The ATO’s New Weapon!

Posted on Dec 19, 2012 | 0 comments

Business Benchmarks

The ATO has developed a series of benchmarks as a guide on the range of figures it would expect businesses in a particular industry to report. The benchmarks include expected expenses to income ratios.

These ratios allow the ATO to quickly and easily determine if particular businesses may be in the cash economy and therefore might require scrutiny in regard to ‘skimming’ cash takings, paying ‘cash-in-hand’ wages, operating off-the-books and not recording or reporting all sales and purchases.

Benchmarks are currently in place for over 100 industries with more to be included.

Record Keeping

In a recently released document ‘Record Keeping and Cash Transactions’, the Tax Office points out that benchmarks are all about record keeping. If your business doesn’t have the records to back up its reported income and expenses, and if it doesn’t fit the benchmark profile, the ATO will amend the tax assessment to match the benchmark.

What it Means in Practise

The benchmarks show that an average size pizza shop with annual turnover between $150,000 and $600,000, should have an average cost of sales of 40% of turnover.

If a particular pizza shop (it might be yours) then shows gross sales of $200,000 with cost of sales of $120,000 – 60% rather than the expected 40% – the ATO could then contact the business and advise that it was outside the benchmarks.

If the business did not have the records to prove why it was outside the benchmarks, the ATO has the power to then apply the benchmarks by, for example, adjusting gross sales up to $300,000 so that the business’s cost of sales of $120,000 would match the benchmark of 40% of sales. This would in turn mean an increased bottom line figure and most likely a substantially increased tax liability.

The message is simple: keep accurate records or be prepared for the ATO to adjust your figures where they do not match benchmarks.

If you are concerned about what this may mean for your business please contact us to discuss what you can do about it.

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