The Tax Office’s small business benchmarks provide a snapshot of what it sees is happening in an average business operating in a particular industry by using financial ratios.
The benchmarks are developed from information provided by businesses on their tax returns and activity statements. As such, the benchmarks are a useful tool to help you assess your business’s performance against similar businesses.
Critically, however the Tax Office also uses benchmarks to identify businesses that may be avoiding their tax obligations, for example, by not fully declaring their total cash income.
You could say that by developing benchmarks for small businesses, the Tax Office is drawing a line in the sand, and making it clear what it expects from businesses in their relevant industry.
The relevant benchmarks published fall within two categories:
Performance benchmarks contain several financial ratios to help compare and check your own business performance. The ratios for a particular industry may include:
- cost of goods sold to turnover
- cost of materials to turnover
- labour to turnover
- rent to turnover
- motor vehicle expenses to turnover.
The Tax Office says that businesses reporting outside their benchmarks could attract its attention for a review or audit. There may be good reasons for any disparity, but taxpayers who find they are outside the benchmarks for their industry may be best prepared by checking records and making sure that all your paperwork is in order.
A default assessment can be issued by the Tax Office where a business fails to provide source documents.
Input benchmarks show an expected range of income for tradespeople based on the labour and materials they use. They are developed using information provided by industry participants and trade associations. They can help you to:
- compare your business to your industry’s benchmark range
- check that your records accurately reflect your income
- estimate your turnover based on the labour and materials used.
Input benchmarks apply to tradespeople who undertake domestic projects and are responsible for purchasing their own materials.
There are more than 100 industries already benchmarked, and you can view each via the A-Z list maintained on this Tax Office web page. The list is being added to all the time as the Tax Office continues to crunch the numbers, and the benchmarks will be updated as they are made available.