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Small Business Benchmarks


The ATO has stated in its 2011-12 Compliance Program that it had identified 46,000 businesses that may be under-reporting their cash income based on the benchmarks.

So the likelihood of an SME hearing from the ATO is increasing.

The kinds of benchmarks used include cash sales benchmarks, performance benchmarks (which provide key business ratios for different industries) and input benchmarks (which show an expected range of income for tradespeople based on the labour and materials they use).

It has been suggested that the ATO's overall approach in using the benchmarks can be "heavy handed" with too much faith being placed in benchmarks. A major concern for SMEs is whether large numbers of compliant taxpayers are being unnecessarily targeted and thereby being subjected to unnecessary compliance costs.

The newly released activity statement ratios are considered by the ATO to be "key benchmark ratios" which the ATO can use to identify businesses that may not be reporting some or all of their income. The ATO may also use these ratios to quantify income that it has identified as not reported. According to the ATO, the key benchmark ratios provide the "most accurate predictor of business turnover for each industry".

The ATO recommends taxpayers review their business benchmarks regularly.

The new activity statement benchmark ratios are:

  • Non-capital purchases/total sales (G11 / G1):
  • Non-capital purchases include trading stock and normal running expenses that are reported at label G11 on the activity statement.
  • Total sales includes all GST-free sales, input taxed sales and taxable sales that are reported at label G1 on the activity statement.
  • GST-free sales/total sales (G3 / G1):
  • GST-free sales do not include GST in the sales price reported at label G3 on the activity statement.
  • Total sales includes all GST-free sales, input taxed sales and taxable sales that are reported at label G1 on the activity statement.

The ATO says the ratios have been developed using a complete financial year's activity statement data from a particular industry. To compare their performance against the benchmarks, the ATO suggests businesses should use their activity statements for the entire financial year.

The ATO's use of benchmarks is not new, and SMEs should be aware of these latest ratios.

 

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