Already two thousand New Zealanders and a similar number of Australians
are understood to have joined the movement, and organisers are expecting thousands more as
news of their activities spreads. Ian Wishart continues his special investigation.
The New Zealand tax inspector shook his head and blinked at the
American grinning at him across the table. "What do you mean ‘it’s chickens!’?,"
he sputtered. "What the hell have chickens got to do with it?"
The American just smiled. "Well, you show me in the New Zealand
Income Tax Act where it says that chickens are not a legal form of income. And seeing as
my client didn’t earn any chickens last year, he doesn’t owe you any tax."
It’s an amusing diversion, and tax litigator Eddie Kahn (pron:
Cain) has used it on a number of occasions with tax officials around the world.
"It’s the same in the US," he explains later, "because they don’t
legally define income there either. What’s really funny about it is the agent will
look at you in a state of shock, saying ‘no, it’s not chickens’, and I say
‘well how do you know it’s not chickens: you didn’t define it.’ You
see, when they say ‘no it’s not’, then they are obligated to show you what
it actually is. And they can’t, because it isn’t defined."
It’s an approach the NZ and Australian tax offices have never seen
before: a drag-em-out-knock-em-down fist-fight with revenue authorities forcing them to
prove that ordinary citizens are covered by existing tax legislation.
While it might sound Alice in Wonderland or Don Quixote
in nature, the process appears to be working. For Kahn, his Australasian research began
two years ago when he was asked by a group of New Zealanders to help them research the tax
laws. The group ensconced themselves in the comfortable surrounds of the Auckland
University Law Library, and it wasn’t long before Kahn had his first taste of Kiwi
bureaucracy.
"This librarian came over to us and asked if we were students. I
said no and told her why we were there, and she said we’d have to leave. ‘Is
this a publicly-funded research facility?’ I asked her, and she said it was.
‘Well, we’re the public. These people with me pay your wages, and we’re not
leaving’."
What’s interesting is that while the American was standing up for
them, many of the New Zealanders accompanying him had already begun packing up,
automatically following the bureaucrat’s orders.
Naturally, the librarian went away to her supervisor who duly heard the
same story, only this time Kahn added: "If you can show me your legal authority to
exclude members of the public from this publicly-funded library, then we’ll
leave." The library couldn’t, so the group spent several days there in the end.
What they were looking for was the "big bang" of income tax:
when did it begin and what powers did the legislation give the government?
For the first few decades of European settlement in New Zealand, there
was no income tax. Colonial governments survived, like other countries, on Customs duties
on imports, as well as revenue from land sales to settlers.
But there was growing resentment among working classes to wealthy
landowners coming in and buying up huge tracts of land for the equivalent of six dollars
an acre, leaving smaller would-be farmers squabbling over the lower quality land that was
left. What hurt the most was that while the land was cheap to buy, speculators had
purchased such large quantities that they couldn’t afford to make the land
productive, so the land went up for sale – but at prices that working people could
not afford.
Sensing a political opportunity, former Governor George Grey stood for
election as Premier in 1877 on a platform of introducing a land tax – not because the
colonial government needed more money, but because he believed the land tax would
encourage people holding the largest amounts of land to break up their properties and sell
land to settlers at more reasonable prices.
"Large areas of land, held often by absentees, lay idle and
impoverished for lack of capital," reported scholars J B Condliffe and W Airey in A
Short History Of New Zealand, first published in 1925.
Grey’s land tax was duly introduced on undeveloped land, but
property-owners found ingenious ways of fooling the government and avoiding the tax. It
wasn’t until "one man, one vote" was introduced that the ordinary workers
were able to elect a government more capable of legislating against the wealthy
landowners.
In 1891, Premier John Ballance passed New Zealand’s first ever
income tax, incorporated in the new Land and Income Tax of that year, and directed
primarily at land values and corporate activity. The next revision of that Act appears to
have been in 1908, and Eddie Kahn interprets the 1908 Act as implying the tax is
"voluntary".
"Most Gracious Sovereign," the Act begins, "we, your
most dutiful and loyal subjects, the House of Representatives in New Zealand in
Parliament, assembled, towards raising the necessary supplies to defray Your
Majesty’s public expenses, and making an addition to the public revenue, have freely
and voluntarily resolved to give and grant unto Your Majesty the several duties
hereinafter mentioned, and do therefore most humbly beseech Your Majesty that it may be
enacted."
