ATO Benchmarks - What You Need To Know
The ATO use industry benchmarks to assess business performance and will take a closer look at businesses that fall outside of these benchmarks. But what happens if you have a niche business or have unusual trading conditions that mean you will almost never fall within these benchmarks?
This is the major problem with the current benchmarking approach. The ATO has a huge data base of information on business performance. When you lodge your business income tax return your accountant needs to include an industry code that is the closest match to your business. It is through the matching of data against common industry codes that the ATO builds it benchmark information and is able to statistically establish ranges for what is normal. With a lot of businesses however, there is no such thing as normal.
If you operate in a niche area then the industry code applied for your business may be the closest general match but you could have very different business characteristics to other businesses identified under the same code. Where this occurs it may throw you outside of the normal range. Even where you operate a business that is relatively homogenous and similar to a lot of other industry participants you may have multiple revenue streams within the business that cause differences. So, whether or not your business is within the normal range for your industry code can be irrelevant. You should not be trying to work to any pre determined performance range. Drive your business to produce the very best results possible.
Knowing that the ATO may compare your business to others in your sector, you may like us to test your key numbers against the performance benchmarks the ATO publish. A good starting point is to see how you measure against the ATO information. More importantly, your accounting systems and record keeping should establish the accuracy of the tax information you are reporting. Your risk position increases significantly if you are outside of the benchmark range and your accounting and information systems are substandard and there are gaps in substantiating your information. Even where you are doing everything correctly you need to be capable of demonstrating that accuracy of your information from your information systems. There is also a higher focus on benchmarks if you are in a business sector that has a higher level of cash sales. From an ATO point of view, you are a higher risk candidate.
If you are concerned about the benchmarks we can complete a review of your position and make recommendations on your accounting and information systems (a mini tax audit on your business to see what the ATO would see). If there are any surprises, it is better to hear it from a friendly source. This would also allow you to fix up any system gaps that exist and be better prepared if the ATO comes calling.