An accountant has warned SMEs to check the ATO’s business benchmarks, noting that while they aren’t hard and fast rules, those operating outside these benchmarks should have solid records to justify their figures.
The tax-time advice came from Alexander Laureti of LMS Advisory. Mr Laureti, speaking on the My Business Podcast, said the ATO’s benchmarks are becoming increasingly sophisticated, thanks to the volume of data it receives from various sources, including business activity statements.
The benchmarks cover most industries and can be found on the ATO’s website. There are also dedicated small business benchmarks, relevant for businesses with turnover of up to $15 million.
“So, for example, if you’re a restaurant or a coffee shop, there’s an expectation of — with your level of turnover — what percentage of labour costs you might have,” he explained.
“And it could be around the 30 per cent ranges, and if you’re above those ranges or below, then there could be a suggestion, ‘Well, are we depositing all our income? Is there cash deposits? Are we paying all our staff on or off the books?’.”
The accountant said that these benchmarks are generally a year behind present-day figures. Nevertheless, they provide the Tax Office with an ability to “quickly identify who is trading outside of the norms” and determine where to direct additional scrutiny.
“And normally, people are trading outside of the norms if they’re not doing everything above board,” Mr Laureti said.
“Most industries do have benchmarks that are reviewed on an annual basis and that happens at the time of lodging business activity statements, but also when you do lodge your annual tax return as well. It’s all compared and cross-checked.
“If your business activity statements don’t reflect your tax lodgements as well and there [are] discrepancies, that’s another reason for a red flag to be created.”
‘It’s OK to be outside the benchmarks’
Mr Laureti said that while the benchmarks are a useful comparison, not every business will fall within the average parameters for their particular industry and location.
“It’s OK to be outside of the benchmarks, but just be prepared to have good records if your situation places you outside of those benchmarks,” he said.
“There are reasons why you might be outside of the benchmarks. Not every business is average or normal.”
An accountant or bookkeeper can also look over a business’s figures to ensure that everything is above board, Mr Laureti said.
“If you’re not actively considering the benchmarks, speak to your accountant, speak to your bookkeeper, and just get them to have a look and see what your previous history of lodgements are,” he said.
Mr Laureti has also warned taxpayers that the make and model of vehicle they drive can attract the attention of the ATO where declarations are made for work- or business-related travel.
The full My Business Podcast interview with Mr Laureti on tax time 2019 can be found here on the My Business website.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.