So at this point in time, 1908, New Zealand obviously has the rudiments
of a land and income tax – freely and voluntarily gifted to King Edward VII. The rate
of tax was one penny in the pound for land value, and sixpence in the pound for income
– about three cents in the dollar.
By getting the citizens to voluntarily agree to provide three cents in
every dollar to pay for government services, the government gained a foot in the door.
Naturally, having been given an inch they took a mile and taxes in New Zealand rose as
high as 98 cents in the dollar under the Muldoon government’s penal rates in years to
follow.
Is it possible that New Zealanders can legally opt out of the tax
system using the same freedoms available to American citizens? Kahn and New Zealander
Andrew Carstensen believe they can. To that end, Carstensen wrote a letter under the
Official Information Act to the Inland Revenue Department in early 1998, asking them to
define what ‘income’ is. The disturbing result was written proof that the IRD
doesn’t know exactly what income is, or isn’t willing to say.
"There is no definition of ‘income’ in the current
Income Tax Act," the IRD’s national policy manager, Margaret Cotton, wrote back.
The reason appears to be that successive governments since 1908 have
been anxious to cast their tax net as widely as possible, opting for deliberate ambiguity
in defining key terms in the tax legislation.
"When you fill out your tax return, it tells you to list your
income," explains Carstensen. "Well what’s income? They won’t tell you
what income is, they let you decide what you think income is and when you’ve made
that decision yourself, you dob yourself in, basically."
By filing a tax return, he says, you are voluntarily telling the IRD
you accept their jurisdiction over you. There is no longer a technical question as to whether
you are a taxpayer. All that remains to be determined is how much. You have entered a
contract with the Government.
Every Act of Parliament carries an "interpretation" section
that spells out the meanings of key words and terms in the Act. In the Revenue Acts, most
definitions are prefaced by the word "means". However, certain crucial words are
not given an exact meaning. Take the definition for "person":
"Person: Includes [our emphasis] a company and a local or
public authority; and also includes an unincorporated body of persons."
At no point does the Income Tax Act specify that the term
‘Person" includes a "natural person", which is legal terminology for
an actual living and breathing person. Nor does the Act even define "natural
person" although it does define "natural gas". This is despite the fact
that the phrase "natural person" is specifically referred to in the Income Tax
Act under the definition "foreign entity".
It would have been extremely easy for the drafters of New
Zealand’s tax law to simply say:
"Person: means a natural person, and also includes a company
etc."
Why wasn’t it done that way? Why doesn’t the definition of
"person" in the Income Tax Act specifically include "natural persons"?
And does this mean that ordinary members of the public can legally stop paying tax on the
grounds that the legislation is unclear and therefore void?
Curiously, and probably not coincidentally, nor do the tax codes of
Canada or Australia use the word "means" to define a person: both countries use
"includes". Neither do those countries define a "person" as
specifically including a natural person.
An innocent oversight by one legal hack in the Crown Law Office in
Wellington while drafting legislation could be explained as a simple mistake, but when
three developed nations all have the same definitions for person, with no mention of human
beings, one could start to wonder. Surely, argue tax researchers, if those governments had
the power to compel all humans to pay tax on their income – in the publicly
understood sense of the word – then they would have plainly outlined this in the
statutes.
Indeed, it is a requirement in New Zealand at least that where a
Government moves to alter an existing common law right, that such alterations must
explicitly be contained in legislation. If the Government intended to remove a natural
person’s right to contract out their labour for a sum of money, surely it would be
explicitly spelt out in the Income Tax Act.
Contrast the vague definition of "person" with the very
precise definition of "natural gas" in the New Zealand Income Tax Act:
"Natural gas: means the gaseous mixtures of petroleum, in a
stabilised form, which remain after the separation of crude oil or condensate from the
wellstream in the production facilities and which have not been subjected to further
processing."
Nice to know the IRD can be so exact about what natural gas is, and yet
fail to include natural persons in the definition of who is liable for tax. Nor
does the Acts Interpretation Act – which tells courts how to interpret legislation
– shed any light on the person issue.
