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  • 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 of their income.

    We compare information reported in business tax returns with the key performance benchmark for their industry. Their industry is based on:

    • business industry codes
    • the description of the main business activity on their tax return
    • the business's trading name.

    benchmarks

    When we choose to look into a business's tax records, we use a wide range of factors. We never use the benchmarks in isolation when deciding to review a business or when looking at the business's records.

    Example: Identifying a business outside the benchmark

    A supermarket operator was selected for audit due to a number of identified issues through ATO risk modelling.

    When looking at the small business benchmarks, their cost of sales to turnover ratio was 88%. This was high compared to the key benchmark cost of sales to turnover range of 72% to 77% in their industry and turnover range.

    During the audit, tax officers found the business directors had been operating for several years and had not been reconciling their sales and banking records. They submitted a voluntary disclosure, which would usually mean the ATO would reduce administrative penalties and interest charges. However, the amount disclosed did not match with ATO findings based on the information available, so it was not accepted.

    Considering the length of time the owners had been in business and their level of experience (they were also co-directors of another company), it was reasonable to expect them to keep correct records.

    They were required to pay over $275,000 in tax and $44,000 in penalties.

    End of example

    See also:

    Last modified: 29 Apr 2021QC 47943