Eileen Reppenhagen, CGA
The international financial community, concerned about proceeds of crime, money laundering and terrorist financing struggles with how to prosecute those who profit from crime. The writer is Canadian, so links in this article are to Canada Revenue Agency, but a search of your country’s tax regulator would reveal similar information.
- Does the average person need to be concerned about this legislation?
- Would you ever have to explain where your money or assets originate from?
- What would a bank statement look like that had proceeds of crime, or money laundering?
- Where would this money have come from?
- When should you be concerned?
- Why should you track your money?
- How can you protect yourself from spurious accusations?
How could an average taxpayer get caught in the web designed to deter crime? This is how it might happen…let’s use a story. Sally gets a letter from the ‘tax man’. Sally must submit her account statements for a ‘desk audit’. The letter recommends electronic delivery via ‘secure, encrypted’ means in PDF format by accessing financial transactions online. The letter requires bank, credit card and all investment accounts including both registered and unregistered accounts. Registered accounts, retirement, disability savings, and tax free savings accounts. (RRSP, RRIF, RESP, TFSA…). Sally closed some accounts; hadn’t kept paper records, pays hefty fees to obtain records. Sally submits 156 statements, twelve months times thirteen accounts. Three banks, three credit cards, three broker, unregistered accounts; and four registered accounts for deferred or tax free savings for retirement.
When the auditor does analysis of Sally’s deposits and electronic transfers between her various accounts, indirect verification of her income reveals a number of deposits can’t be explained. Sally deposited $15,600 that can’t be accounted for by payroll, expense account reimbursement, refunds from medical insurance claims, government benefit programs or tax refunds.
Amounts vary from $299 to $2,600 over the year. Sally was involved in a number of community activities. It’s possible the money was reimbursements or proceeds from bake sales re-directed from her account to the organization benefiting from these activities. Alternatively, cash from family and friends to help with her daughter’s wedding. Sally has not kept records. Bank search reveals cash deposits. Sally receives a notice of re-assessment from the Agency, directing her to pay additional taxes, interest and penalties for undisclosed income. Penalties for unreported income are severe.
What are three simple ways that Sally could have protected herself?
- Avoid cash transfers and cash gifts, cash re-deposits
- Reviewing source and record reasons for every deposit at the time its deposited
- Keep financial transaction records using Quicken, or Mint (free)
How is your record keeping?
- What would ‘indirect verification’ of your income reveal?
- Is record keeping ethical? Will it protect you and those closest to you from harm?
- What other benefits may accrue from keeping records?
Have you or a client been caught up in the hunt for laundered money? Want to share your story? We'd like to hear it. Use the comment window below.
Eileen Reppenhagen writes about keeping records. Keeping records matters for control, relationship building, planning, goal setting, decision making, happiness, success, wealth building, succession planning; and calculation of tax consequences of transactions.
Eileen offers recorded webinar series on mastery of both QuickBooks and Quicken software. The webinars incorporate record keeping strategies in addition to how to make best use of design and internal controls to stay out of a mess. You can find info here.