Just as the US Internal Revenue Service managed to fool a hundred
million Americans into paying tax by playing legal word games with them, Kahn argues the
NZ IRD’s inability to define "income" or "person" is a deliberate
act aimed at undermining New Zealanders’ common law rights not to pay tax on ordinary
employment earnings by heavying people into the tax system under colour of law.
"By using the word ‘includes’ rather than the word
‘means’, they don’t define it at all. When you press them on the issue
– does this include anything else other than what was specifically listed? –
they can’t show you that there’s anything else.
"What we’ve got is that the IRD has been no more successful
in answering our questions than the IRS has, which are: What tax am I liable for? What
form am I required to file it on? They can’t answer the questions! You know, in
America I have over two thousand clients at ARLS, and they’ve never been able to
answer the question one time for any of the clients.
"What it really boils down to, if you go look at the original Act,
1908, it’s not even a tax, it’s a contribution by companies to pay the public
expenses of His Majesty. That’s all it was for. It was freely and voluntarily given.
That’s not a tax, that’s a contribution."
On the battleground of legal technicalities, one of Kahn’s weapons
of choice against the NZ IRD is what he claims is the department’s failure to
officially "gazette" the requirement for taxpayers to file tax returns.
"If they’re required to file a form at all, it must be
published in the Gazette, there must be a volume date and page number that this
public obligation exists and the public has to have public notice of it. It’s never
been published, so obviously there’s no requirement.
"If somebody doesn’t file a form, they’ll get a letter
saying ‘why didn’t you file?’, and the answer is ‘I didn’t know
there was an obligation to file. If there is it must be published in the Gazette.
Please give me the volume date and page number and I’ll be happy to do
it’."
In an OIA request, Carstensen asked the IRD to provide a list of all
their tax forms, "and the IR3 and IR5 [tax return] files were not on that list".
But it’s the practical, not the theory, that will determine
whether Kahn and his American legal advisors can cause the IRD lasting damage.
They’re already claiming victory with a New Zealand taxpayer, Jeanette Harper of
Tauranga.
On April 6, 1998, the IRD wrote to Harper telling her she owed the New
Zealand Government $286.13 in unpaid tax. She wrote back, under the Privacy Act 1993,
demanding to know "What particular tax am I, Jeanette Elizabeth Harper, a human
being, liable for, and what particular form am I required to file for that tax?
"Please send to the requester copies of documents that evidence
the liability, if any, as a human being, and also the evidence that links this liability
to the particular form required to be filled out. I am a law abiding citizen and as such
only require the specific facts as requested. I specifically request no opinions be
given."
The IRD’s Glenn Harris, in the Tauranga office, replied:
"As a person who is a New Zealand resident you are liable to
Income Tax on all your income, in this instance wages, interest and rent.
‘Person’ is defined in Section OB1 of the Income Tax Act. I am aware that it is
your understanding this definition includes just ‘a company and a local or public
authority; and also includes an unincorporated body of persons…’ but with
respect, the definition also includes the word ‘Person’. Person has the natural
and ordinary meaning of the word."
The bombardment on the IRD continued, however.
"It is a cardinal rule of statutory interpretation that a word
cannot be used to define itself," wrote Harper on advice. "That is to say, you
cannot use the term ‘person’ to define the word ‘person’. I’m
sorry, but with respect, this makes no sense.
"This is also in direct contrast to the written response from
Margaret E. Cotton, National Advisor, Operations Policy, on behalf of the Commissioner of
Inland Revenue."
Jeanette Harper was roasting the IRD on its own spit, using a legal
opinion she’d obtained from the IRD head office under the Official Information Act.
In it, Cotton repeated the definition of ‘person’ contained in the Act, then
added: "There is no other legislative reference which alters that definition."
Asked in the same OIA request whether the term "human being"
was included in the definition of "person" contained in the Act, Cotton replied:
"Inland Revenue does not hold any information which evidences that
the term ‘Human Being’ is included in the definition of the term
‘person’ in the current Income Tax Act."
"I am a human being," Harper wrote to the IRD investigator.
"However, for the specific purposes of the Income Tax Act 1994, I do not fall within
the definition of the term ‘person’."
There were some further shots fired, but that’s the essence of it.
Ultimately, Harper did not file a tax return this year, and instead wrote in to say she
did not believe she had earned any ‘income’ as defined by the Act, and therefore
was not required to file a tax return.
The IRD accepted her letter and refunded a $50 late filing penalty
charge.
