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ATO Benchmarks

The Australia Tax Office (ATO) Benchmarks provide high level useful information for small businesses regarding their business performance. The ATO has access to 1.4 million small business income tax returns, which enables it to develop a series of small business benchmarks. Whilst there are more than 2 million businesses in Australia, the ATO only includes businesses with a turnover range of $30,000 to $15million.

Business Benchmark Report Graphic

The ATO Benchmark Analysis

The ATO analyses 100 industries to provide a few key financial benchmarks for businesses to compare. These include:

  • Average cost of sales as a per cent of turnover
  • Average total expenses as a per cent of turnover
  • Non-capital purchases as a per cent of sales
  • Labour expenses, rent expenses and motor vehicle expenses as a per cent of turnover

The ATO Benchmarks are utilised for two key purposes:

  1. To support small business to improve performance: the benchmarks provide small businesses with a high-level overview of their performance compared to a wide range of other businesses in their industry. This enables business owners to identify opportunities for
    improvement and seek professional advice to address concerns if required. As each benchmark relates to a specific financial year, businesses can also see how they are improving year on year against the wider industry.
  2. To support the ATO identify businesses outside the benchmarks: the second important purpose is to enable the ATO to see businesses who fall outside of the industry benchmark. This may indicate that businesses are trying to claim too many expenses, are not declaring full turnovers or have submitted an incorrect tax return. The ATO needs to ensure all businesses meet their tax obligations; and therefore, businesses who fall outside of these brackets will be more likely to receive a tax audit.

Using Benchmarking to Reduce Your Chance of A Tax Audit

The ATO claim on their website that:

“When we see a business significantly outside the key benchmark range for their industry, it doesn’t necessarily mean you have done anything wrong. But it does indicate something is unusual and may prompt us to contact you for further information.

Benchmarks are one of the indicators we use to identify businesses that may be operating in the cash economy for review or audit.”

When it comes to submitting a tax return, you can review the ATO Benchmarks to see if your business fits within your industry benchmark, therefore reducing your chance of a tax audit.

This is an important step as sometimes; business owners or accountants may make a mistake or provide honest information that turns out to be incorrect. Checking your results against the ATO Benchmark will flag any areas to check, adapt and modify if required.

What the ATO look for

The below are some of the categories that may ignite further questions from the ATO.

  • Sales are too low compared to expenses: if your sales results are low compared to expenses, this signals to the ATO that you may not be recording all your sales revenue. The ATO is highly focused on reducing the ‘cash economy’. This is where businesses accept payments in cash, so they don’t have to pay taxes. This is a concern as it does not provide the ATO with a complete financial picture of small business in Australia, and, it means some businesses are avoiding paying taxes which are owed.
  • Expenses are too high in particular areas: the ATO assesses labour, rent and motor vehicle expenses as part of its benchmarking analysis. If a business has high costs regarding these key areas, this suggests to the ATO that a business is trying to claim too many expenses to reduce its tax obligations.
  • Cost of goods sold is too high: if cost of goods is too high compared to your sales, the ATO may believe there are additional or incorrect costs being recorded. These can often be innocent mistakes of recording an item as a cost of goods sold, rather than an overhead expense. Ensure you work with your accountant to decipher how to record your costs to avoid an audit.

Our Benchmarking Software includes all ATO Benchmarks as part of our detailed Business Benchmark Report. This enables business owners to clearly and quickly see if their financials are an audit risk. Find out more about our innovative benchmarking software.

What to Be Aware of When Using The ATO Benchmarks

Whilst the ATO Benchmarks are an important free tool provided by the government, business owners need to be cautious of utilising the information to make strategic decisions. We have listed 5 key areas to consider when reviewing your small business performance.

The ATO Benchmarks Only Provide High Level Financial Results

Performing Outside the Benchmark Does Not Indicate Bad Business Practice

Only Limited Industries Analysed

Results Are Often 2 Financial Years Behind Due to Late Tax Returns

The Results Cannot Be Used to Indicate Business Value

  1. The ATO Benchmarks only provide high level financial results: It is important to remember that the ATO only provide high-level financial benchmarks, and these do not fully cover all circumstances. These do not consider key performance metric inputs such as location, number of employees or how established the business is. This means it is very difficult to determine a complete range of business benchmarks such as productivity, profitability and asset management performance.
  2. Performing outside the benchmark does not indicate bad business practice: as the ATO does not account for the business life-cycle (start up, growth, exit etc.) the results given by the ATO do not represent how well a business is operating. This makes it hard make strategic decisions based on the information and results provided.
  3. Only limited industries analysed: The ATO only reports on limited industries for its benchmark reports (approximately 20% of all industries in Australia). Their focus is cash orientated industries and micro-small business. This means that some similar industries have been grouped in together and the results may not reflect your business activity or position.
  4. Results are often 2 financial years behind due to late tax returns: due to late tax return, the ATO Benchmarks are often 2 financial years behind in providing results. Whilst this may not impact a lot of industries, for volatile or high growth/decline industries such as retail, manufacturing and construction, results may vary greatly from one year to another. Business owners should consider this when gathering information from the website.
  5. The results cannot be used to indicate business value: benchmarking can often be used to calculate the value of a business against others in the industry. Due to the limited high-level reporting of the ATO Benchmarks, it is not possible to use this tool to gauge an accurate business value.

Whilst the ATO can provide small business owners with excellent high-level information, and support businesses to avoid an audit, business owners require more in-depth insights to make strategic growth decisions.

How Benchmarking.com.au Uses the ATO Benchmarks

Our Benchmarking Software undertakes benchmarking analysis reports on more than 100 KPI’s across various business categories; including financial, employee and operational. This means that we can provide highly detailed benchmarking insights into business performance, productivity and profitability. Further, our reports only compare businesses with those of similar size, location and industry.

To support our detailed data, we also utilise the ATO Benchmarking data to give businesses a high-level overview. Combining the ATO general benchmarking results with our detailed insights enables business owners to see how their company is positioned on a greater scale.

Benchmarking.com.au also recommends client utilise the ATO Benchmarks, via our software, to assess the likelihood of a business audit. With our tool, a business only needs to enter their information once in order to receive both our detailed benchmarking and the ATO benchmarking reports.

Our benchmarking tool further provide businesses with strategic recommendations to drive improvements, industry analysis and a business value. Find out more about what’s included in our Business Benchmark Reports.