Why Inland Revenue is taking money from bank accounts

Inland Revenue has stepped up efforts to collect tax it was owed. Photo / 123rf

By Susan Edmunds of RNZ

Thousands of people have had money deducted from their bank accounts in recent months as Inland Revenue steps up its efforts to collect the tax it is owed.

IR spokesman Rowan McArthur said it had sent out 16,500 notices about planned bank deductions since mid-June, 25% more than for the whole of last year.

“We are targeting customers who have repeatedly not engaged with IR; and those where information we have indicates there may be funds in their bank account[s] that could be deducted from to pay off existing tax debt.”

He said IR was also working to get instalment payment plans in place.

“As with all tax debt, we welcome customers contacting us so we can work with them to resolve their debt situation.”

Between mid-June and September 30, there had been 8181 deductions completed, which had recovered $17 million. There were another 6026 deductions in progress, which had collected $5.5m.

John Cuthbertson, Chartered Accountants Australia New Zealand tax leader, said tax debt had ballooned in recent years and the “softly, softly” approach taken over the Covid years meant many people were given significant leeway with their tax bills.

“Tax debt as of March was $9.3 billion. When you think about it, that’s a significant amount of money. If you look at Budget 2024 and 2025, funding was allocated specifically for IRD to be more aggressive in terms of audit activity… debt is the focus and they certainly don’t want to let it get any larger.”

He said some of the debt was quite old and some IRD was trying to collect quickly before it became non-collectable.

IRD also had the power to apply to have money taken from people’s wages if they were employed, he said.

“It’s in people’s best interest to get on top of their debt as early as they can and communicate. But we’ve had situations where employers or companies have used Inland Revenue as a bank by not paying some of these core taxes like GST and their PAYE - that’s held on trust for the Crown. That means they’ve been living beyond their means, really.”

Some accountants told RNZ it seemed people were only given a week’s notice before money was taken, and it was tough for some businesses that were struggling.

Deloitte tax partner Robyn Walker pointed to Inland Revenue guidance that said people would typically have received advice about the amount that was past due and a warning letter.

Since its system upgrade, Inland Revenue had more information from a wider variety of sources, which allowed it to be more proactive.

“Inland Revenue also did a systems upgrade [recently] so that the MyIR system more prominently shows any tax debt when people log in. I’ve heard some feedback that some people think it feels aggressive,” she said.