PKF Australia

Accountants and Business Advisers

Cash is Narcos

Cash is Narcos

Posted 09 Sep 16 by Thien Tran

Trending now on social media is the recent release of season two of Narcos. If you have been living under a rock, Narcos portrays the story of Pablo Escobar – an infamous criminal made legendary for his ruthlessness and brilliance in what he did. At his entrepreneurial heights, he was one of the world’s wealthiest men with an estimated net worth of $US30billion.

Interestingly, in season one of the series, Pablo was faced with the challenge of having more dirty cash than his money laundering capabilities. His accountant hid the excess cash at several random locations and to mitigate the risk of forgetting where the money was, the accountant conveniently mapped out where each and every dollar was held. While this money was hidden, it was simply unusable. And of course, the cops eventually found the accountant and consequentially found the money.

Pablo’s story provides a conundrum in what accountants see in many cash based businesses - if Pablo was trying to clean his money through his money laundering efforts, then why are many of our small businesses turning their hard earned honest income into unclean money?

It is true that many small businesses dealing with cash deliberately hide income to avoid paying the right amount of tax or superannuation – after all, cash is king. The Australian Taxation Office calls this the ‘Cash and Hidden Economy’. Many of these businesses go to great lengths to operate in the cash economy, even so far as storing their entire wealth and life savings in a safe tucked away in their attic, presenting an unfathomable risk to the business operator.

Thus far, business operators skill and tenacity in operating in the cash economy has been extremely effective in evading tax. But what was once a sleeping elephant, the Australian Taxation Office has now stepped up their efforts to ensure all businesses operate in the same playing field to promote fair competition and also to protect revenue raising. They are data matching with financial institutions, the construction and building industry and overseas partners. They are setting small business industry benchmarks. They are targeting high risk industries and intensifying their review and audit efforts. The Australian Taxation Office is getting smarter and their intent has never been more clear.

There has never been a more appropriate time to legitimise small business practices. But it also comes at the opportune time, as small business company tax rates has been slashed to 28.5% with further cuts to come in the upcoming years. With the correct advice, tax structuring and planning, business operators may realise soon there are other means of reducing their taxation obligations within the spirit of the law.

More importantly, it means business owners can start moving their wealth back into the real world where it can be spent, leveraged, invested, and unlike Pablo’s hidden fortune, stored safely in a bank.


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