“We want small businesses to stay afloat, so our benchmarks are a great way to ensure your business is viable, competitive and not at risk of venturing into rough water,” said ATO Assistant Commissioner Peter Holt.
However, he said that as well as providing competition guidance, the benchmarks also allow businesses to “swim between the flags” in terms of income and deductions reporting.
“Think of the benchmarks like the red and yellow flags on the beach. If you stay between the flags, you’ll be less likely to attract our attention,” he said.
“If your costs are within the benchmark range, you should be satisfied that you’re keeping up with your competition.”
Mr Holt urged businesses to discuss the benchmarks, and their place within them, with their accountant or tax agent.
“They might have some advice about steps you can take to improve your performance. We also encourage tax professionals to use the benchmarks to initiate conversations with their small business clients,” he said.
The benchmarks cover over 100 industries, with the following updated categories now available to access on the ATO website:
- Accommodation and food
- Building and construction trade services
- Education, training, recreation and support services
- Healthcare and personal services
- Automotive electrical services
- Machinery and equipment repair and maintenance
- Architectural services
- Veterinary services
- Retail trade
- Transport, postal and warehousing
Red flags to look out for
The benchmarks draw on data from more than 1.5 million small businesses Australia-wide, which the ATO said allows businesses to “confidently calculate the benchmark ranges for their industry”.
It also provides the Tax Office with confidence about incomes that may not be accurately declared.
“Businesses operating outside the benchmarks may trigger a red flag for businesses we suspect could be engaging in the black economy,” Mr Holt explained.
“A frequent red flag is a business reporting minimal profit while the business owner seems to be maintaining a lifestyle far exceeding their personal income.”
He noted that the ATO has been given extra funding to combat undeclared income as part of a government crackdown on the black economy, which “is estimated to be costing the community as much as $50 billion [or] approximately 3 per cent of gross domestic product (GDP)”.
“It’s all about protecting honest businesses from competitors who are trying to get ahead by avoiding their tax obligations,” he said.
It comes as accountants warn business leaders of a higher likelihood of audits, as data matching continues to give the ATO greater insights into transaction histories.
Sister publication, My Business, previously reported on guidance from the ATO on what attracts its attention and may trigger an audit.