The following examples demonstrate how to:

• confirm that you are performing within the benchmark range
• clarify what it may mean if your business is outside a benchmark range.

As you compare your business performance, if you notice you've made a mistake, you should make a voluntary disclosure (if necessary).

Definitions of terms you will come across:

• associated parties – people and entities closely associated with you, such as relatives, partners in a partnership, directors of companies or closely connected companies or trusts
• cost of sales (excludes labour) – the cost of anything produced, manufactured, acquired or purchased, for either
• manufacture
• sale or exchange in deriving the gross proceeds

• labour – salary and wage payments, including contractor payments (amounts exclude GST); it does not include payments to associated parties – for example, labour provided by a business owner or business partner.

Example 1: Calculating income tax ratios

Elizabeth operates a coffee shop.

Elizabeth's tax return figures

 Total business income \$705,200 Cost of sales \$253,300 Salary, wages and superannuation \$189,400 Payments to associated parties (Elizabeth's wages and superannuation) \$50,000 Rent \$85,800 Other expenses \$97,000

Coffee shops benchmark

The key benchmark ratio for coffee shops is cost of sales to turnover.

 Annual turnover range Key benchmark ratio \$65,000 – \$250,000 \$250,000 – \$600,000 More than \$600,000 Tax return Cost of sales / turnover 35% – 42% 34% – 40% 32% – 37% Average cost of sales 39% 37% 35% Total expenses / turnover 79% – 88% 85% – 92% 87% – 93% Average total expenses 83% 88% 90% Activity statement Non-capital purchases / total sales 58% – 71% 55% – 67% 51% – 60%

Elizabeth calculates her key benchmark ratios using the following calculation methods:

Calculating cost of sales to turnover ratio

Using her tax return figures, Elizabeth does the following calculations:

 Turnover \$705,200 Cost of sales \$253,300 Calculation Cost of sales Turnover Cost of sales / turnover ratio / x = \$253,300 \$705,200 100 35.92%

Elizabeth's turnover of \$705,200 places her business in the highest turnover range for coffee shops.

Her cost of sales to turnover ratio is 35.92%, which is within the benchmark range of 32% to 37% for coffee shops.

Calculating total expenses-to-turnover ratio

Using her tax return figures, Elizabeth does the following calculations:

 Turnover Total expenses (\$675,500 – \$50,000) \$705,200 \$625,500 (Total expenses is the total expenses reported on the tax return, minus payments to associated parties) Calculation Total expenses Turnover Total expenses-to-turnover ratio / x = \$625,500 \$705,200 100 88.70%

Elizabeth's turnover of \$705,200 places her business in the highest turnover range for coffee shops.

Her total expenses-to-turnover ratio is 88.70%, which is within the benchmark range of 87% to 93% for coffee shops.

Result

Based on her calculations, Elizabeth is satisfied that her record keeping and business practices are in good order.

End of example

Example 2: Calculating activity statement ratios

Sam operates a fruit and vegetable retail business. To calculate these ratios, he gathers all of his activity statements for the financial year and adds all the figures together to get the annual amounts.

Sam's activity statement figures for the financial year

 Total sales G1 \$655,000 Non-capital purchases G11 \$510,900 GST on purchases 1B \$9,289 GST-free sales G3 \$565,523 GST on sales 1A \$8,134 Total salary and wages W1 \$44,156 Turnover (excludes GST) \$646,866

Fruit and vegetable retailing benchmark

The activity statement ratios for fruit and vegetable retailers are non-capital purchases to total sales and GST-free sales to total sales.

 Key benchmark ratio Annual turnover range \$65,000 – \$450,000 \$450,000 – \$1,100,000 More than \$1,100,000 Tax return Cost of sales / turnover 60% – 68% 67% – 72% 69% – 75% Average cost of sales 64% 69% 72% Total expenses/turnover 82% – 89% 89% – 93% 92% – 96% Average total expenses 85% 91% 94% Activity statement Non-capital purchases / total sales 72% – 83% 74% – 86% 78% – 85% GST-free sales / total sales 67% – 89% 76% – 94% 82% – 94%

Sam calculates his activity statement ratios using the following calculation methods:

Calculating non-capital purchases to total sales ratio

Using his annual activity statement figures, Sam does the following calculations:

 Total sales G1 Non-capital purchases G11 \$655,000 \$510,900 Calculation Non-capital purchases Total sales Non-capital purchases / total sales / x = \$510,900 \$655,000 100 78%

Sam's turnover of \$646,866 places his business in the medium turnover range for fruit and vegetable retailing.

His non-capital purchases to total sales ratio is 78%, which is within the benchmark range of 74% to 86% for fruit and vegetable retailing.

Calculating GST-free sales to total sales ratio

Using his activity statement figures, Sam does the following calculations:

 Total sales G1 GST-free sales G3 \$655,000 \$565,523 Calculation GST-free sales Total sales / x = \$565,523 \$655,000 100 86.34%

Results

Sam's turnover of \$646,866 places his business in the medium turnover range for fruit and vegetable retailing.

His GST-free sales to total sales ratio is 86.34%, which is within the benchmark range of 76% to 94% for fruit and vegetable retailing.

End of example