Benchmarking & Audit Case Study
From our June 2009 issue
The Tax Office has continued to develop industry benchmarks in an effort to promote a level playing field for businesses.
Benchmarks are a collection of business norms showing such things as the average time and materials involved in certain jobs and the range of income tradespeople can expect to receive when dealing directly with customers. A recent case study published in TaxAgent magazine highlights how benchmarking worked within the context of an audit:
The taxpayer, a Melbourne based concreter, came to the attention of the Tax Office because he had been reporting very low levels of income for a number of years.
During the audit, the taxpayer said his business was based on smaller suburban work for which he received very little cash. He said he always issued tax invoices to his customers.
The concreting benchmark was used by the Tax Office to help them understand the taxpayer’s business in the context of the industry.
The concreter had declared a taxable income of $18,000 for the year. He recorded only four concrete purchases during one of those quarters.
Data obtained by the ATO from his supplier for that quarter showed eighteen concrete purchases – some paid for in cash. Other third party information showed he performed many of his jobs for cash; these were not recorded in his records and his customers did not receive tax invoices.
Using information gathered from all sources, the Tax Office formed the view that he had a lot of unreported cash income and expenses.
As the taxpayer’s record keeping was inadequate, the auditors worked out his income by applying his normal sale price per square metre to his actual purchases of concrete.
The audit resulted in tax liabilities of close to $67,000 and additional penalties of nearly $50,000.
This information is for guidance only and is not intended as specific advice to any reader. Professional advice should be obtained before acting on any information contained herein. The publisher accepts no responsibility for loss occasioned to any person or organisation as a result of action or the refrain of action as a consequence of the contents of this publication.