• ## How benchmark ratios are calculated

Benchmark ratios are calculated from information reported at specific labels on the income tax returns and activity statements of businesses that operate in similar industries.

Depending on the entity type, we use the labels from the company, partnership, trust, and individual income tax returns.

Each ratio has a set of rules for instances where a label is blank or zero – for example, the labels used to determine turnover.

Not all of the benchmark ratios apply to every business – refer to the performance benchmark specific to your business to determine which one you need to calculate.

All label examples are from 2011 income tax returns and activity statements.

### Income tax return – benchmark ratio calculations

All income tax return benchmark ratios are expressed as a percentage of turnover excluding GST.

The basic formula to calculate the income tax return benchmark ratio is:

(figure at the relevant label(s) ÷ turnover) x 100 = benchmark ratio %

#### Turnover

We use turnover to calculate the income tax return benchmark ratios. Turnover is the revenue businesses receive from providing goods or services. This amount excludes GST.

For turnover, we generally use the amount reported at the other sales of goods and services label on the income tax return.

The other sales of goods and services labels to determine turnover are:

 Company label 6C Partnerships and Trusts label 5G + 5H Individual label P8 I + P8 J

However, if the amount reported in the labels above is blank, zero, or less than 50 percent of the amount reported at the total business income label, then we use the total business income amount.

The total business income labels used are:

 Company label 6S Partnerships and Trusts label 5 Total business income primary production plus non-primary production Individual label P8 Total business income primary production plus non-primary production

However, if the total business income amount reported in the labels above is zero, blank, or incomplete, then we calculate the total business income using the labels for the relevant entity type.

The labels used when calculating the total business income are:

Companies – the sum total of the following labels

Other sales of goods and services

label 6C

Gross payments subject to foreign resident withholding

label 6B

Gross payments where ABN not quoted

label 6A

Gross distribution from partnerships

label 6D

Gross distribution from trusts

label 6E

Forestry managed investment scheme income

label 6X

Gross interest

label 6F

Gross rent and other leasing and hiring income

label 6G

Total dividends

label 6H

Fringe benefits employee contributions

label 6I

Assessable Government industry payments

label 6Q

Unrealised gains on revaluation of assets to fair value

label 6J

Other gross income

label 6R

Partnerships and Trusts – the sum total of the following labels

label 5G+5H

Gross payments where ABN not quoted

label 5C + 5D

Gross payments subject to foreign resident withholding

label 5A + 5B

Assessable Government industry payments

label 5E + 5F

Individuals – the sum total of the following labels

Gross payments where Australian business number not quoted

label P8C + P8D

Gross payments subject to foreign resident withholding

label P8A + P8B

Gross payments – voluntary agreements

label P8E + P8F

Gross payments – labour hire or other specified payments

label P8N + P8O

Assessable governments industry payments

label P8G + P8H

label P8I + P8J

#### Total expenses/turnover

To calculate the total expenses to turnover benchmark ratio, we divide the total expenses benchmark figure amount by the turnover figure.

The total expenses benchmark figure is the total expenses minus the payments to associated persons.

Total expenses benchmark figure = total expenses – payments to associated persons

For the total expenses, we generally use the amount reported at the total expenses label on the income tax return.

The total expenses labels are:

 Company label 6Q Partnerships and Trusts label 5O Individual label P8S + P8T

However, when the amount reported at the total expenses label is zero, blank, or incomplete, then we calculate the total expenses amount.

The labels used when calculating the total expenses in these circumstances are:

Companies – the sum total of the following labels

Foreign resident withholding expense

label 6B

Cost of sales

label 6A

Contractor, sub-contractor and commission expenses

label 6C

Superannuation expenses

label 6D

label 6E

Lease expenses within Australia

label 6F

Lease expenses overseas

label 6I

Rent expenses

label 6H

Interest expenses within Australia

label 6V

Interest expenses overseas

label 6J

Royalty expenses within Australia

label 6W

Royalty expenses overseas

label 6U

Depreciation expenses

label 6X

Motor vehicle expenses

label 6Y

Repairs and maintenance

label 6Z

Unrealised losses on revaluation of assets to fair value

label 6G

All other expenses

label 6S

Partnerships and Trusts – the sum total of the following labels

Foreign resident withholding expenses

label 5P

Contractor, subcontractor and commission expenses

label 5C

Superannuation expenses

label 5D

Cost of sales

label 5E

label 5F

Lease expense

label 5G

Rent expenses

label 5H

Total interest expenses

label 5I

Total royalty expenses

label 5J

Depreciation expenses

label 5K

Motor vehicle expenses

label 5L

Repairs and maintenance

label 5M

All other expenses

label 5N

Individuals – the sum total of the following labels

Cost of sales

label P8 K + L – M expenses

Foreign resident withholding expenses

label P8 U

Contractor, subcontractor and commission expenses

label P8 F

Superannuation expenses

label P8 G

label P8 I

Lease expenses

label P8 J

Rent expenses

label P8 K

Interest expenses within Australia

label P8 Q

Interest expenses overseas

label P8 R

Depreciation expenses

label P8 M

Motor vehicle expenses

label P8 N

Repairs and maintenance

label P8 O

All other expenses

label P8 P

For the payments to associated persons, we use the amount reported at the payments to associated persons label on the income tax return.

The payments to associated persons labels are:

 Company label 8Q Partnership and Trust label 45 M Individual label P14 H

#### Cost of sales/turnover

To calculate the cost of sales to turnover benchmark ratio, we divide the cost of sales benchmark figure amount by the turnover figure.

