Small business benchmarks are a guide to help businesses compare their performance against similar businesses in an industry. The benchmarks are calculated from information reported on the income tax returns and activity statements of businesses that operate in similar industries.
Benchmarks are published as a range to account for businesses with different annual turnovers, variations across financial years, regions and business models.
What is a key benchmark?
The key benchmark ratio is the benchmark the ATO uses to identify businesses that may not be reporting some or all of their income and may also use this ratio to quantify income that the ATO have identified as not reported.
The ATO identify these to make it clear to businesses and tax practitioners what benchmark they consider to be the most accurate predictor of business turnover.
Why are the benchmarks published as a range?
The benchmarks are published as a range to recognise the variations that occur between businesses and are representative of returns and activity statements of the industry; for example, they allow for variations between businesses in different regions and with different business circumstances.
For some industries, such as bakeries and hot bread shops, and coffee shops, motor vehicle expenses may be published as a single percentage figure rather than as a range as the variation in this benchmark is minimal.
What is important is that businesses may be correctly reporting their income and still have ratios outside the benchmark range; however, their business records should confirm that they are correctly reporting their income.
How does the ATO use benchmarks?
The ATO use benchmarks, amongst other indicators, to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income.
Information you report in your tax returns or BAS are compared with the key benchmark for your industry. The ATO checks to see whether you are reporting outside of the benchmark range for your turnover.
The ATO identifies the appropriate industry benchmarks for your business based on the information you provided, which includes:
• your business industry code
• the description of the main business activity on your income tax return
• the trading name of your business.
Here at The Quinn Group, our experienced team of Tax Accounts, Tax Agents and Tax Lawyers are able to help you meet your benchmark compliance and to assist you with all your auditing needs. Contact us today by submitting an online enquiry or by calling us onr call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.