|
12/02/2014
|
$105,162.36
|
|
|
|
|
|
|
GST
|
31/01/2015
|
10/03/2015
|
$91,089.05
|
|
|
|
|
|
|
as filed
|
31/03/2015
|
04/05/2015
|
$353,946.16
|
|
|
|
|
|
|
2 monthly
|
Annualised
|
GST Sales
|
$550,197.57
|
[68] Ms Goggin again returned to the end of event records provided by the defendant for DEL for the 2015 year. She identified total Eftpos sales of $120,015 of which $30,194.00 could not be reconciled to an actual event. Ms Goggin considered that it would therefore be necessary to make an assessment of the cash that would have been received in relation to that Eftpos figure of $30,194.00 and to that end applied a percentage of 78 per cent of cash sales against total sales based on that figure of
$30,194.00 received in Eftpos. Her conclusion therefore was that a further $134,199 of sales must have been received by DEL in cash. Applying that approach to the assessment of GST and making an allowance for a “second-hand goods claim, Ms Goggin calculated that the GST return was inaccurate in the sum of $158.
[69] I do not consider, however, that the method adopted by Ms Goggin in this respect, which was telling in respect of the GST and income tax returns for WEL, are as convincing of these GST returns being false and that they were prepared in that way for the purposes of evading the assessment of tax. While I remain deeply suspicious that the defendant continued to syphon off cash, the evidence in this respect is not as convincing as it was for the relevant WEL periods. For this reason, I do not consider this charge has been proven, notwithstanding that I have taken account of the conclusions I have also reached in respect of the WEL GST charge. I find the defendant not guilty on that charge.
DEL income tax – CRN 0661
[70] This is a charge that on 12 May 2016 at Wellington the defendant aided and abetted the offending of Donut Express Ltd that knowingly provided the Commissioner of Inland Revenue with false information (namely an income tax
return) with the intention of evading the assessment or payment of tax in relation to the income tax year ending 31 March 2015.
[71] Again, the review undertaken by Ms Goggin demonstrated that the income tax return for DEL was based on the total GST sales as per the GST returns that had already been filed. The prosecution case that as the three GST returns filed were false and misleading and that it therefore follows that the income tax return was also false and misleading, and the defendant must have known that. However, as is the case with the GST returns for DEL, I have not been left sure that those three GST returns were false and misleading and accordingly it follows that I can simply not be sure that the income tax return was false. The defendant is not guilty of this charge.
PAYE tax evasion WEL – CRN 0660
[72] This charge is that between 21 August 2012 and 3 October 2014 at Wellington the defendant aided and abetted the offending of WEL that knowingly did not make deductions or withholding of tax required to be made by a tax law (for 26 PAYE tax returns) with the intention of evading the assessment or payment of tax in relation to the PAYE returns ended 31 August 2012 to 30 September 2014 (inclusive) – a representative charge. Section 148 and 143B(d) and (f) Tax Administration Act 1994.
[73] The case against the defendant in this respect is that the various casual employees engaged by the defendant over this period did not have their PAYE deducted by the defendant.
[74] There is no dispute that an employer is required to deduct the PAYE for each employee and hold it in trust for the Commissioner prior to it being returned as part of the employer’s ongoing responsibilities to the IRD. In this case, however, those casual employees in the main were engaged by either WEL or DEL on the basis that they would account for their own income tax. This approach was determined by the defendant on the basis that it was difficult to deal with casual employees on any other basis given that many of them only worked for his company occasionally. The defendant said this:4
4 First Interview with Ms Goggin 21 August 2015 at p 27.
LG ...Why have you decided to treat them in this way?
DF Because we cannot calculate their PAYE accurately every single time, and this business is all about doing everything consistently every single time, and so we’ve had a, a, um, well there’s two reasons, one is we had a worker who would start at 6 pm, finish at midnight and we’ll never, ever see them again, and so all the paperwork and somehow working out their tax code, or them working out their tax code, and deducting the correct tax, and then never seeing them again, there is a problem, a massive problem, and then the second part to it, and this has happened, a, ah, a few years ago, as we gave the staff a choice that we can pay you this way which we’d always been doing, or we can pay you and deduct PAYE, and the college kids were choosing PAYE, working for a year, and then getting all their PAYE back, and so I looked into, and looked into it, and found that if it’s a college kid earning less than 2 and a half grand a year, you don’t have to deduct PAYE, and if it’s a, ah, tertiary person, ah, Student Job Search have told that I, I don’t have to deduct PAYE, and so um, we’d say to the staff, ah, we pay the full money including your holiday pay entitlement.