The cost of sales benchmark figure amount does not include salary and wages.

When the total salary and wages expenses code equals C (Code C means that total salary and wages expenses are included in the cost of sales figure) then we deduct the total salary and wages expenses from the cost of sales.

Otherwise, we use the total cost of sales amount reported on income tax return.

The cost of sales labels are:

 Company label 6A Partnership and Trust label 5E Individual label P8 K + L – M expenses

The total salary and wages expenses code labels used to identify if total salary and wages are included in cost of sales are:

 Company label 8D code Partnership and Trust label 44 L code Individual label P13 G code

The total salary and wages expenses labels are:

 Company label 8D Partnership and Trust label 44 L Individual label P13 G

#### Labour/turnover

To calculate the labour to turnover benchmark ratio, we divide the labour benchmark figure amount by the turnover figure.

For the labour benchmark figure amount we generally use total salary and wages expenses from the income tax return plus contractor, subcontractor and commissions expenses minus payments to associated persons.

Labour benchmark figure = total salary and wages expenses + contractor subcontractor and commissions expenses – payments to associated persons

However, if Label W1 (total salary, wages and other payments) on the activity statement is greater than the total salary and wages expenses reported on the income tax return, then we use the W1 (total salary, wages and other payments) amount from the activity statement plus contractor, subcontractor and commission expenses minus payments to associated persons as the labour benchmark figure amount.

The total salary and wages expenses labels are:

 Company label 8D Partnership and Trust label 44 L Individual label P13 G

The contractor, subcontractor and commissions expenses labels are:

 Company label 6C Partnership and Trust label 5C Individual label P8 F

The payments to associated persons labels are:

 Company label 8Q Partnership and Trust label 45 M Individual label P14 H

Rent expenses/turnover

To calculate the rent to turnover benchmark ratio, we divide the rent expenses benchmark figure amount by the turnover figure.

The rent expenses labels are:

 Company label 6H Partnership and Trust label 5H Individual label P8 K

Motor vehicle expenses/turnover

To calculate the motor vehicle expenses to turnover benchmark ratio, we divide the motor vehicle expenses benchmark figure amount by the turnover figure.

The motor vehicle expenses labels are:

 Company label 6Y Partnership and Trust label 5L Individual label P8 N

### Activity statement – benchmark ratio calculations

All activity statement benchmark ratios are expressed as a percentage of total sales including GST from a complete year’s activity statement data.

The activity statement benchmark ratios are developed using a complete financial year's activity statement data. To compare the performance against the benchmarks, you should use the activity statements for the entire financial year.

The basic formula to calculate the activity statement benchmark ratio is:

(figure at the relevant label(s) ÷ total sales) x 100 = benchmark ratio %

#### Total sales

We use the total sales amount in the calculation of the activity statement benchmark ratios.

The total sales amount includes GST.

For total sales, we use the G1 label Total sales amount reported on the activity statement.

However, we check the G1 label Total sales for GST prior to utilising this amount in our calculation of the benchmark ratios.

##### Total sales when ‘GST Included’ indicator is marked as ‘Yes’

When the GST-inclusive indicator “Does the amount shown at label G1 include GST? (indicate with X)” is marked as 'Yes', we use the amount shown at label G1 Total sales.

Total sales = G1

##### Total sales when ‘GST Included’ indicator is marked as ‘No’

When this GST-inclusive indicator is marked as ‘No’, then we add label G1 Total sales to label 1A GST on sales.

Total sales = G1 1A

##### Total sales when ‘GST Included’ indicator is blank

We use the formula below to determine if the ‘GST inclusive’ label at G1 indicator should be set to ‘Yes’ or ‘No’. We do this to determine whether we should use the above formulae.

• To determine if GST inclusive indicator should be set to ‘Yes’

If the GST-inclusive indicator is blank we take label G1 Total sales, add label G7 Sales adjustments and then subtract labels G2 Export sales, G3 GST-free sales and G4 Input taxed sales. We then divide by 11. If this result is equal to label 1A GST on sales then the GST-inclusive indicator is set to ‘Yes’.

(G1 + G7) – (G2 + G3 + G4) / 11

• To determine if GST inclusive indicator should be set to ‘No’

If the GST-inclusive indicator is blank, we take label G1 Total sales, add label G7 Sales adjustments, and then subtract labels G2 Export sales, G3 GST-free sales and G4 Input taxed sales. We then divide by 10. If this result is equal to label 1A GST on sales, then the GST-inclusive indicator is set to ‘No’.

(G1 + G7) – (G2 + G3 + G4) / 10

We also check the G1 Total sales for GST where businesses have reported inconsistently at the GST-inclusive indicator throughout the financial year.

#### Non-capital purchases/total sales

To calculate the non-capital purchases to total sales benchmark ratio, we divide the G11 Non-capital purchases amount by the Total sales amount.

Non-capital purchases to Total sales = G11 / Total sales

We use the amount reported at label G11 Non-capital purchases on the activity statement as the non-capital purchases benchmark figure amount.

#### GST-free sales/total sales

To calculate the GST-free sales to total sales benchmark ratio, we divide the calculated GST-free sales benchmark figure amount by the total sales.

GST-free sales to Total sales = G3 / Total sales

Where label G3 GST-free sales is zero, we multiply the 1A GST on sales by 11, and then we subtract this amount from the G1 Total sales to calculate the GST-free sales benchmark figure amount.