Joint bank accounts

(Clauses 16, 86 ad 105)

Summary of proposed amendments

The provisions of some Inland Revenue Acts which allow deductions of tax from payments due to a defaulting taxpayer are being amended to allow the Commissioner of Inland Revenue to make deductions of tax from joint bank accounts. The amendments will allow deductions from a joint bank account if the defaulting taxpayer can make withdrawals from that account without the signature of the other person. The changes will ensure consistency of treatment for deductions from joint bank accounts.

Application date

The amendments will apply from the date of enactment.

Key features

Section 12L of the Gaming Duties Act 1971, section 43 of the Goods and Services Tax Act 1985 and section 157 of the Tax Administration Act 1994 are being amended to allow the Commissioner to make deductions from joint bank accounts if the defaulting taxpayer can make withdrawals from that account without the signature of the other person. This is consistent with the existing deduction power in the Child Support Act 1991 and will ensure a consistent approach to joint bank accounts.

Background

When a taxpayer fails to pay any income 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.

Currently, section 157 of the Tax Administration Act 1994 does not refer to joint bank accounts. The courts have held that the Commissioner cannot 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 is 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 does 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.

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