[75] The issue was returned to during the course of the third interview on 26 July 2016 where the defendant referred to an email that he had received from Student Job Search in 2009, saying that he was able to engage college students on a casual basis and leave them responsible for payment of their income tax. That is, that he did not have to deduct the PAYE and hold it for the IRD. The defendant however acknowledged that at the time of the first interview on 21 August 2015, the defendant received advice from Ms Goggin that he was not able to contract out of the PAYE deduction requirement for employees. Indeed, that had also been a matter raised with him by his own accountant. However, the defendant has preferred to rely upon the email from Student Job Search from 2009.
[76] The prosecution case against the defendant is that from as early as June 2009, the defendant was on notice of the requirement to deduct and account for PAYE deductions. However, he quite deliberately chose to ignore those obligations for reasons of expediency in relation to his business operation.
[77] The defendant was adamant that his casual employees were not contractors and that they were employees. That notwithstanding, they were not included by him in the company’s EMS schedules.
[78] At best, looking at this from the defendant’s perspective, it was reckless of him to continue to maintain the practice of leaving casual employees with responsibility of paying their own PAYE and not facing up to the company’s responsibilities to deduct the PAYE. It is noted that the defendant moved all his staff onto a payroll system (Thank You Payroll) in October 2015 which was after the period that this charge relates.
[79] The defendant contended that he honestly believed that the advice of Student Job Search justified the business approach of leaving the casual employees to meet their own income tax responsibilities, yet he continued this practice right through until October 2015.
[80] There is no question but that the defendant did receive advice from Student Job Search relating to casual employees and that his company could engage casual employees on the basis that they account for their own income tax. That letter of advice was produced. There is also no dispute that the defendant paid casual employees the gross amount due to them inclusive of an allowance for holiday pay and without deduction of an amount for income tax.
[81] The prosecutor concedes that this issue in relation to this charge “ultimately comes down to the credibility of the defendant”. That of course relates to whether it was the intention of the defendant to evade the assessment or payment of tax in relation to those casual employees and of course the unchallenged evidence is that each of those casual employees received a gross amount that was inclusive of the amount that should have been deducted for PAYE.
[82] However, there is no doubt that WEL did not make the required tax deductions for many if not all of its casual employees. That was clearly at the direction of the defendant. The defendant may have been motivated to do so for reasons of administrative expediency, but the reality is that it meant that WEL did not meet its obligation to account for the PAYE tax for those employees to the IRD. Whether any of those employees accounted for the tax in their income tax returns is beside the point. The statutory obligation was on WEL to deduct the PAYE tax for each of its employees and account for it to the IRD. It did not do so and in circumstances where the
defendant was clearly reckless as to whether the tax was paid or not. That meets the test for an intention to evade the assessment of payment of tax.
[83] I find the defendant guilty of this charge.
PAYE tax evasion DEL – CRN 0663
[84] The evidence in respect of DEL for the 6 months (6 PAYE periods) it operated in relation to the payment of wages to the employees is the same as for the previous charge relating to WEL. For the same reasons, I find the defendant guilty of this charge.
WEL income tax evasion - - CRN 0658
Personal income tax evasion – CRN 0664
[85] The representative charge for WEL (0658) is that the three income tax returns filed for the 2013, 2014 and 2015 tax years contained false information and that this was with the intention of evading the assessment or payment of tax. The false information was of course the grossly understated income for each of those three years.
[86] Similarly, the representative charge for the defendant (0664) is that the three income tax returns filed for the 2013, 2014 and 2015 tax years contained false information and that this was with the intention of evading the assessment or payment of tax.
[87] The false information in each respect was of course the grossly understated income for each of those three years.
[88] As is abundantly clear, neither WEL nor the defendant accounted for all their income in the returns filed for those three income tax years. The returns filed were false and misleading as they grossly understated the income that WEL and the defendant received in those tax years, bearing in mind in particular the cash deposits made into the defendant’s personal bank accounts over that period.
[89] This is indicative of wildly inaccurate reporting of both WEl, DEL and the defendant over that period, where none of the returns filed could be considered reliable in respect of the information included. At best, the defendant can certainly be considered as having been quite reckless in the way in which this documentation has been prepared and presented, but there is also a substantial sum of income tax not captured or assessed over those three periods that arises as a result of these inadequacies.
[90] The evidence from the IRD is that the total personal income tax evaded by the defendant over those three-year periods amounts to $94,303.77. I accept, of course, that assessment of tax evaded over that three-year period is a best guess, but clearly a substantial quantity of income tax was evaded by the defendant due to the false and misleading returns filed.
[91] I find the defendant guilty of both of these charges.