Harper’s status as New Zealand’s highest profile non-taxpayer
(except perhaps for people associated with Fay Richwhite & Co) is no accident. Her son
is accountant Andrew Carstensen, the head of New Zealand Rights Litigators – an
offshoot of Eddie Kahn’s American Rights Litigators.
"Basically the issue is quite simple, people have to get into the
mindset: they are either natural persons born with human rights, or they are inferior
serfs still subject to the Crown’s orders and taxes."
After more than 60 letters and OIA or Privacy Act requests of the IRD,
Carstensen believes he has evidence the income tax in New Zealand is voluntary, and he
believes the IRD is writhing under the pressure.
"What I’ve found over time is that if you ask them a question
they’ll give you a straight answer, somewhere in the letter, and then they’ll
spend the rest of the letter saying what they’ve just said is not right."
Case in point? Take this letter from the IRD’s Margaret Cotton to
Carstensen under the OIA.
"In [your request] you have asked for copies of the delegation
authority order of notice for ‘human beings’ to keep Income Tax records.
"There is no legislative reference in the Inland Revenue Acts
which specifically require ‘human beings’ to keep income tax records. The
legislation requires taxpayers and persons to keep income tax records.
"As a taxpayer is a person and persons are in common parlance
human beings, human beings are required to keep income tax records."
So in one paragraph there is no requirement for human beings to keep
tax records, but in the next the IRD says there is.
New Zealand Rights Litigators then fired off a series of OIA requests
to the IRD that make fascinating reading. In the first, they asked if it was compulsory
for an individual to have a tax file number.
On 20 September 1999, the IRD’s David Belchamber wrote back on
behalf of the Commissioner:
"There is no provision in either that [the Income Tax] Act or the
Tax Administration Act 1994 that makes it compulsory for taxpayers to have a tax file
number."
You heard it right: there is no law requiring you to have an IRD
number. Carstensen, Eddie Kahn and others believe this provides a major clue as to the
voluntary nature of income tax. Kahn argues that if the Government had a lawful right to
tax natural persons, it would have made tax numbers compulsory. Instead, you are given a
choice: you can comply, or not.
But the Government, like the US Government, has a card up its sleeve.
Knowing that it has complete control over companies, the IRD has told companies that where
a worker chooses to exercise their legal right not to provide a tax file number, the
company is required by law to deduct a flat rate tax of 45% from whatever that worker
receives. The tax is imposed on the company’s wage expenditure, not on the
employee.
Those who "voluntarily" accept the IRD number will face tax
deductions as low as 19.5% as a reward.
A similar "voluntary" carrot and stick approach was adopted
by the Australian Government ten years ago in its ill-fated bid to introduce a
"voluntary" national ID card. Australians were told the card was not compulsory
for natural persons, but that businesses or banks who traded with a cardless person would
face fines of up to $20,000.
With the controversial new NZ drivers licences, applicants are asked to
sign consent forms allowing the Government to use their information. If the licences are
compulsory, critics argue, why does the Government need your permission? In the US and
Canada, researchers have discovered that drivers licences – like income tax –
are voluntary for natural persons, but that if you register a vehicle or apply for a
licence you are effectively entering a contract with the government giving them the power
from that moment on to punish you for breaching the rules of the contract.
But back to the IRD. In a second letter, the tax department said that
although it was not compulsory for anyone to have an IRD number, failure to provide one
meant the person concerned would not be permitted to file a tax return or claim back any
overpayment of tax.
So here are two important points: you are not required by law to have a
tax number. If you do not provide one, you cannot file a tax return either. Now comes the
triple whammy:
"You have asked if you can give up an IRD number and close your
account if you wish," wrote the IRD’s David Belchamber.
"I can advise that IRD numbers are normally issued for life.
However, the number can be closed off if it is no longer required."
In other words, even if you have an IRD number you can return it and
close your account with the tax department. Does this sound like the essence of a
compulsory tax system, or do the rules only apply to those who choose to become taxpayers?
There is a big difference, however, between the United States and New
Zealand, and the growing tax revolt in New Zealand, Australia and Canada is raising public
awareness of that difference to a potentially dangerous level. What happens, argues
Carstensen, when it dawns on New Zealanders that legally they really are still feudal
serfs who must pay a tithe to the Crown? What happens when they realise that Americans
have managed to gain a whole raft of rights that Kiwis and Aussies do not have?
