Ross investors may be eligible for tax return refunds, IRD says

There is a possibility investors in Ross Asset Management may be eligible for tax return refunds.

Investors in the Wellington-based investment company have raised concerns over tax paid to the Inland Revenue Department on what could turn out to be fictitious returns.

PwC receiver John Fisk is expecting to file a court application to have the company liquidated, which means investors who have enjoyed ‘inflated returns’ may be targeted.

So far, Mr Fisk has uncovered just $11 million of the purported $450 million of assets, says he does not expect to find any more money and he says early indications show David Ross may have been running a Ponzi scheme.

In a statement released to investors’ group spokesman Bruce Tichbon, the IRD has stressed the burden of proof for any tax refunds will fall on the investor.

“Whether an investor would be able to ask for their back year returns to be amended due to a company failure will depend on whether they have earned the investment income previously returned,” the statement reads.

The IRD says taxpayers are required to pay income tax on all income, including interest and dividends.

If investors had derived interest or dividends which they then elected to reinvest, they, in effect, turned their income into capital.

They will be required to pay income tax on any income, although they may subsequently suffer a loss of their capital.  

“In general, taxpayers will not be allowed a deduction for capital losses (which may be the original principal amount invested plus any interest or dividends reinvested).

“If investors can show that the income they had previously returned had, in fact, never been derived, then they can write to Inland Revenue and ask for the returns to be amended.

Mr Tichbon says every piece of information, such as this statement, moves the issue forward but “gives us another 10 questions to ask”.

He says he needs more information from the parties involved – the High Court, receiver, Financial Markets Authority, IRD and Serious Fraud Office – to clarify how income which had never been derived will be established for IRD purposes in the context of RAM.

Mr Ross has been released from hospital, where he spent the last three weeks in compulsory treatment under the Mental Health Act and is now expected to co-operate fully with those investigating RAM.

The Mental Health Act states that applying for a compulsory treatment order is a very serious step. Under the order, someone is required to receive treatment for up to six months.

A clinician must make the application for compulsory treatment if the patient is already under compulsory assessment – a process which anyone can apply for if they are concerned about someone’s mental health.

Compulsory treatment can only be applied for if the patient poses a serious danger to their own health and safety or that of others.

It is necessary, following the application, to attend a hearing before a family court or district court judge who will decide whether the patient needs compulsory treatment or not.

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Goodness, what a bird's nest of a nightmare. And how ironic IRD in this instance may end up being a savings scheme – and I'll even say good on them for the press release clarifying investors might have recourse to at least getting their taxes back.


No doubt when (I doubt it is an if) this whole thing gets to a trial that compulsory treatment order will be rolled out to someone's advantage.


Providing Ross gets some decent legal advice, there shouldn't be a trial.

The smart way to play this is as follows...

The maximum sentence he faces if charged is 7 1/2 years, but if he enters an early guilty plea (ie, no trial), then offers his victims a restorative justice meeting, he'll get at least a third off that.

By the time he's given discounts for his "good character" and previous clean record, he'll be down to around 4 years.
After he's spent a third of that in a minimum-security prison he'll be back at his Lower Hutt home sitting by the pool.

I bet Bernie Madoff wishes he was a Kiwi!


Check out the PWC website. There are no further assets to find within the companies.


Probably so, but PWC seemed more interested in talking to the press than finding assets and apparently missed a house in the first week.


The public reception to these types of announcements changes substantially when you substitute "IRD" with "NZ taxpayer".

How does Joe Public respond to this headline instead: "Taxpayers to bail out another failed investment company."


The IRD repaying tax that investors paid on earnings that did not exist is a bit different to a "bailout".


It will be interesting to see how someone will prove that, in fact, it was their capital being returned to them, rather than income.

The interest/dividend payment no doubt being accompanied with a statement that it was interest/dividends. In the event that the capital from which this "income" was generated, then evaporated, that is surely just a capital loss.

The investors knew it was high risk (if by nothing else than the sizable by virtue of the rate of return), the fact that the capital decreased through a possible criminal act, doesn't change the fact it's a capital loss. All it does is effectively prove the event to allow an easier civil prosecution for return of the capital.

If the lid gets taken off this, one would have to wonder if the "interest" payments from the likes of Capital+Merchant, weren't also capital payments, given the depletion of the underlying capital asset from which the interest was nominally derived, when it was clear that those assets had in some cases been misappropriated and so couldn't have been earning that interest, and so the only thing that could have been paid to them was "capital".


Desperately sad news for those who paid into Mr Ross' scheme (I am reluctant to use the word investor).


Everyone seems to be overlooking the fact that FMA approved this guy and they need to be held to account on some level. They have failed investors who invested on this basis. At least to the people who invested post his approval.


I totally agree. The FMA seems to take money to register investment advisers, then simply walk away, offering no oversight or practical operational requirement.


One thing for sure, no matter what your assets, when they shrivel or go poof on you, there will be a lineup of wise commentators to tell you where you went wrong. As if it hasn't dawned on you yet.


All investments made have a risk vs return element. In this case RAM investors were more than happy to take the slightly unbelievable return.....


Many returns were poor or negative. So it seems lower returns are not as effective as proper market oversight.


Having spoken to numerous RAM investors over the years, not one wanted to discuss the clear issues: lack of custody, returns that defied any analysis, lack of transparency and a manager with no public presence (internet or media).
My only thoughts were that they were either or both financially illiterate/naive and greedy.
The various trustees who were warned must be concerned about their liability - file notes and letters don't disappear over time.


About time some serious work is done on locating the investments derived from 30m fees!


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