You’ve probably heard the rumour: “IRD can just take money straight out of your bank account.” Sounds scary, right? The truth is, they can—but it’s not as random or aggressive as the stories make it sound.

At CMK Accountants, we work with hundreds of rural businesses and families across Taranaki, and we’ve seen how confusion about IRD’s powers can cause unnecessary stress. So let’s cut through the noise and talk about what’s actually true, what your rights are, and most importantly, how to avoid ever being in this situation.

The Short Answer: Yes, But It’s Not Random

IRD does have legal authority to take money from your bank account to recover overdue tax or child support. This power comes from Section 157 of the Tax Administration Act, and it works by IRD issuing a “deduction notice” to a third party—like your bank or your employer—requiring them to pay IRD from money they owe you.

But here’s the key: it’s typically a last resort, not their first move.

How Does It Actually Work?

When you owe IRD money and haven’t made arrangements to pay it back, they can issue a deduction notice to anyone who owes you money. The most common recipients are:

• Your bank (to deduct from your account balance) • Your employer (to deduct from your wages) • Anyone else who owes you money (like a customer who hasn’t paid an invoice)

Once the third party receives the notice, they’re legally required to comply. Your bank must pay IRD from your account balance. Your employer must deduct money from your pay. They have no choice—it’s the law.

The Process: What Happens Before IRD Takes Action

In our experience at CMK, IRD doesn’t just wake up one morning and empty your bank account. There’s usually a process:

1. You receive assessment notices and reminders about overdue tax
2. IRD attempts to contact you about payment arrangements
3. If you don’t respond or make arrangements, collection action escalates
4. As a last resort, they may issue a Section 157 deduction notice

The key point? If you’ve been keeping to an instalment arrangement you’ve agreed to with IRD, or if you’re formally disputing the assessment (or it’s been deferred by the courts), a deduction notice typically won’t be issued.

This is why we always tell our clients: don’t ignore IRD letters. Even if you can’t pay in full, talking to them early means you have options.

How Much Can IRD Take?

The rules depend on what type of debt you have and where the money is coming from:

From Your Wages:

• For overdue income tax, GST, student loans, or gaming duty, IRD can deduct the lesser of 10% of the total tax debt OR 20% of your gross wages each pay period • For child support debts, the calculation is different: the lesser of the total debt OR 40% of your net pay (after PAYE is deducted)

Example: Kerry owes $3,000 in overdue income tax. She earns $900 gross per week. IRD issues a deduction notice to her employer for the lesser of $300 (10% of $3,000) or $180 (20% of $900). Her employer deducts $180 per week until the debt is paid.

From Your Bank Account:

• IRD can require your bank to pay the full amount owing from your account balance • However, IRD cannot push you into overdraft or further into overdraft • Banks generally aren’t required to monitor accounts daily (except in exceptional cases)

The Big Change: Joint Accounts

Here’s something many Kiwis don’t know: the rules around joint accounts changed in 2010.

Before 2010: IRD could not take money from a joint bank account to pay just one person’s income tax debt. If you and your spouse had a joint account, it was protected.

Since December 2010: IRD can now issue deduction notices for joint accounts if the person who owes the tax can make withdrawals without the other account holder’s signature. So if you have an “either/or” joint account (the most common type), IRD can access it for your tax debt.

The exceptions:

• If your joint account requires both signatures to withdraw, IRD generally can’t touch it for one person’s income tax debt • Partnership accounts that file tax returns under Section 33(1) of the Tax Administration Act are protected • Different (broader) rules apply for child support and family assistance debts

Why this matters for rural families: Many farming couples operate with joint “either/or” accounts for ease of day-to-day business. If one partner has overdue tax, that joint account could be subject to a deduction notice. It’s worth discussing account structures with your accountant if you’re concerned.

What About Term Deposits and Investments?

Yes, IRD can require deductions from money held in term investments before the maturity date. This might result in you receiving a reduced rate of interest or early withdrawal penalties, but IRD’s notice takes priority.

Your Rights: What You Should Know

If IRD issues a deduction notice, you have certain protections:

1. You should be notified: IRD says they send a copy of the notice to the taxpayer if they have your current address
2. The third party must notify you: After your bank or employer makes a deduction, they must tell you
3. Minimum deduction: There’s a minimum of $10 per week for wage deductions
4. You can still arrange payment: Even after a notice is issued, you can contact IRD to discuss payment arrangements

How to Avoid Deduction Notices

The best defence is a good offence. Here’s what we recommend to our clients:

1. File your returns on time, even if you can’t pay immediately – Late filing penalties are harsh
2. Contact IRD proactively if you’re struggling – They’re surprisingly reasonable if you engage early
3. Set up an instalment arrangement – You can do this through myIR at any time
4. Keep to your payment plan – Once you’ve agreed to instalments, stick to them. This prevents further collection action
5. Keep your address updated with IRD – You can’t respond to notices you never receive
6. Get professional help – If you’re facing significant tax debt, talk to your accountant. We can help you understand your options and communicate with IRD on your behalf

Warning: Scams Are Real

With all this talk about IRD taking money from accounts, scammers have jumped on the bandwagon. Here’s what you need to know:

IRD will NEVER:

• Send you text messages with links asking for bank details • Email you demanding immediate payment • Put the dollar amount of a refund in an email or text • Ask you to reply to an email or text with your bank account details • Speak to you threateningly or demand payment immediately over the phone

IRD WILL:

• Contact you by mail with official letters • Ask you to log into myIR (but they’ll never send you a link to do so) • Call from 0800 257 777 if you’ve been sent letters first

If you receive anything suspicious, check IRD’s scam alerts at ird.govt.nz or call them directly on 0800 257 777. Don’t click links or respond to unexpected messages.

Real Talk: What To Do If You’re Facing Tax Debt

We get it—farming cashflow can be tight. Milk prices fluctuate. Feed costs spike. Unexpected repairs blow the budget. Sometimes tax payments slip down the priority list.

If you’re behind on tax, here’s our advice:

1. Don’t panic, but don’t ignore it – The sooner you act, the more options you have
2. Calculate what you can actually afford – Be realistic about weekly or monthly payments
3. Apply for an instalment arrangement through myIR – It’s straightforward and can usually be done online
4. Keep your ongoing obligations current – Pay your current GST and PAYE on time, even while you’re paying off old debt
5. Talk to us – We can help you understand the total picture, negotiate with IRD, and create a realistic plan

Remember: penalties and interest keep adding up on overdue amounts. The longer you wait, the bigger the hole gets.

The Bottom Line

Yes, IRD can legally take money from your bank account or wages to recover overdue tax. But it’s not arbitrary, and it’s not their first choice. They’d much rather you engage with them, set up a payment plan, and stick to it.

The real risk isn’t Section 157 deduction notices—it’s ignoring the problem until you have no options left.

If you’re worried about tax debt, or if you’ve received letters from IRD that you don’t understand, give us a call at CMK Accountants. We’re here to help you navigate these situations and find solutions that work for your business and family.

After all, we’re not just accountants—we’re your neighbours in Taranaki, and we understand rural business.