10 May 2016

Tax: Musuku v. Inland Revenue

Initially assessed as failing to declare income of $591,000 for the 2006 tax year, Auckland pharmacist Jawahar Bhaskar Musuku was held liable for tax on income of $201,740 following an Inland Revenue review and a High Court hearing.  Mr Musuku said his 2006 income was $32,378 only.
The High Court was told Inland Revenue investigated Mr Musuku after finding he had not filed any tax returns for six years, two of his companies had never filed GST returns and his family trust together with another of his companies did not have IRD numbers and had never filed tax returns.  He owned and operated retail pharmacies in the Auckland suburbs of Mission Bay and Remuera.  The investigation dragged on for seven years in the face of what Inland Revenue described as persistent failures to respond when asked repeatedly for documents and information.  Co-operation of sorts followed after issuing an initial default assessment demanding tax payable of $221,791 on income of $591,000.  Even then, the High Court described Mr Musuku as providing incomplete information, contradictory statements and unreliable or incorrect, if not misleading, documentation.  Information, often incomplete, was drip-fed to Inland Revenue in response to repeated requests.  After what the High Court described as some generous concessions by Inland Revenue, the initial default assemment was revised downwards to $201,740.  Mr Musuku changed tax advisors at least six times over the seven year investigation.  A complicating factor was Mr Musuku’s habit of failing to keep separate his business and personal transactions.  There was evidence he paid many business expenses on his personal credit card, to collect air points.    
Mr Musuku failed in challenges before both the Taxation Review Authority and the High Court over Inland Revenue’s assessment of his 2006 income at $210,740.  It is for taxpayers to prove on the balance of probabilities that a default assessment is wrong.  Inland Revenue’s assessment was backed up by over one hundred pages of analysis derived primarily from bank records.
Musuku v. Inland Revenue – High Court (10.05.16)

16.079