Joint bank accounts

Section 157 of the Tax Administration Act 1994, section 43 of the Goods and Services Tax Act 1985 and section 12L of the Gaming Duties Act 1971

The provisions in some Inland Revenue Acts which allow deductions of tax from amounts payable to a defaulting taxpayer have been amended to allow the Commissioner of Inland Revenue to require a bank to deduct and pay to Inland Revenue funds from joint bank accounts. The amendments allow deductions from a joint bank account if the defaulting taxpayer can make withdrawals from that account without the signature or other authorisation of the other person. The changes ensure consistency of treatment for deductions from joint bank accounts.

Background

When a taxpayer fails to pay any tax, interest or civil penalty the Commissioner may issue a written notice to any third party, for example, a bank, requiring the third party to deduct and pay to the Commissioner funds from any amounts payable to the defaulting taxpayer. The deductions may be in the form of a lump sum or instalments.

Before the amendment, section 157 of the Tax Administration Act 1994 did not refer to joint bank accounts. The courts had held that the Commissioner could not issue a deduction notice to obtain funds from a joint account for an income tax debt owed by one of the joint bank account holders, because there was no authority to do so under section 157.¹ The High Court noted that the Social Security Act 1964 and the Child Support Act 1991 both contain deduction provisions that expressly refer to money held in joint bank accounts, whereas the Tax Administration Act 1994 did not. This raised an inference that a tax deduction provision like section 157 needed to contain an express reference to joint bank accounts for it to apply to such accounts.

The Child Support Act 1991 allows the Commissioner to require deductions from money payable to a liable parent to meet a child support debt. This deduction power extends to money held in joint bank accounts in the name of the liable parent and one or more other persons when the liable parent can draw from that account without the signature of the other person.

Key features

Section 157 of the Tax Administration Act 1994, section 43 of the Goods and Services Tax Act 1985 and section 12L of the Gaming Duties Act 1971 have been amended to allow the Commissioner to require a bank to deduct and pay to Inland Revenue funds from a joint bank account if the defaulting taxpayer can make withdrawals from that account without the signature or other authorisation of the other person.

The amendments do not apply to the joint bank account of a partnership that files a return of income under section 33(1) of the Tax Administration Act 1994.

Application date

The amendments apply from 21 December 2010.

¹ ANZ Banking Group (New Zealand) Limited v CIR (1998) 18 NZTC 13,643