• How we use benchmarks

    We use benchmarks and other risk indicators to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income.

    Information reported in your income tax returns or activity statements is compared with the key benchmark for your industry, based on information such as:

    • your business industry code (derived from the ANZSIC code). If a business industry code includes more than one type of business, for example 32430 includes wall and floor tiling, carpet laying and floor sanding, we use the description of the main business activity and the business trading name to more accurately work out which particular benchmark is relevant
    • the description of the main business activity on your tax return
    • the trading name of your business.

    If you run multiple businesses, ensure you complete information labels correctly on your income tax return to reflect more than one business.

    Default assessments

    We will only issue a default assessment when you are not able to provide accurate records or evidence that allows us to verify your business’s reported income, or if you refuse to lodge your tax returns after a number of requests.

    If a business doesn't have evidence to support their return, we may use the benchmarks to determine income that has not been reported. For each industry, we highlight the benchmark that we use to predict income or turnover.

    If we contact you, we will ask you to confirm what you have reported in the return by providing records as evidence.

    Example: Benchmarks used to calculate default assessments

    A retail butcher's shop was selected for an audit after reporting income significantly outside the benchmark range for the industry.

    A review of business records showed the owners had failed to maintain the appropriate records as required by law. A number of errors were identified, including:

    • failure to keep cash register rolls or point-of-sale system printouts
    • failure to show evidence of regular till reconciliations to support daily sales records
    • inaccurate and incomplete sales records relating to business income, such as missing sales records for significant trade periods.

    The owners were unable to explain how the income reported in their business tax returns was calculated as they didn't have records to support their reported income.

    Our auditor used the benchmarks to recalculate their business income and adjusted the business tax return and the owners' personal returns, based on the recalculated income. Default tax assessments were issued to the business and both owners individually.

    The business owners had to pay tax based on the higher income calculated in the default assessments as penalties for failing to take reasonable care to meet their legal requirement to maintain accurate records.

    End of example

    You may be selected for a review or audit

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

    See also:

    Last modified: 09 Nov 2016QC 47943