The 2021 Charges
GST evasion by DEL4 / NNDL – CRN 0049
[92] The 2021 charges relate to the period when DEL4 / NNDL commenced operation. The investigation into the business activities of NNDL by Ms Mellor of the IRD commenced on 30 March 2020. Those charges relate to the evasion or attempt to evade the assessment of payment of GST relating to the period 1 February 2019 and 7 May 2020 and the evasion or attempt to evade assessment or payment of PAYE for the periods 1 April 2019 to 31 March 2020 (inclusive). There is a further charge that between 1 March 2020 and 22 January 2021 the defendant “knowingly did not provide information (including tax returns and tax forms) to the Commissioner or any other person when required to do so by tax law and does so intending to evade the assessment or payment of tax.
[93] DEL was placed into liquidation on 5 February 2019. The evidence is that the defendant operated the donut business as a “sole trader” for some months leading up to the incorporation of DEL4.
[94] Of significance is that the day before DEL was placed into liquidation, the defendant purportedly or apparently transferred a number of assets from DEL into his personal name. They included four passenger vehicles and six food/coffee trailers. The defendant commenced trading as a sole trader from or about 7 February 2019.
[95] DEL4 was incorporated on 29 March 2019. The 2019 charges were filed on 25 June 2019.
[96] The month previous to the 2019 charges being filed, saw a change in the shareholding and directorship of DE04. By this time, the defendant clearly understood from his various interviews with the IRD in relation to the 2019 charges, that there was a risk that he was to be prosecution for tax evasion.
[97] On 23 May 2019, 100 per cent of the shares in DEL4 were transferred to Mr Bodie Bluett, who also became the sole director of that company following the resignation by the defendant as the director. The documentation recording the transfer of shares, the retirement of the defendant as a director and the appointment of Mr Bluett as sole director were prepared and filed by the defendant.
[98] Mr Bluett was a truck driver and a friend of the defendant. Mr Bluett stated in the course of his evidence that he had become interested in being involved in a business venture. Also, that he had paid $5 for the purchase of all the shares in DEL4. He professed to have no business experience. Furthermore, given that the business was one with an effective trading history of some years standing, and it is difficult to see how the payment of $5 for the shares and for what was on its face the complete control of the company could have any basis in commercial reality.
[99] Furthermore, a week later the defendant filed a further document with the Companies Office adding Mr Steve Ottow as a joint director with Mr Bluett and recording that Mr Ottow had taken up 50 per cent of the shareholding in DEL04. Mr Ottow was a cleaner and again a friend of both the defendant’s and Mr Bluett. He had no business experience and indeed resigned shortly thereafter as a director on the advice of his solicitor because of his mental health difficulties. Mr Ottow did not understand that he had paid anything for his 50 per cent shareholding in the company.
[100] The defendant may have divested himself of the shareholding and directorship of the company, but he remained involved as its general manager on a salary. The defendant said in his evidence that the various vehicles and food/coffee trailers were leased by him to the company.
[101] The IRD investigation relating to the GST and income tax position of DEL04/NNDL was led by Ms Mellor who gave extensive evidence in the case. To a large extent, Ms Mellor structured her investigation along the same lines that were undertaken by Ms Goggin in relation to the 2019 charges. That investigation eventually led to the 2021 charges being laid on 3 February 2021.
[102] I am in no doubt at all that the appointment of Mr Bluett and then Mr Ottow as officers of the company and the transfer of shareholding was a ruse on the part of the defendant and a thinly disguised attempt by him to provide a buffer between himself and DEL4/NNDL at a time when he was aware that the IRD were also homing in on his new business operation. The evidence is clear, however, that he maintained complete control of that company and its business operations. Neither Mr Bluett nor Mr Ottow appeared to have any understanding of how the business was being run.
GST evasion by DEL4 / NNDL – CRN 0049
[103] The first of the charges is that between 1 February 2019 and 7 May 2020 the defendant evaded or attempted to evade the assessment or payment of GST relating to certain business activities for food and beverage vending services (for events) for the periods ending 31 May 2019 to 31 March 2020 (inclusive) – representative charge under s 143B(2) Tax Administration Act 1994.
[104] The business was required to be registered for GST in terms of s 51(3) of the Goods and Services Tax Act 1985 (the GSTA). Registration requires that a business charges GST on the supply of goods or services, and also files a GST Return by the 28th of the month following each taxable period. In this case the taxable periods were two monthly – s 16 GSTA. Those GST returns take account of the deductions of import tax on goods and services purchased against the output tax on supply. A registered person whose import tax exceeds the output tax is entitled to a GST refund.
