ATO Small Business Benchmarks

We have completed your financial report and income tax return for the past financial year and compared a number of your financial ratios with ATO expectations from their small business benchmarks for your industry. A copy of this report is attached for your information.

ATO benchmarks are key financial ratios developed from information declared by businesses on income tax returns. The ATO uses these benchmarks to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. If a business does not have evidence to support their return, the ATO may use the benchmarks to determine the amount of income that has been omitted and make an audit adjustment.

Businesses reporting significantly outside the benchmarks on their return may attract ATO attention. There may be reasons for this difference, such as higher costs or lower selling prices than others in the industry, but it may also be an indication that a business is not recording and paying tax on all its transactions, especially cash transactions. 

The key benchmark ratio nominated for each industry is the benchmark used by the ATO to identify businesses that may not be reporting some or all their income. They regard this ratio as the key predictor of turnover, and it may be used to make audit adjustments where the business has insufficient records to prove their figures.  Importantly, businesses operating significantly outside this ratio may be audited by the ATO.

If the business falls OUTSIDE the key benchmark

The enclosed small business benchmark report shows that you may be at risk of an audit because your key benchmark ratio falls outside the expected range.  The report also shows the expected turnover range ($) based on this ratio and how much your turnover varies from ATO expectations. 

There may well be valid reasons for your key ratio being outside ATO expectations and we are not inferring non-compliance with your income tax obligations.  Nevertheless, we are obliged to bring this potential issue to your attention, and we recommend that you review the figures in the attached report before lodgment of your return.  Please feel free to contact us if you would like to discuss this matter further.

If the business falls WITHIN the key benchmark

You will be pleased to learn that your key benchmark ratio falls within the range of ATO expectations for your industry.  We have attached a report showing details of your financial ratios compared with ATO benchmarks.  Please contact us if you would like more information about this report.