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ATO Small Business Benchmarks

Article By Adam Hurwood | | Business Consulting
Over the last few years the Tax Office has developed and published small business benchmarks (financial ratios) to assist small business owners in comparing their performance against similar businesses within their industry. The benchmarks are representative of income tax returns and business activity statements lodged by the industry in question and provide guidance on the figures the Tax Office would typically expect a business in a particular industry to report.

How the Tax Office uses these benchmarks

The Tax Office uses benchmarks to help identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. In order to uncover potential noncompliance, they use the benchmark considered to be the most accurate predictor of business turnover for each industry – the ‘key benchmark ratio’. This highlights the benchmark for each industry to help businesses and tax practitioners alike.

Benchmarks are published for businesses in more than 100 industries with varying levels of turnover. The benchmarks are also often published as a range, to allow for variations between businesses in different regions with different business circumstances. On the other hand, a benchmark figure such as motor vehicle expenses may be published as a single percentage where the variation for this benchmark in particular industries is minimal.

By publishing benchmarks for small businesses, the Tax Office is clarifying its expectations of businesses within particular industries.

Operating outside the benchmarks

Businesses reporting outside the benchmarks may attract Tax Office attention. There may be reasons for this difference, such as higher costs or lower selling prices than others in the industry, but it may also be an indication that a business is not recording and paying tax on all its transactions, especially cash transactions.

If you find you are outside the benchmarks for your industry, you should check that you have correctly recorded and reported income and deductions for your business. To do this you should review your record-keeping practices to ensure they meet the legal requirements.
If you have any questions concerning how these benchmarks apply to your business or would like to have your business benchmarked against your peers, please contact your Altitude Advisor.