[105] Ms Mellor undertook an investigation in relation to the GST positions taken by NNDL for those six GST periods specified in the charge. Ms Mellor had been unable to obtain any details from the defendant as to the basis on which those passenger vehicles and food/coffee trailers were leased by the defendant to NNDL. That notwithstanding, GST for repairs and maintenance expenses in relation to those vehicles were claimed by NNDL.
[106] On reviewing the Xero reports and the bank statements, Ms Mellor assessed the percentage of cash against total sales over those six GST periods as follows:
- (a) 57.6 % in the 31 May 2019 GST return
- (b) 41.6% in the 31 July 2019 GST return
- (c) 49.8% in the 30 September 2019 GST return
- (d) 48.8% in the 30 November 2019 GST return
- (e) 45.5% in the 31 January 2020 GST return
- (f) 48.7% in the 31 March 2020 GST return
[107] Given that the business operated by NNDL was similar to that operated by WEL and DEL in earlier years and operated on much the same basis by the defendant, and having regard to the percentage of cash sales as against total sales identified by Ms Goggin in her earlier investigation, this caused Ms Mellor concern as to whether all the cash received as a result of NNDL’s business activities was being captured and returned. Having regard to the cash as against total sales ratio determined by Ms Goggin, Ms Mellor considered that the appropriate cash percentage of NNDL sales should have been at least 65 per cent and that accordingly up to 15 per cent of cash sales were not being accounted for in the GST returns. Furthermore, numerous personal expenses of the defendant were taken account of in the GST returns and that they should not have been claimed.
[108] Ms Mellor reworked the GST assessments on the basis that the sales for NNDL were grossly understated and that the expenses claimed were grossly overstated. In her assessment the total GST evaded by NNDL and thus the defendant over those six GST tax periods, amounted to $59,687.72.
[109] Obviously, there is a degree of flexibility required in the assumption adopted by Ms Mellor in relation to cash received as against total sales.
[110] The defendant maintained both during the course of his representations to Ms Mellor and subsequently in the course of his evidence that the cash/total sales ratio fluctuated depending on the type of event and therefore the average relied upon by the IRD did not display an accurate picture of what actually occurred.
[111] In the course of his cross-examination, the defendant was taken to two exhibits, being spreadsheets prepared by him for an All Blacks game on 27 July 2019. One spreadsheet was for the coffee sales and the other for the donuts. The total Eftpos receipts across the two spreadsheets amounted to $15,629.50. That amount was confirmed by examination of the bank accounts.
[112] The two spreadsheets recorded that the total cash taken amounted to $21,353 from which was to be deducted the site fee (paid in cash) and a prepayment of wages, leaving a total of $14,978 to be banked. That notwithstanding, a review of NNDL’s bank statements revealed that there were no cash deposits made until 5 August 2019 and that was for an amount of $2,000. No other deposits were identified as being derived from that All Blacks game. The conclusion reached by Ms Mellor and advanced by the prosecutor was that of the $14,978 that should have been banked by NNDL, as only $2,000 was banked, this meant that approximately $13,000 was missing from the NNDL bank account for that amount.
[113] There was however no evidence of cash paid into personal bank accounts of the defendant or any other person, but that of course does not mean that cash was not retained in hand and that remains the suspicion of the IRD, particularly given the defendant’s performance in respect of the WEL/DEL businesses, the earlier investigation by the IRD through Ms Goggin and the approach adopted by the IRD of examining personal bank accounts to ascertain unexplained cash deposits.
[114] Making due allowance for some latitude in the assumption made by Ms Mellor that cash sales would amount to approximately 65 per cent of the total sales received working from the Eftpos sales recorded, and the fact that there is no credible explanation from the defendant as to how the business operation changed so dramatically as to cash as against GST for total sales, I am left in no doubt at all that those GST returns were false and that arose because cash was retained by the defendant. I find that charge proven to the required standard of beyond reasonable doubt.
PAYE evasion (DEL4 / NNDL) – CRN - 0050
[115] The second of the 2021 charges relates to the evasion or attempted evasion of PAYE for the period 1 April 2019 to 31 March 2020 (inclusive). As previously mentioned, the defendant had enlisted the assistance of an unrelated business, “Thank You Payroll” to assist with the payment of wages for the employees. Ms Mellor quickly reached the view that the gross earnings returned were understated. It needs to be noted that Ms Mellor was operating under considerable difficulty as limited information had been provided to her, and the defendant had declined to be interviewed.
[116] NNDL received a Covid-19 wage subsidy from the Ministry of Social Development. The application by NNDL for the subsidy was examined by Ms Mellor and it revealed 11 employees that had never previously appeared on the EMS schedules prior to receiving the subsidy. Accordingly, it was clear that no PAYE had ever been deducted or returned for those individuals. Several of those employees were contacted by Ms Mellor, one of whom ([Witness A]) gave evidence at the trial.
