Payment of debt by compulsory deductions from bank accounts (Aug 99) (WITHDRAWN)

Introduction

This Standard Practice Statement outlines Inland Revenue's practice on the use of Notices to Deduct.  This statement covers:

• monitoring of bank accounts
• overdraft facilities
• investments
• joint bank accounts
• interest
• prosecution

This Standard Practice Statement has been updated to include new legislation.

Application date

This Standard Practice Statement replaces Standard Practice Statement RDC 3, published in TIB Vol Ten No.10 (October 1998).  This amended Standard Practice Statement applies to all deduction notices issued on or after 1 September 1999.

Legislation

Section 157 of the Tax Administration Act 1994 allows the Commissioner of Inland Revenue to issue a Notice requiring compulsory deductions to be made from amounts that are, or become payable by any person to a defaulting taxpayer.  The Notice may require deductions to be made by way of a lump sum or instalments.  The Notice may also require that daily interest be deducted, from the date of the written notice, until the amount in default has been deducted.

Other Legislation
The following legislation is similar in content to section 157 of the Tax Administration Act 1994:

• section 43 of the Goods and Services Tax Act 1985
• section 154 of the Child Support Act 1991
• section 46 of the Student Loan Scheme Act 1992
• section 12L of the Gaming Duties Act 1971
• section 46 of the Accident Compensation Act 1982
• section 130 of the Accident Rehabilitation and Compensation Insurance Act 1992
• section 313 of the Accident Insurance Act 1998.

Monitoring of bank accounts

A Notice to Deduct may require deduction from amounts held on the date of the Notice or from amounts deposited after the date of the Notice.  However Inland Revenue and the Bankers' Association have agreed that banks will generally not be required to monitor accounts on a daily basis.

If there is an exceptional case where Inland Revenue considers daily monitoring to be necessary, Inland Revenue will ask the bank to monitor the account for a specific period.  Inland Revenue's requirements will be discussed with the bank at the time.  Unless there are exceptional circumstances, the maximum period a bank will be required to monitor an account is ten working days.

Example
The taxpayer has a large debt, which has been outstanding for some time.  Inland Revenue is aware that the taxpayer is expecting to receive funds from an overseas source.  It is known that payment of the funds, to the bank, will be made in the first week of the month, but the exact day of payment is not known.  Inland Revenue will consult with the bank concerned and request that the account be monitored for the first week of that month.

Overdraft facilities

Inland Revenue cannot, by requiring a deduction to be made from a bank account, put a taxpayer into, or further into overdraft.

If Inland Revenue issues a Notice to Deduct for an account which is in credit and the taxpayer attempts to evade it by transferring funds to an account in overdraft, then the Notice will take priority.

Investments

Compulsory deductions may be made from money that is held in a term investment before the date that the investment is due to mature.  This may result in a reduced rate of interest on the investment.

Joint bank accounts

General information
Previously the Commissioner issued Notices to Deduct for joint accounts if the signatory was "either or".

In ANZ Banking Group (New Zealand) Limited v CIR (1998) 18 NZTC 13,643 the High Court held the Commissioner could not issue a Notice to Deduct to obtain funds from a joint account in respect of the income tax debt owed by one of the joint bank account holders, because there was no authority to do so.

Inland Revenue will not issue Notices to Deduct for joint accounts, in respect of a debt owed by only one of the account holders except where the Commissioner has specific authority (eg for family assistance and child support).

Family assistance debts
When an overpayment for family assistance has occurred the person who received the overpayment (the recipient) and their partner or spouse (if they were the partner or spouse throughout the income year to which the overpayment relates) are jointly and severally liable for the overpayment (section KD 4(4) Income Tax Act 1994).  The Commissioner is therefore able to issue a Notice to Deduct for an account in the name of the partner or spouse or for a joint account in the name of the recipient and the partner or spouse.

Child support debts
The Child Support Act 1991 allows the Commissioner to require deductions from money payable to liable parents for a child support debt.  Section 155 of the Act extends this to money held in joint accounts in the name of the liable parent and one or more other persons, where the liable parent can draw from that account without the signature of the other person.

Interest

A Notice to Deduct may require deductions to be made to cover daily interest.  The interest starts on the date of the Notice to Deduct and ends on the day on which the amount required to be deducted, has been deducted.

Prosecution

If a bank fails to make the required deductions and there was an amount payable, or an amount that became payable, Inland Revenue has the power to prosecute for not complying with the terms of the deduction notice.

This Standard Practice Statement was signed by me on 9th August 1999.

Michael Rapson
Manager
Technical Standards