"If you look at the Book of Genesis, chapter 47," says
Carstensen, "you see one of history’s first recorded instances of income tax. It
tells how the people sold their souls into slavery for the Egyptian Pharaoh. The Pharaoh
at the time said ‘OK then, I will take one fifth of everything you earn from now
onwards, now that you are my slaves, and you can have four fifths to provide food,
clothing and shelter’.
"We’re actually worse off in New Zealand now, where the
Government is taking nearly 40% of what we the people are earning, than the Hebrew slaves
in Egypt were. In fact, we’re twice as badly off."
At the turn of the century in Britain, according to contemporary
encyclopedia reports, the average income tax across all families was six shillings a week,
but a person of moderate to small means paid "little in taxes, and, indeed, he can if
he chooses escape direct taxation altogether." The rich were "very heavily taxed
indeed – often to the extent of a third of his income."
US tax litigator Lynne Meredith calls the new drive to redefine
Government taxation powers "a new, financial, War of Independence", which may
not be far from the truth.
Constitutional experts in New Zealand claim the Crown has absolute
control in this country because there is no written constitution guaranteeing the
individual sovereignty of NZ citizens.
"The Government doesn’t want it that way, because adopting a
Constitution as the fundamental law of the nation could remove a Government’s right
to introduce reforms or policy initiatives that were in conflict with the
Constitution," remarked one constitutional lawyer privately.
"At the moment, the Government has all the power. If these tax
protesters are successful, all that will happen is the Government will pass new statutory
law to negate it. New Zealanders only have the rights that the Crown allows them to
have."
Andrew Carstensen doesn’t think the Government would have the
courage to publicly slap its citizens in the face and risk a domestic political crisis.
"My feeling is that they won’t change it. If they do, then
they’re admitting that previously a natural person did not have to pay tax and they
could be faced with refund claims. Kiwis have a choice. They have the right to be free or
the right to be enslaved. But people genuinely don’t realise they have a
choice."
And critics argue that it really is a choice. Canadian tax researcher
Eldon Warman, heading a movement called "De-Tax Canada", says people often ask
why the Government won’t simply close the loophole by changing the law. He
doesn’t believe they can.
"If they could have written the [Canadian] Income Tax Act so as to
include natural persons, it would never have been written that way in the beginning or
rewritten that way in subsequent amendments. The Government wouldn’t have had to
resort to manipulating contract law and to implementing other elaborate means to play upon
the legalese ignorance of the Canadian people.
"But, further, the basis of this detax system is the fact that the
Government cannot make statutes, rules or regulations requiring a natural person to either
make, or not to make, a contract. It would be an interference in the property right."
But there is another issue: what happens if so many New Zealanders
refuse to pay tax that it causes a Government crisis anyway? With public opinion of the
IRD at an all time low, and many New Zealanders angry at the department’s apparent
inability to collect hundreds of millions of dollars from tax dodging big business, some
officials are admitting privately there is a real risk that the tax system and the
Government could be crippled by large numbers of people opting to use cheap tax haven and
trust solutions to keep their income and assets out of reach, the same way the big boys
do.
Eddie Kahn says it’s a wake-up call.
"I think that New Zealanders need to take control of their
Government, and the way you do that is by telling your MPs: ‘no’.
"You have to get into this mentality: ‘I pay your salary.
You’re there for my benefit, not yours. If you’re not benefiting me, then I
don’t want you there’.
"You are really in control, as long as you exercise control. If
you don’t exercise it the politicians will assume it for themselves."
Carstensen expects the New Zealand Government to wheel in friendly
constitutional lawyers to try to play down or rubbish the existence of a problem –
"but then, you’d expect them to do that, wouldn’t you. To do anything else
would be admitting they have no legal right to govern, and no right to levy taxes. The
Government, through the news media, has to try and convince the public that there is no
crisis and no power vacuum."
A decade ago, the citizens of California brought their Government to
its knees in a tax strike. Ultimately, New Zealanders, Australians and Canadians are yet
to test their powers, but the knowledge that the US Internal Revenue Service is allowing
Americans to opt out of the tax system is likely to put incredible pressure on the former
British colonies and the constitutional void appearing to surround them.
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