[117] [Witness A] stated that he worked at least one event per week for a year starting July 2019 and before being added to the NNDL EMS schedule. [Witness A] stated that he was typically paid in cash and that he was never supplied a record for hours worked for any of the events prior to being added to the EMS schedule.
[118] Ms Mellor’s further investigation focused upon the Westpac Stadium and an email sent to staff with EMS schedules. Her assessment was that for large scale events,
such as All Black games at Westpac Stadium, less than half the staff at a given event had PAYE withheld.
[119] [Witness A]’s evidence by itself, placed in the context of Ms Mellor’s investigation, demonstrates without question that the defendant continued to operate a cash business without keeping the appropriate records and making the required deduction for PAYE tax for employees. It is difficult to be too exact as to the extent of this offending but certainly the defendant committed the offence of evading or attempting to evade the assessment or payment of PAYE for at least those 11 employees for whom a Covid-19 wage subsidy was sought but who had never appeared on the EMS schedules and for whom no PAYE was ever deducted.
[120] I find that charge proven to the required standard.
Failure to provide information – CRN 0051
[121] The final charge is that between 1 March 2020 and 22 January 2021 at Wellington the defendant knowingly did not provide information (including tax returns and tax forms) to the Commissioner, or any other person required to do so by tax law and does so intending to evade the assessment or payment of tax and that is an offence under s 143B(1)(b) and (f) Tax Administration Act 1994 – representative charge.
[122] As previously mentioned, the defendant purported to transfer various vehicles and coffee/food trucks into his own name the day before DEL was placed into liquidation. The defendant further maintained that those vehicles/food trucks were subsequently leased to NNDL although Ms Mellor had difficulty identifying any lease payments that related to those vehicles.
[123] The liquidator of DEL (Mr McMullin) gave evidence that the defendant claimed that a number of the assets on the DEL books were in fact his personal property, and this included the vehicles and food trucks previously mentioned. However, Mr McMullin’s investigation left him in no doubt that those vehicles and food trucks were not the defendant’s personal property and that they belonged to DEL.
[124] This untidy situation resulted in Ms Mellor raising the issue of ownership and lease document with the defendant and eventually providing him with a formal request on 8 July 2020 requesting the following information relating to the defendant’s business activities:
- (a) A copy of the financial statements, fixed asset and depreciation schedules.
- (b) Tax adjustment statement and/or reconciliation, including GST reconciliation.
- (c) Working papers for the figures shown in the returns of income and supporting accounts.
- (d) Invoices for purchases and other expenses and receipts for payments made.
- (e) Copies of sale and purchase agreements and settlement statements for any property bought or sold.
- (f) A full list of business assets including date of purchase, cost price, method of payment and registration number if applicable.
- (g) Lease agreements.
- (h) Invoices issued for sales.
- (i) A complete list of bank accounts used for business income and expenses.
[125] All this relates of course to NNDL but also the details of the claimed leasing of the vehicles and food trucks by the defendant to NNDL.
[126] The defendant was also requested to file his personal income tax return for the 2019 tax year, and in that respect, Ms Goggin presented the court with s 15D
certificate, confirming that the 2019 income tax return for the defendant was still outstanding at 25 February 2024.
[127] The defendant admitted in the course of his evidence that he had not provided Ms Mellor with any of the records that she had requested through the investigation, nor had he filed his 2019 income tax return.
[128] Given the defendant’s awareness of the detailed analysis that would be made of any documentation provided by him from his experience with Ms Goggin’s investigation, there can be little doubt that the failure on the part of the defendant to provide all that information requested and even file his personal tax return, was an attempt on his part to evade the assessment or payment of tax. As it happens, Ms Mellor assessed the personal income tax for the defendant for the 2019 income tax year at $83,148.80 and that the total GST evaded by NNDL for the 2019 year at
$28,031.87.
[129] Whether those figures are correct or not, the defendant was required to provide the information sought by Ms Mellor and to file a tax return for that 2019 year. He acknowledges that he did not do so. Given the way in which he has operated this business over seven or so years, there can be no doubt that his failure to comply with the requirement that he provide this information was an attempt, albeit a rather futile attempt, to evade the assessment of payment of tax.
[130] I find the defendant guilty of this charge.
Judge RLB Spear
District Court Judge | Kaiwhakawā o te Kōti ā-Rohe
Date of authentication | Rā motuhēhēnga: 26/04/2024
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URL: http://www.nzlii.org/nz/cases/NZDC/2024/9248.html